Amended in Senate May 31, 2016

Amended in Senate April 4, 2016

Senate Bill No. 1219

Introduced by Senator Hancock

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(Coauthors: Senators Hall and Hueso)

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(Coauthor: Assembly Member Jones-Sawyer)

February 18, 2016

An act to amend Sections 14836, 14837, 14838, 14838.5, 14838.64, 14838.7, 14839, 14839.1, 14840, 14842, and 14842.5 of the Government Code, relating to state contracting.

LEGISLATIVE COUNSEL’S DIGEST

SB 1219, as amended, Hancock. Small Business Procurement and Contract Act: employment social enterprises.

Existing law, the Small Business Procurement and Contract Act, grants a specified preference for small businesses and microbusinesses in the award begin insert of end insert a contract for goods, services, or information technology to the state and in the construction of state facilities. Existing law defines small business and microbusiness for these and other purposes. Existing law permits a state agency and the California State University to award specified types of contracts with a value of between $5,000 and $250,000 to a certified small business, including a microbusiness and a disabled veteran business enterprise, without complying with certain competitive bidding requirements, provided the agency obtains price quotations from 2 or more small businesses, including microbusinesses, or 2 or more disabled veteran business enterprises. Existing law establishes the Office of Small Business and Disabled Veteran Business Enterprise Services and prescribes duties for the office, which include maintaining a bidders list of small businesses and disabled veteran businesses and noting which small businesses also qualify as microbusinesses. Existing law prescribes penalties for a small business or microbusiness that provides incorrect information or withholds information that leads to its incorrect classification as such an entity and is awarded a contract because of that classification.

This bill begin delete would end delete begin insert would, on and after July 1, 2017, end insert grant an employment social enterprise the preference and status that is provided to a microbusiness for purposes of the provisions described above. The bill would define an employment social enterprise as a begin delete nonprofit or for-profit business dedicated to hiring and assisting individuals who face significant barriers to employment and at least 51% of the business’ employees have these barriers. end delete begin insert for-profit business or nonprofit business that earns a majority of its enterprise revenue from the production of goods and services, and that demonstrates evidence in its articles of incorporation or bylaws of its mission to provide employment with on-the-job and life skills training to a direct labor force that is comprised of a majority of individuals who face significant barriers to employment. end insert The bill would define “individuals who face significant barriers to employment” to include individuals who begin delete have been incarcerated, end delete begin insert recently have been released from a federal, state, or local correctional facility or who have a criminal record or history end insert begin insert , end insert individuals who are, or have been, homeless, begin insert and end insert youth and young adults begin delete disconnected from school or work, and individuals with disabilities, including, but not limited to, substance addiction or mental illness. end delete begin insert between 16 and 24 years of age, inclusive, who lack a high school diploma, are not enrolled in school, and are unemployed. end insert

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

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

SECTION 1.  

Section 14836 of the Government Code is
amended to read:

14836.  

(a) The Legislature hereby declares that it serves a
public purpose, and it is of benefit to the state, to promote and
facilitate the fullest possible participation by all citizens in the
affairs of the State of California in every possible way. It is also
essential that opportunity is provided for full participation in our
free enterprise system by small business enterprises, and
employment social enterprises that provide jobs for individuals
who have experienced significant barriers to employment, such as
incarceration, homelessness, disability, and youth disconnected
from school and work.

(b) Further, it is the declared policy of the Legislature that the
state should aid, counsel, assist, and protect, to the maximum extent
possible, the interests of small business concerns, including
microbusinesses and employment social enterprises, in order to
preserve free competitive enterprise and to ensure that a fair
proportion of the total purchases and contracts or subcontracts for
property and services for the state be placed with these enterprises.

SEC. 2.  

Section 14837 of the Government Code is amended
to read:

14837.  

As used in this chapter:

(a) “Department” means the Department of General Services.

(b) “Director” means the Director of General Services.

(c) “Manufacturer” means a business that meets both of the
following requirements:

(1) It is primarily engaged in the chemical or mechanical
transformation of raw materials or processed substances into new
products.

