BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Kevin de León, Chair AB 1650 (Jones-Sawyer) - Public Contracts: Hiring: Priority Consideration Amended: May 28, 2014 Policy Vote: GO 7-1 Judiciary 5-1 Urgency: No Mandate: No Hearing Date: August 4, 2014 Consultant: Robert Ingenito This bill meets the criteria for referral to the Suspense File. Bill Summary: AB 1650 would require people bidding on certain state contracts to certify that they do not ask job applicants to disclose information concerning their conviction history. Fiscal Impact: The bill would potentially dissuade noncompliant contractors from bidding on certain state public works contracts. To the extent this occurs, competition would be reduced, resulting in potentially higher contract costs than would have occurred otherwise. The amount of the increase is unknown, but given the volume at state public works contracts, could exceed $150,000 annually. The State may incur investigation-related costs associated with information that a bidder was not in compliance with the bill's requirements. The number of such cases is unknown, but could result in significant investigative and legal costs. If a state contractor was later found to have been in violation of the bill's requirements, there could be additional costs to void the contract and rebid the project. Background: The State Contract Act regulates contracting between state agencies and private contractors, and outlines requirements for bidding and awarding of contracts for projects. Current law defines projects to include the construction or other improvement to a state structure, building, road or other AB 1650 (Jones-Sawyer) Page 1 state improvement of any kind that will exceed a total cost of $250,000 for the 2010 calendar year, as adjusted every two years. The current threshold is $281,000 Current law prohibits employers from asking applicants for employment to disclose information concerning convictions that have been sealed, expunged, or statutorily eradicated, and certain marijuana-related convictions if the convictions are more than two years old. Additionally, current law prohibits a state or local agency from asking an applicant to disclose information regarding a criminal conviction, except as specified, until the agency has determined the applicant meets the minimum employment qualifications, as stated in any notice issued for the position Proposed Law: This bill would do the following: Require any person submitting a bid to the state on a contract involving onsite construction-related services to certify that the person does not ask an applicant for onsite construction-related employment to disclose orally or in writing information concerning the applicant's conviction history. Does not require this certification if the bidder or state agency is otherwise required by state or federal law to conduct a conviction history background check, or in any contract position with a "criminal justice agency." Does not require this certification when the person submitting the bid obtains workers from a hiring hall pursuant to a bona fide collective bargaining agreement. Related Legislation: AB 218 (Dickinson), Chapter 699, Statutes of 2013, prohibits state and local agencies from inquiring about conviction history in their initial employment applications. AB 218 provides a similar exemption to this requirement regarding applications for positions required by law to include a conviction history background check and for positions in criminal justice agencies. In 2013, AB 970 (Jones-Sawyer) applied the same prohibition as AB 1650 (Jones-Sawyer) Page 2 AB 1650, but to all state contracts. The bill was held under submission by the Assembly Appropriations Committee. Staff Comments: To the extent that private employers engage in the practice this bill addresses, there could be a substantial number of bidders whose bids would be excluded from consideration unless they change their hiring practices. Generally speaking, a law that requires the state to exclude certain firms' bids from consideration will tend to increase costs by: (1) Requiring the state to reject otherwise compliant low bids. (2) Discouraging firms in the excluded group from bidding. (3) Potentially increasing the cost of acquisition and/or resulting in delays in acquiring needed products and services. This occurs to the extent that additional staff time is expended on inquiries, research, or analysis to determine whether a bidder is in the excluded group, and/or investigations into allegations against particular contractors. Because the bill requires a firm to stop engaging in the targeted practice for all construction projects, public and private, before it submits its bid to the state, it invites construction firms to weigh whether continuing to bid to the state is worth changing hiring practices throughout the company. Notably, the bill requires the company to make changes before it submits its bid, and thus before it knows whether it will win the contract. Although the bill does not explicitly require the state to investigate allegations that a bidder engages in the targeted practice, in practice the state would likely be expected to do so if presented with information that created a reasonable suspicion that a bidder had given a false certification. This could be challenging for the state agency contracting officer, who is typically not trained or experience in conducting investigations into private businesses' hiring practices. Such an investigation could require the assistance of legal counsel, internal audit staff, or investigative personnel. If a current contractor were found to have falsely certified that it did not engage in the targeted practice, the state agency might conclude that the contract was void as a result of having been awarded in violation of law. If so, project AB 1650 (Jones-Sawyer) Page 3 completion would be delayed, and the state agency would incur additional costs associated with rebidding the contract. Depending on the circumstances, there could also be significant costs associated with changing contractors. DGS regularly awards contracts that would be subject to the provisions of this bill. Between calendar year 2003 and calendar year 2013, DGS awarded 497 public works contracts over $281,000 with a total value of more than $2 billion. In calendar year 2013, DGS awarded 23 public works contracts over $281,000 with a total value of $125.9 million. Other departments that award large public works contracts include Caltrans, Water Resources, and CDCR. By discouraging some companies from bidding on public works contracts, this bill may result in higher contract costs for public works projects. These costs are difficult to estimate, inasmuch as they depend heavily on the individual choices of private contractors. To the extent that state agencies investigate allegations that a contractor gave a false certification and/or void contracts as a result of such investigations, this would result in additional cost.