BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2009-2010 Regular Session
SB 755
Senator Negrete McLeod
As Introduced
Hearing Date: April 28, 2009
Government Code; Welfare and Institutions Code
ADM:jd
SUBJECT
State Contracts: Participation Goals:
Persons with Development Disabilities Business Enterprises
DESCRIPTION
This bill would enact the Persons with Developmental
Disabilities Business Enterprise Program (PDDBEP), which would
govern the awarding of state contracts to developmental
disabilities business enterprises (DDBEs) for construction,
services, goods, supplies, materials, equipment, repairs, or
improvements.
This bill would require all contracts awarded by an awarding
department (any state agency, department, or governmental
entity) to have statewide participation goals of not less than
one percent for persons with DDBEs. These goals would apply to
the total number of contracts granted, let, or awarded each year
by each awarding department. This bill would provide various
incentives to urge the participation of DDBEs in state
contracts.
This bill would prohibit a person or entity from engaging in
knowing, intentional, willful, or fraudulent conduct, as
specified, related to a DDBE obtaining a state contract under
the PDDBEP. This bill would provide for civil penalties, costs,
and attorney's fees for violations of the PDDBEP. This bill
would sunset on July 1, 2014.
(This analysis reflects author's amendments to be offered in
committee.)
(more)
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BACKGROUND
Assembly Bill 1933 (Waters, Ch. 61, Stats. 1988) established a
minority-owned business enterprise (MBE) and women-owned
business enterprise (WBE) participation goal program that
required state agencies and entities awarding contracts for
construction, professional services, materials, supplies,
equipment, alteration, repair, or improvement to have annual
statewide participation goals of not less than 15 percent for
MBEs and not less than five percent for WBEs. (Pub. Contract
Code Sec. 10115 et seq.) In Monterey Mechanical Co. v. Pete
Wilson (9th Cir. 1997) 125 F.3d 702, the court held that these
provisions violated the Equal Protection Clause of the
Fourteenth Amendment.
In March 1998, then-Governor Pete Wilson issued Executive Order
No. W-172-98, which directed all state agencies and departments
to "cease any enforcement of the MBE/WBE participation goals and
the good faith effort requirements related thereto under the
Public Contract Code with respect to any state contracts or
amendments thereto awarded or entered, or proposed to be awarded
or entered, on or after March 10, 1998." The order also stated,
"All actions, programs, and regulations which seek to monitor,
promote, or comply with the MBE/WBE goals or good faith efforts
related thereto under the Public Contract Code shall no longer
be administered and, where appropriate, be repealed."
Senate Bill 1517 (Dills, Ch. 1207, Stats. 1989) established a
three percent participation goal for disabled veteran business
enterprises (DVBEs) applicable to all contracts, including
contracts for professional bond services, to assist and
encourage DVBE participation in state contracts. Thereafter,
amendments were made to extend the DVBE participation program to
include contracts of the University of California, the
Department of Corrections, and specified public utilities. The
Monterey Mechanical Co. holding did not affect the state's DVBE
participation program.
In 1996, California's Civil Rights Initiative, better known as
Proposition 209, was voted into law. Proposition 209 amended
the state constitution to prohibit the state, local governments,
districts, public universities, colleges, and schools, and other
governmental instrumentalities from discriminating against or
giving preferential treatment to any individual or group on the
basis of race, sex, color, ethnicity, or national origin in the
operation of public employment, public education, or public
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contracting.
Current law does not specifically address participation goals
for developmental disabilities business enterprises in state
contracts. This bill would do so. This bill was approved by
the Senate Governmental Organization Committee on April 14,
2009, and referred to this committee for evaluation of the
provisions within its jurisdiction.
CHANGES TO EXISTING LAW
1. Existing law provides that the Department of General
Services (DGS) generally
governs the provision of centralized services, including,
planning, acquisition, construction, and maintenance of state
buildings and property, purchasing and procurement. (Gov.
Code Sec. 14600 et seq.; Pub. Contract Code Sec. 10100 et
seq.)
Existing law requires state agencies to give
"California-based" small businesses, as defined, a five
percent bid preference in contracts for construction, the
procurement of goods, or the delivery of services. (Gov. Code
Sec. 14838.)