(2) It is classified between Codes 31 to 33, inclusive, of the
North American Industry Classification System.

(d) (1) “Small business” means an independently owned and
operated business that is not dominant in its field of operation, the
principal office of which is located in California, the officers of
which are domiciled in California, and which, together with
affiliates, has 100 or fewer employees, and average annual gross
receipts of ten million dollars ($10,000,000) or less over the
previous three years, or is a manufacturer, as defined in subdivision
(c), with 100 or fewer employees.

(2) “Microbusiness” is a small business which, together with
affiliates, has average annual gross receipts of two million five
hundred thousand dollars ($2,500,000) or less over the previous
three years, or is a manufacturer, as defined in subdivision (c),
with 25 or fewer employees.

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(3) “Employment social enterprise” is a nonprofit or for-profit
business dedicated to hiring and assisting individuals who face
significant barriers to employment and at least 51 percent of the
business’ employees have these barriers. “Individuals who face
significant barriers to employment” include, but are not limited
to, individuals who have been incarcerated, individuals who are,
or have been, homeless, youth and young adults disconnected from
school or work, and individuals with disabilities, including, but
not limited to, substance addiction and mental illness.

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(3) “Employment social enterprise” is a for-profit business or
nonprofit business that earns a majority of its enterprise revenue
from the production of goods and services and that demonstrates
evidence in its articles of incorporation, bylaws, or both, of its
mission to provide employment with on-the-job and life skills
training to a direct labor force that is comprised of a majority of
individuals who face significant barriers to employment.
“Individuals who face significant barriers to employment” are
defined as one or more of the following:

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(A) Individuals who have recently been released from a federal,
state, or local correctional facility, or a person who, while not
recently incarcerated, has a criminal record or history.

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(B) Individuals who are, or have been, homeless, as defined by
the United States Department of Health and Human Services as
of January 1, 2016.

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(C) Youth and young adults between 16 and 24 years of age,
inclusive, who lack a high school diploma, are not enrolled in
school, and are unemployed.

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(4) The director shall conduct a biennial review of the average
annual gross receipt levels specified in this subdivision for small
business and microbusiness and may adjust that level to reflect
changes in the California Consumer Price Index for all items. To
reflect unique variations or characteristics of different industries,
the director may establish, to the extent necessary, either higher
or lower qualifying standards than those specified in this
subdivision, or alternative standards based on other applicable
criteria.

(5) Standards applied under this subdivision shall be established
by regulation, in accordance with Chapter 3.5 (commencing with
Section 11340) of Part 1 of Division 3 of Title 2, and shall preclude
the qualification of businesses that are dominant in their industry.
In addition, the standards shall provide that the certified small
business, microbusiness, or employment social enterprise shall
provide goods or services that contribute to the fulfillment of the
contract requirements by performing a commercially useful
function, as defined below:

(A) A certified small business, microbusiness, or employment
social enterprise is deemed to perform a commercially useful
function if the business does all of the following:

(i) Is responsible for the execution of a distinct element of the
work of the contract.

(ii) Carries out its obligation by actually performing, managing,
or supervising the work involved.

(iii) Performs work that is normal for its business services and
functions.

(iv) Is responsible, with respect to products, inventories,
materials, and supplies required for the contract, for negotiating
price, determining quality and quantity, ordering, installing, if
applicable, and making payment.

(v) Is not further subcontracting a portion of the work that is
greater than that expected to be subcontracted by normal industry
practices.

(B) A contractor, subcontractor, or supplier will not be
considered to perform a commercially useful function if the
contractor’s, subcontractor’s, or supplier’s role is limited to that
of an extra participant in a transaction, contract, or project through
which funds are passed in order to obtain the appearance of small
business, microbusiness, or employment social enterprise
participation.

(e) “Disabled veteran business enterprise” means an enterprise
that has been certified as meeting the qualifications established by
paragraph (7) of subdivision (b) of Section 999 of the Military and
Veterans Code.

