Amended in Assembly April 6, 2016

California Legislature—2015–16 Regular Session

Assembly Bill No. 2270

Introduced by Assembly Member Bonta

February 18, 2016

An act to begin delete add Article 3 (commencing with Section 14848) to Chapter 6.5 of Part 5.5 of Division 3 of Title 2 of the Government Code, and to amend Section 10221 of the Public Contract Code, relating to public contracts. end delete begin insert amend Sections 63089.95 and 63089.96 of the Government Code, relating to state government, and making an appropriation therefor. end insert

LEGISLATIVE COUNSEL’S DIGEST

AB 2270, as amended, Bonta. begin delete Public contracts: business development: statewide bonding program. end delete begin insert California Infrastructure and Economic Development Bank: surety bond program. end insert

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Under the Small Business Financial Assistance Act of 2013, the California Infrastructure and Economic Development Bank, within the Governor’s Office of Business and Economic Development, administers specific programs relating to small business, either administered directly by the bank or under contract with small business financial development corporations. The act authorizes bank programs to offer surety bond guarantees. The act prohibits a corporation from guaranteeing any loan unless and until it makes specified determinations, including that there is a low probability that the surety bond would be granted by a financial institution or financial company under reasonable terms or conditions, and the beneficiary has demonstrated a reasonable prospect of successful completion of the project.

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This bill would modify that prohibition to refer to a surety bond instead of a loan and would add private bonding companies to those entities considered when calculating the probability that a surety bond would be granted.

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The act, in addition to the authority described above, authorizes a corporation to act as a guarantor on a surety bond for any small business contractor, including, but not limited to, women, minority, and disabled veteran contractors.

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This bill would expand those entities for which a corporation may act as a guarantor on a surety bond to include disadvantaged business enterprise contractors. The bill would require a surety bond program to include technical assistance to a participating contractor, as prescribed. The bill would authorize the bank, in implementing a surety bond program under the act, to assign all or part of the program to another state entity in a prescribed manner, to establish one or more pilot projects before approving directives and guidelines for a statewide surety bond and small contractor assistance program, and to establish one or more nonstate contracts under specific circumstances.

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The act continues in existence the California Small Business Expansion Fund (expansion fund), a continuously appropriated fund that includes General Fund moneys. The expansion fund may be used to pay defaulted loan guarantee or surety bond losses, or other financial product defaults or losses, to fund direct loans and other debt instruments, to pay administrative costs of corporations, to pay state support and administrative costs, and to pay costs to protect a real property interest in a financial product default.

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By expanding the activities of the bank that are funded by continuous appropriation from the expansion fund, this bill would make an appropriation.

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Existing law requires that public contracts with state agencies provide for the filing of separate performance and payment bonds by the contractor in the form of bonds executed by an admitted surety insurer, as provided.

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This bill would establish, in the Department of General Services, a statewide contractor bonding program, to be administered by the Office of Small Business and Disabled Veteran Business Enterprise Services, for the purpose of enabling participating contractors to meet any applicable bid, payment, or performance bonding requirements for public contracts with state agencies. This bill would authorize the office to act as guarantor on surety bonds for participating contractors on contracts with state agencies and require the office to provide specified technical assistance to participating contractors. The bill would authorize the office to charge participating contractors fees for the provision of these services, not to exceed the amount necessary to cover the costs incurred in the administration of these provisions.

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This bill would require the office to establish a request for the proposals process by which contractors may participate in the program as a participating contractor and to give preference to contractors that are disadvantaged business enterprises, small business enterprises, or disabled veteran business enterprises, as specified. The bill would authorize the office to terminate a contractor’s participation after a reasonable period of time if the contractor is no longer in compliance with the requirements of the program or suspend a participating contractor that defaults on a bond from transacting any business with the state for a period of not less than 3 years and not more than 10 years.

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Vote:  begin delete majority end delete begin insert ²⁄₃ end insert . Appropriation:  begin delete no end delete begin insert yes end insert . Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

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begin insert SECTION 1. end insert   

end insert

begin insert Section 63089.95 of the end insert begin insert Government Code end insert begin insert is
amended to read: end insert

63089.95.  

