BILL ANALYSIS                                                                                                                                                                                                    

                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair

                                          SB 861 (Corbett)
          Hearing Date: 5/26/2011         Amended: 4/25/2011
          Consultant: Bob Franzoia        Policy Vote: G O 9-1


          BILL SUMMARY: SB 861 would prohibit a scrutinized company, as 
          defined, from entering into a contract with a state agency for 
          goods or services.
                            Fiscal Impact (in thousands)

           Major Provisions         2011-12      2012-13       2013-14     Fund
           State contract prohibition        Unknown, potentially increased 
          costs for      General/
                                 specific state goods and services.  To 
          the     Special
                                 extent restrictions prohibit companies 
                                 from bidding, costs may increase due to
                                 reduced competition
          State contract oversight           Unknown costs ongoing to 
          administer      General/ 
                                           a potentially more complex 
          contracting          Special
                                           process, including costs to 
          determine if 
                                           a bidder is a scrutinized 
                                           increased protests and 


          Preliminary information indicates the Securities and Exchange 
          Commission (SEC) will not issue implementing regulations before 
          August-December, 2011.  Absent a full understanding of the 
          federal directive, state bidding and administrative costs are 
          difficult to estimate.  

          This bill defines a scrutinized company as a person that is 
          required by federal law to disclose information relating to 
          specific conflict minerals originating in the Democratic 
          Republic of the Congo, or adjoining countries, and the company 

          (1) Filed an "unreliable determination" as defined by federal 


          SB 861 (Corbett)
          Page 3

          (2) Reported false information in its report required by federal 
          (3) Failed to file a report as required by federal law.
          (4) The SEC has taken civil action by filing a complaint with a 
          US District Court, or has taken administrative action through 
          the administrative proceeding process, or both, against a person 
          for violations of the reporting requirements.
          It is unknown how many SEC regulated companies might be 
          restricted from bidding on state contracts, whether any of those 
          companies might be low bid awardees, how 
          companies and the state will respond to the provisions of the 
          bill and so forth.  Implementing a potentially more complex bid 
          process may result in new costs ongoing.

          To the extent the Department of General Services (DGS) is able 
          to utilize actions taken by the SEC to identify a scrutinized 
          company, the number of scrutinized companies and goods and 
          services offered, administrative costs may be minor.  Likely, 
          DGS would determine a company is ineligible to bid if the 
          company meets criteria in paragraphs (1), (2) and (3) of 
          subdivision (b) of Public Contract Code 10490, as added by this 
          bill.  Costs of goods and services may increase to the extent a 
          smaller bidding pool reduces competition.  Also, this bill may 
          render a company ineligible to bid on services if the company is 
          a scrutinized company because of the goods it sells.
          Existing law contains similar provisions. Chapter 272/2008 
          requires a company that bids or submits a proposal for a 
          contract for goods and services with a state agency to 
          self-certify that it is not a scrutinized company engaged in 
          specified activities in Sudan.  Chapter 671/2007 requires 
          CalPERS and CalSTRS to sell or transfer any investments in a 
          company with business operations in Iran.  Chapter 573/2010 
          prohibits persons engaging in investment activities in Iran's 
          energy sector from bidding or entering into contracts with a 
          public entity for goods or services.  

          The Dodd-Frank Wall Street Reform and Consumer Protection Act, 
          among other things, requires those who file with the SEC and use 
          minerals originating in the Democratic Republic of Congo in 
          manufacturing to disclose measures taken to exercise due 
          diligence on the source and chain of custody of the materials 
          and the products manufactured.  It does not appear that act or 


          SB 861 (Corbett)
          Page 4

          the proposed regulations provide for a scrutinized company or 
          restrict eligibility to bid on contracts.

          The proposed amendments are:
                        (1) On page 5, line 5, after "services" insert:

          related to products or services that are the reason the company 
          must comply with Section 13 (p) of the Securities Exchange Act 
          of 1934.

                        (2) On page 5, line 23, strike out "to which all 
          of the following apply and insert:

          that has been found to be in violation of Section 13 (p) of the 
          Securities Exchange Act of 1934 by final judgment or settlement 
          entered in a civil of administrative action brought by the 
          Securities and Exchange Commission and the person has not 
          remedied or cured the violation in a manner accepted by the 
          commission on or before final judgment or settlement.

          (c) A person shall cease to be regarded as a scrutinized company 
          when the person is no longer deemed to be in violation of 
          Section 13(p) of the Securities and Exchange Act of 1934, or 
          after three years from the date of final judgment or settlement, 
          whichever is earlier.
                        (3) On page 5, strike out lines 24 to 39, 
          inclusive, and on page 6, strike out lines 1 to 11 inclusive.