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(f) The amendments made to this section by the act adding this
subdivision shall become operative on July 1, 2017.

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SEC. 3.  

Section 14838 of the Government Code is amended
to read:

14838.  

In order to facilitate the participation of small business,
including microbusiness and employment social enterprise, in the
provision of goods, information technology, and services to the
state, and in the construction (including alteration, demolition,
repair, or improvement) of state facilities, the directors of the
department and other state agencies that enter those contracts, each
within their respective areas of responsibility, shall do all of the
following:

(a) Establish goals, consistent with those established by the
Office of Small Business Certification and Resources, for the extent
of participation of small businesses, including microbusinesses,
and employment social enterprises, in the provision of goods,
information technology, and services to the state, and in the
construction of state facilities.

(b) Provide for small business preference, or nonsmall business
preference for bidders that provide for small business,
microbusiness, and employment social enterprise, subcontractor
participation, in the award of contracts for goods, information
technology, services, and construction, as follows:

(1) In solicitations where an award is to be made to the lowest
responsible bidder meeting specifications, the preference to small
business, microbusiness, and employment social enterprise shall
be 5 percent of the lowest responsible bidder meeting
specifications. The preference to nonsmall business bidders that
provide for small business, microbusiness, or employment social
enterprise subcontractor participation shall be, up to a maximum
of 5 percent of the lowest responsible bidder meeting specifications,
determined according to rules and regulations established by the
Department of General Services.

(2) In solicitations where an award is to be made to the highest
scored bidder based on evaluation factors in addition to price, the
preference to small business, microbusiness, or employment social
enterprise shall be 5 percent of the highest responsible bidder’s
total score. The preference to nonsmall business bidders that
provide for small business, microbusiness, or employment social
enterprise subcontractor participation shall be up to a maximum
5 percent of the highest responsible bidder’s total score, determined
according to rules and regulations established by the Department
of General Services.

(3) The preferences under paragraphs (1) and (2) shall not be
awarded to a noncompliant bidder and shall not be used to achieve
any applicable minimum requirements.

(4) The preference under paragraph (1) shall not exceed fifty
thousand dollars ($50,000) for any bid, and the combined cost of
preferences granted pursuant to paragraph (1) and any other
provision of law shall not exceed one hundred thousand dollars
($100,000). In bids in which the state has reserved the right to
make multiple awards, this fifty thousand dollar ($50,000)
maximum preference cost shall be applied, to the extent possible,
so as to maximize the dollar participation of small businesses,
including microbusinesses, and employment social enterprises in
the contract award.

(c) Give special consideration to small businesses,
microbusinesses, and employment social enterprises by both:

(1) Reducing the experience required.

(2) Reducing the level of inventory normally required.

(d) Give special assistance to small businesses, microbusinesses,
and employment social enterprises in the preparation and
submission of the information requested in Section 14310.

(e) Under the authorization granted in Section 10163 of the
Public Contract Code, make awards, whenever feasible, to small
business, microbusiness, and employment social enterprise bidders
for each project bid upon within their prequalification rating. This
may be accomplished by dividing major projects into subprojects
so as to allow a small business, microbusiness, or employment
social enterprise contractor to qualify to bid on these subprojects.

(f) Small business, microbusiness, and employment social
enterprise bidders qualified in accordance with this chapter shall
have precedence over nonsmall business bidders in that the
application of a bidder preference for which nonsmall business
bidders may be eligible under this section or any other provision
of law shall not result in the denial of the award to a small business,
microbusiness, or employment social enterprise bidder. In the
event of a precise tie between the low responsible bid of a bidder
meeting specifications of a small business, microbusiness, or
employment social enterprise and the low responsible bid of a
bidder meeting the specifications of a disabled veteran-owned
small business, microbusiness, or employment social enterprise,
the contract shall be awarded to the disabled veteran-owned small
business, microbusiness, or employment social enterprise. This
provision applies if the small business, microbusiness, or
employment social enterprise bidder is the lowest responsible
bidder, as well as if the small business, microbusiness, or
employment social enterprise bidder is eligible for award as the
result of application of the small business, microbusiness, and
employment social enterprise bidder preference granted by
subdivision (b).