In furtherance of the purposes set forth in Section
63088.1 of this code and Section 14001 of the Corporations Code,
a corporation may do any one or more of the following activities,
but only to the extent that the activities are authorized pursuant to
the contract between the bank and corporation: guarantee, endorse,
or act as surety on the bonds, notes, contracts, or other obligations
of, or assist financially, any person, firm, corporation, or
association, and may establish and regulate the terms and
conditions with respect to any such guarantees or financial
assistance and the charges for interest and service connected
therewith, except that the corporation shall not begin delete make or end delete guarantee
any begin delete loan, end delete begin insert surety bond end insert unless and until it determines:

(a) There is a low probability that the surety bond would be
granted by a begin insert private bonding company, end insert financial begin delete institution end delete
begin insert institution, end insert or financial company under reasonable terms or
conditions, and the beneficiary has demonstrated a reasonable
prospect of successful completion of the project.

(b) The surety bond project coverage will be used exclusively
in this state.

(c) The beneficiary has a minimum equity interest in the business
as determined by the directives and requirements.

(d) As a result of the surety bond, the jobs generated or retained
demonstrate reasonable conformance to the directives and
requirements specifying employment criteria.

begin insert

begin insert SEC. 2. end insert   

end insert

begin insert Section 63089.96 of the end insert begin insert Government Code end insert begin insert is amended
to read: end insert

63089.96.  

(a) In addition to the authority granted by Section
63089.95, pursuant to the directives and requirements a corporation
may act as guarantor on a surety bond for any small business
contractor, including, but not limited to, women, minority, begin delete and
disabled veteran end delete begin insert disabled veteran, and disadvantaged business
enterprise end insert contractors.

(b) The provisions of subdivision (a) allowing a corporation to
act as a guarantor on surety bonds may be funded through
appropriate state or federal funding sources. Federal funds shall
be deposited in the Federal Trust Fund in the State Treasury in
accordance with Section 16360, for transfer to the expansion fund.

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(c) The surety bond program shall include technical assistance
to a participating contractor. Technical assistance provided
pursuant to this section shall include, but is not limited to, all of
the following:

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(1) Assessment and identification of the particular barriers
facing the participating contractor and development of solutions
to those barriers. Activities pursuant to this paragraph may include
the following:

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(A) Assessments by surety and construction experts.

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(B) Development of a business plan.

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(C) Workshops addressing contractor bonding, bidding on state
projects, job safety, and other topics that would be beneficial to
the participating contractor.

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(D) Project field support.

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(2) Identification of, and assistance in obtaining, other financial
support and resources. Activities pursuant to this paragraph may
include the following:

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(A) Linkages with accountants, brokers, and surety companies
committed to helping contractors build bonding and organizational
capacity.

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(B) Prequalifications for additional assistance.

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(C) Collateral guarantees.

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(d) In implementing a surety bond program pursuant to this
chapter, the bank may:

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(1) Assign all or part of the program to another state entity that
agrees to implement the program consistent with this chapter and
directives and requirements adopted by the bank. If the bank
assigns all or a part of the program to another state entity, the
bank shall retain responsibility for reporting on the use and
outcomes of the program, pursuant to Section 63089.98.

end insert begin insert

(2) Establish one or more pilot projects before approving
directives and guidelines for a statewide surety bond and small
contractor assistance program.

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(3) Establish one or more nonstate contracts, to the extent
deemed necessary by the bank, based on there being an insufficient
number of corporations interested in, and qualified to, implement
a surety bond program, including the technical assistance required
in subdivision (c). These contractors shall be subject to the
applicable reporting requirements of this chapter, Section
63089.97, and any other directive or requirement set by the bank.

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SECTION 1.  

Article 3 (commencing with Section 14848) is
added to Chapter 6.5 of Part 5.5 of Division 3 of Title 2 of the Government Code, to read:

 

Article 3.  Statewide Contractor Bonding Program

 

14848.  