Existing case law held that the participation goals and the
good faith efforts requirements of Government Code Section
10115 et seq. (contracts awarded by any state entity must have
statewide participation goals of not less than 15 percent for
minority business enterprises, not less than five percent for
women business enterprises, and three percent for DVBEs; or
good faith efforts must be shown to meet the goals) violated
the Equal Protection Clause of the Fourteenth Amendment.
(Monterey Mechanical Co. v. Pete Wilson (9th Cir. 1997) 125
F.3d 702 [the court left intact the three percent for DVBEs].)
Existing law , the California Disabled Veteran Business
Enterprise Program, requires each awarding department in the
program to have annual statewide participation goals of not
less than three percent for DVBEs. (Mil. and Vet. Code Sec.
999 et seq.)
This bill would require all contracts awarded by an awarding
department to have statewide participation goals of not less
than one percent for persons with DDBEs. These goals would
apply to the total number of contracts granted, let, or
awarded each year by each awarding department.
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This bill would provide that, in order to encourage the
participation of persons with DDBEs in state contracts, each
awarding department must: 1) advertise all upcoming
opportunities to bid on competitively bid contracts in the
California State Contracts Register and include an Internet
link to bidding information; and 2) provide information to
persons with development disabilities enterprises regarding
available training and technical assistance.
2. Existing law prohibits a person from engaging in knowing,
intentional, willful, or fraudulent conduct, as specified,
related to certification as a small business or microbusiness
enterprise for purposes of obtaining a state contract under
the Small Business Procurement and Contract Act. (Gov. Code
Sec. 14842.5(a).)
Existing law provides that any person found by the DGS to have
violated any of the provisions of Government Code Section
14842.5(a) is subject to a civil penalty of not more than
$5,000; may have their certification revoked; and may be
prohibited from further bidding on state contracts. (Gov.
Code Sec. 14842.5(b)(c)(d).)
This bill would prohibit a person or entity from doing any of
the following:
knowingly and with intent to defraud, fraudulently
obtain, attempt to obtain, or aid another person or entity
in fraudulently obtaining or attempting to obtain, public
moneys, contracts, or funds expended under a contract that
are awarded by an awarding department, to which the person
or entity is not entitled;
knowingly and with intent to defraud, fraudulently
represent participation of persons with a DDBE in order to
obtain or retain a contract;
willfully and knowingly make or subscribe to any
statement, declaration, or other document that is
fraudulent or false as to any material matter, whether or
not that falsity or fraud is committed with the knowledge
or consent of the person authorized or required to present
the declaration, statement, or document;
willfully and knowingly aid or assist in, or procure,
counsel, or advise the preparation or presentation of a
declaration, statement, or other document that is
fraudulent or false as to any material matter, regardless
of whether that falsity or fraud is committed with the
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knowledge or consent of the person authorized or required
to present the declaration, statement, or document;
willfully and knowingly obstruct, impede, or attempt to
obstruct or impede, any state official or employee who is
investigating the qualifications of a person or entity
represented to be a persons with a DDBE; or
establish, or knowingly aid in the establishment of, or
exercise control over, a person or entity found to have
violated any of the above.
This bill would provide that any person or entity that
violates the above prohibitions against knowing, willful,
and/or fraudulent acts or practices related to contracts
awarded to DDBEs would be liable for a civil penalty of not
less than $10,000 or more than $30,000 for the first
violation, and a civil penalty of not less than $30,000 or
more than $50,000 for each additional or subsequent violation.
A person or entity that violates the above provisions would
be liable for all costs and attorney's fees incurred by the
plaintiff in a civil action, including costs incurred by the
awarding department for any investigations.
This bill would prohibit a person or entity that has violated
any of the above provisions from bidding on a state contract
or project for a period of not less than three years. This
bill would provide that a person or entity that fails to
satisfy imposed penalties, costs, and attorney's fees would be
prohibited from further contracting with the state until those
amounts are paid.
This bill would require the awarding department to report all
alleged violations to the Attorney General, who would be
required to determine whether to bring a civil action. This
bill would prohibit an awarding department from entering into
any contract with a contractor suspended for violating the
above provisions during the suspension period. This bill
would prohibit an awarding department from awarding a contract
to any contractor utilizing the services of any person or
entity suspended during the period of suspension.