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(g) The amendments made to this section by the act adding this
subdivision shall become operative on July 1, 2017.

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SEC. 4.  

Section 14838.5 of the Government Code is amended
to read:

14838.5.  

(a) Notwithstanding the advertising, bidding, and
protest provisions of Chapter 6 (commencing with Section 14825)
of this part and Chapter 2 (commencing with Section 10290) and
Chapter 3 (commencing with Section 12100) of Part 2 of Division
2 of the Public Contract Code, a state agency may award a contract
for the acquisition of goods, services, or information technology
that has an estimated value of greater than five thousand dollars
($5,000), but less than two hundred fifty thousand dollars
($250,000), to a certified small business, including a microbusiness,
or to an employment social enterprise, or to a disabled veteran
business enterprise, as long as the agency obtains price quotations
from two or more certified small businesses, including
microbusinesses, or from two or more employment social
enterprises, or from two or more disabled veteran business
enterprises.

(b) In carrying out subdivision (a), a state agency shall consider
a responsive offer timely received from a responsible certified
small business, including a microbusiness, or from an employment
social enterprise, or from a disabled veteran business enterprise.

(c) If the estimated cost to the state is less than five thousand
dollars ($5,000) for the acquisition of goods, services, or
information technology, or a greater amount as administratively
established by the director, a state agency shall obtain at least two
price quotations from responsible suppliers whenever there is
reason to believe a response from a single source is not a fair and
reasonable price.

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(d) The amendments made to this section by the act adding this
subdivision shall become operative on July 1, 2017.

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SEC. 5.  

Section 14838.64 of the Government Code is amended
to read:

14838.64.  

(a) Notwithstanding any other law, including, but
not limited to, the advertising, bidding, and protest provisions of
Chapter 6 (commencing with Section 14825) of this part and
Chapter 2.5 (commencing with Section 10700) and Chapter 3
(commencing with Section 12100) of Part 2 of Division 2 of the
Public Contract Code, the California State University may award
a contract for the acquisition of goods, services, or information
technology that has an estimated value of greater than five thousand
dollars ($5,000), but less than two hundred fifty thousand dollars
($250,000), to a certified small business, including a microbusiness,
or to an employment social enterprise, or to a disabled veteran
business enterprise, if the California State University obtains price
quotations from two or more certified small businesses, including
microbusinesses, or from two or more employment social
enterprises, or from two or more disabled veteran business
enterprises.

(b) In carrying out subdivision (a), the California State
University shall consider a responsive offer timely received from
a responsible certified small business, including a microbusiness,
or from an employment social enterprise, or from a disabled veteran
business enterprise.

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(c) The amendments made to this section by the act adding this
subdivision shall become operative on July 1, 2017.

end insert

SEC. 6.  

Section 14838.7 of the Government Code is amended
to read:

14838.7.  

(a) Notwithstanding the advertising and bidding
provisions of Chapter 6 (commencing with Section 14825) of this
code and Chapter 1 (commencing with Section 10100) of Part 2
of Division 2 of the Public Contract Code, a state agency may
award a contract for construction, including the erection,
construction, alteration, repair, or improvement of any state
structure, building, road, or other state improvement of any kind
that has an estimated value of greater than five thousand dollars
($5,000) but less than the cost limit, as specified in subdivision
(b) of Section 10105 of the Public Contract Code, to a certified
small business, including a microbusiness, or to an employment
social enterprise, or to a disabled veteran business enterprise, as
long as the agency obtains written bid submittals from two or more
certified small businesses, including microbusinesses, or from two
or more employment social enterprises, or from two or more
disabled veteran business enterprises.

(b) In implementing subdivision (a), state agencies shall consider
a responsive offer timely received from a responsible certified
small business, including a microbusiness, or from an employment
social enterprise, or from a disabled veteran business enterprise.