As used in this article, the following definitions shall
apply:

(a) “Office” means the Office of Small Business and Disabled
Veteran Business Enterprise Services established within the
department pursuant to Section 14839.

(b) “Program” means the statewide contractor bonding program
established pursuant to this chapter.

(c) “Participating contractor” means a person seeking to bid on
a contract with a state agency that is required by law, including,
but not limited to, Sections 10221 to 10225, inclusive, of the Public
Contract Code, to acquire bonds to participate in those contracts
and participate in the program.

14848.10.  

There is in the department a statewide contractor
bonding program for the purpose of enabling participating
contractors to meet any applicable bid, payment, or performance
bonding requirements for public contracts with state agencies. The
office shall be the entity to administer this program.

14848.20.  

The office may act as guarantor on a surety bond
for a participating contractor on a contract with a state agency.

14848.30.  

(a) The office shall establish a request for proposals
process by which contractors may participate in the program as
participating contractors pursuant to this chapter.

(b) In considering requests for proposals for assistance pursuant
to this article, the department shall give preference to contractors
that are any of the following:

(1) A disadvantaged business enterprise, as defined in Section
2051 of the Public Contract Code.

(2) A small business enterprise certified pursuant to Article 1
(commencing with Section 14835).

(3) A disabled veteran business enterprise, as defined in Section
999 of the Military and Veterans Code.

(c) (1) The office may terminate a contractor’s participation in
the program after a reasonable period of time if the contractor is
no longer in compliance with the requirements of the program.

(2) The office may suspend a participating contractor that
defaults on a bond issued pursuant to this article from transacting
any business with the state either directly as a prime contractor or
indirectly as a subcontractor, for a period of not less than three
years and not more than 10 years. A contractor that was previously
a participating contractor but was suspended pursuant to this
paragraph may resume participation in the bonding program at the
end of his or her suspension upon approval by the office.

14848.40.  

The office shall provide technical assistance to a
participating contractor. Technical assistance provided pursuant
to this section shall include, but is not limited to, all of the
following:

(a) Assessment and identification of the particular barriers facing
the participating contractor and development of solutions to those
barriers. Activities pursuant to this subdivision may include the
following:

(1) Assessments by surety and construction experts.

(2) Development of a business plan.

(3) Workshops addressing the following topics:

(A) Basic information pertaining to contractor bonding.

(B) Understanding the surety process and underwriting.

(C) The process for bidding on state projects.

(D) Addressing stop notices.

(E) Strategies for accessing capital.

(F) Prevailing wages.

(G) Job safety and the Occupational Safety and Health
Administration.

(H) Certification.

(I) Any other topics that would be beneficial to the participating
contractor.

(4) Project field support.

(b) Identification of and assistance in obtaining other financial
support and resources. Activities pursuant to this subdivision may
include the following:

(1) Linkages with accountants, brokers, and surety companies
committed to helping contractors build bonding and organizational
capacity.

(2) Pre-qualifications for additional assistance.

(3) Collateral guarantees.

(c) Monitoring and reporting on the progress of the participating
contractor, including the following:

(1) Collaboration with other programs.

(2) Progress on any project for which a bond is issued pursuant
to this article.

(3) Defaults on a bond issued pursuant to this article.

(4) Funds administration. Notwithstanding subdivision (b) of
Section 14848.50, the office shall not charge a participating
contractor fees for the purpose of this paragraph.

14848.50.  

(a) The department shall adopt rules and regulations
necessary to implement the provisions of this article.

(b) The office may charge a participating contractor fees for the
provision of services pursuant to this article. The fees shall not
exceed the amount necessary to cover the costs incurred in the
administration of this article.

SEC. 2.  

Section 10221 of the Public Contract Code is amended
to read:

10221.  

Every contract shall provide for the filing of separate
performance and payment bonds by the contractor in the form of
bonds executed by either an admitted surety insurer or the Office
of Small Business and Disabled Veteran Business Enterprise
Services pursuant to Section 14848.20 of the Government Code
and not deposits in lieu of bond, subject to the approval of the
department.

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