3. Existing law provides that a state agency may award a
contract for the acquisition of goods, services, or
information technology that has an estimated value of greater
than $5,000, but less than $100,000, to a certified small
business, including a microbusiness, or to a DVBE, as long as
the agency obtains price quotations from two or more certified
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small businesses, including microbusinesses, or from a DVBE.
(Gov. Code Sec. 14838.5.)
This bill would add persons with DDBEs to Government Code
Section 14838.5.
4. Existing law establishes within the DGS the Office of Small
Business and Disabled Veteran Business Enterprise Services,
with duties that include:
compiling and maintaining a comprehensive bidders list
of qualified small businesses and DVDEs;
coordinating with the Federal Small Business
Administration, the Minority Business Development Agency,
and the Office of Small Business Development of the
Department of Economic and Business Development;
providing technical and managerial aids to small
businesses, microbusinesses, and DVBEs, by conducting
workshops on matters in connection with government
procurement and contracting;
assisting small businesses, microbusinesses, and DVBEs
in complying with the procedures for bidding on state
contracts; and
developing, by regulation, other programs and practices
that are reasonably necessary to aid and protect the
interest of small businesses, miscrobusinesses, and DVBEs
in contracting with the state.
(Gov. Code Sec. 14839.)
This bill would add persons with DDBEs to Government Code
Section 14839.
5. Existing law provides that any state agency, city or
county, political subdivision, or district of this state may,
without advertising or calling for bids, purchase materials
and supplies manufactured and services provided by public or
private nonprofit California corporations operating community
rehabilitation programs serving persons with disabilities.
(Welf. and Inst. Code Sec. 19404.)
This bill would provide that contract work obtained under
Welfare and Institutions Code Section 19404 would be governed
by the contracting procedures and limitations in Government
Code Section 14838.5.
This bill would sunset on July 1, 2014.
COMMENT
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1. Stated need for the bill
The author writes:
Many people with developmental disabilities have the same
desire to work and become productive taxpaying citizens as do
people without disabilities. But, of the roughly 90,000
people of working age (41 percent of the 220,000 people with
these disabilities), less than 25,000 have jobs of any kind.
The people with jobs work because employers - some large and
many small - were introduced to this work force and recognized
their value and dedication. These employers include Qualcomm,
Safeway, Home Depot, Intel, Toyota, Mattel, Polaroid, and many
others. They also include a few contracts with the State,
including janitorial and landscaping [services] at Cal-Trans
roadside rests, janitorial [services] at Hearst Castle and
many administrative jobs in departments throughout the State.
They also include preparation of products such as hygiene and
first aid for [California Department of Forestry and Fire
Protection], Corrections and Rehabilitation, and other
programs. But, it is too small [a number], too inconsistent,
and too unknown by those who contract for products and
services for the State.
[This bill would call] for State Agencies, when contracting
for goods and services, to try to use businesses owned or
operated by Californians with developmental disabilities or
nonprofit agencies that help create jobs for this population.
Because so-called "affirmative action" [programs] have been
eliminated by the courts, the bill [would amount] to State
agencies setting a goal of one percent of their goods and
services contracts let, and then reporting back on how they
did towards meeting that goal.
2. Discussion of Monterey Mechanical
In Monterey Mechanical Co. v. Pete Wilson (9th Cir. 1997) 125
F.3d 702, a state university solicited bids for a utilities
upgrade construction project. Monterey Mechanical submitted the
lowest bid, but did not get the contract because it failed to
comply with the Public Contract Code requirements that the
general contractor subcontract certain percentages of the work
to minority, women, and disabled veteran owned subcontractors,
or demonstrate good faith efforts to do so. The required goals
were "not less than" 15 percent for minority business
enterprises, five percent women, and three percent disabled
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veteran (23 percent total). (Pub. Contract Code Secs. 10115,
10115.2.) The second lowest bidder won the contract because it
complied with the good faith efforts requirement. Monterey
Mechanical sued alleging that the statute violated the Equal
Protection Clause of the Fourteenth Amendment.
The Ninth Circuit agreed with Monterey Mechanical. The court
found that the statutes treated non-minority and non-women owned
businesses differently than minority or women owned businesses.
[A] bidder not in any of the designated groups must
subcontract out at least 23 percent of the job, or make good
faith efforts to do so, to subcontractors in the designated
groups. But a minority or female bidder can avoid that
requirement by keeping that group's work to itself. Thus not
all general contractors bidding on state projects are treated
the same way. An enterprise in all the designated categories
can, by keeping at least 23 percent of the work for itself,
avoid any of the requirements of the statute.
The court then examined whether the classifications could
survive strict scrutiny and whether they were a narrowly
tailored remedy for past discrimination. The court found that
there was no evidence that the university or the state had
discriminated against the groups benefited by the statute and
the statute was not narrowly tailored to serve a compelling
governmental interest, in violation of equal protection.
The court's ruling applies only to the participation goals for
minority business enterprises and women business enterprises,
not to disabled veteran business enterprises. In footnote 5,
the court wrote, "None of the parties have presented any
arguments regarding the statutory provision relating to disabled
veterans, ?, so we disregard it in our discussion. Monterey
Mechanical does not challenge its constitutionality, and the
University does not make any arguments relating to it.
Accordingly, we do not consider the disabled veterans provisions
of the statute, and our decision has no bearing on the
provisions of the statute regarding disabled veterans." (125
F.3d at 706.)
While the court did not reach the issue of whether the
participation goal of three percent for disabled veteran
business enterprises would run afoul of the equal protection
clause, arguably, were a court to address the question, it would
likely use the rational basis test, rather than strict scrutiny.
The U.S. Supreme Court has done so in cases alleging
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discrimination based on disability. (See, e.g., Garrett v.
Univ. of Ala. (2001) 531 U.S. 356 [only rational basis review is
to be used for discrimination based on disability].)
3. As amended, this bill would provide that civil penalties
may be recovered by the Attorney General in a civil action
The author's amendments would:
Delete lines 19-29 on page 6.
Amend lines 3-6, on page 7 as follows:
(d) The awarding department shall report all alleged
violations of this section to the Attorney General who shall
determine whether to bring a civil action against any person
or entity for violation of this section. Civil penalties
shall not be less than ten thousand dollars ($10,000) or more
than thirty thousand dollars ($30,000) for the first
violation, and a civil penalty of not less than thirty
thousand dollars ($30,000)or more than fifty thousand dollars
($50,000) for each additional or subsequent violation.
4. This bill would define "persons with developmental
disabilities business enterprise"
Under the bill, "persons with developmental disabilities
business enterprise" would mean a business or organization
certified pursuant to DGS regulations as meeting any of the
following: 1) a business concern at least 51 percent owned by
one or more persons with a developmental disability; 2) a
business concern managed by, and the daily business operations
controlled by, one or more persons with a developmental
disability; or 3) a community-based nonprofit organization that
employs persons with a development disability that meets
specified conditions.
This definition goes to the heart of the bill, which is to
provide a statutory framework that would encourage and allow
greater participation by developmental disabilities business
enterprises and their employees in state contracts.
5. Opposition
Disability Rights California (DRC), a non-profit organization
involved in advancing the rights of Californians with
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disabilities, has expressed concern with the fact that this bill
would incorporate "community-based nonprofit organizations"
within the definition of a PDDBE. Specifically, the DRC
references Section 214 of the U.S. Labor Code, which permits
employers to pay less than minimum wage to "handicapped
workers." The DRC argues that such organizations typically do
not offer minimum wages or full equality in the terms and
conditions of employment (including benefits) and they do not
offer fully integrated work environments.
Support : None Known
Opposition : Disability Rights California (oppose unless
amended)
HISTORY
Source : The California Disability Services Association
Related Pending Legislation : None Known
Prior Legislation :
SB 1687 (Negrete McLeod, 2008, May 27, 2008 amended version) was
virtually identical to SB 755 with respect to Sections 1 - 6 of
SB 755 and very similar to SB 1687, as amended July 2, 2008.
This bill was held in the Assembly Appropriations Committee.
SB 1008 (Machado, Ch. 632, Stats. 2003), among other things,
strengthens the sanctions that can be levied against businesses
that fraudulently misrepresent their eligibility for DVBE
certification.
AB 669 (Cohn, Ch. 623, Stats. 2003), among other things,
requires small businesses and DVBEs to perform commercially
useful functions, as defined, in relation to any contract those
businesses are awarded under existing provisions of law. The
bill also revised the definition of disabled veteran to require
that the veteran have at least a 10 percent service-connected
disability and be domiciled in California.
Prior Vote : Senate Committee on Governmental Organization (Ayes
12, Noes 0)
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