(c) If the estimated cost to the state is less than five thousand
dollars ($5,000) for the public work construction project, a state
agency shall obtain at least two written bid submittals from
responsible contractors whenever there is reason to believe a
response from a single source is not a fair and reasonable price.

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(d) The amendments made to this section by the act adding this
subdivision shall become operative on July 1, 2017.

end insert

SEC. 7.  

Section 14839 of the Government Code is amended
to read:

14839.  

There is hereby established within the department the
Office of Small Business and Disabled Veteran Business Enterprise
Services. The duties of the office shall include:

(a) Compiling and maintaining a comprehensive bidders list of
qualified small businesses, employment social enterprises, and
disabled veteran business enterprises, and noting which small
businesses also qualify as microbusinesses.

(b) Coordinating with the begin delete Federal end delete begin insert federal end insert Small Business
Administration, the Minority Business Development Agency, and
the Office of Small Business Development of the Department of
Economic and Business Development.

(c) Providing technical and managerial aids to small businesses,
microbusinesses, employment social enterprises, and disabled
veteran business enterprises, by conducting workshops on matters
in connection with government procurement and contracting.

(d) Assisting small businesses, microbusinesses, employment
social enterprises, and disabled veteran business enterprises, in
complying with the procedures for bidding on state contracts.

(e) Working with appropriate state, federal, local, and private
organizations and business enterprises in disseminating information
on bidding procedures and opportunities available to small
businesses, microbusinesses, employment social enterprises, and
disabled veteran business enterprises.

(f) Making recommendations to the department and other state
agencies for simplification of specifications and terms in order to
increase the opportunities for small business, microbusiness,
employment social enterprises, and disabled veteran business
enterprise participation.

(g) Developing, by regulation, other programs and practices
that are reasonably necessary to aid and protect the interest of small
businesses, microbusinesses, employment social enterprises, and
disabled veteran business enterprises in contracting with the state.

(h) Making efforts to develop, in cooperation with associations
representing counties, cities, and special districts, a core statewide
small business certification and employment social enterprise
certification application that may be adopted by all participating
entities, with any supplemental provisions to be added as necessary
by the respective entities.

(i) The information furnished by each contractor requesting a
small business, microbusiness, or employment social enterprise
preference shall be under penalty of perjury.

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(j) The amendments made to this section by the act adding this
subdivision shall become operative on July 1, 2017.

end insert

SEC. 8.  

Section 14839.1 of the Government Code is amended
to read:

14839.1.  

(a) The department shall have sole responsibility for
certifying and determining the eligibility of small businesses,
microbusinesses, and employment social begin delete enterprises, end delete begin insert enterprises end insert
under this chapter.

(b) Local agencies shall have access to the department’s list of
certified small businesses and certified employment social
enterprises on the department’s Internet Web site, which is
available to the public, for use as a reference guide to confirm a
small business or employment social enterprise certification.

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(c) The amendments made to this section by the act adding this
subdivision shall become operative on July 1, 2017.

end insert

SEC. 9.  

Section 14840 of the Government Code is amended
to read:

14840.  

(a) In the process of certifying and determining the
eligibility of a disabled veteran business enterprise, a small business
enterprise, including a microbusiness, or an employment social
enterprise, the department shall require the applicant or certified
firm to submit a written declaration, under penalty of perjury, that
the information submitted to the department pursuant to this
chapter, and in the case of a disabled veteran enterprise all
information submitted to the department pursuant to Section 999.2
of the Military and Veterans Code, is true and correct.

(b) (1) If the department determines that just cause exists, it
may require the owner of the disabled veteran business enterprise,
microbusiness, employment social enterprise, or small business,
the applicant, or the certified firm to complete and submit to the
department a federal Form 4506-T begin insert or Form 990 end insert from the Internal
Revenue Service, United States Department of the Treasury,
requesting a transcript of a tax return.

(2) For the purposes of this subdivision, “just cause” means
either of the following circumstances exists:

(A) The department receives a complaint regarding the certified
firm.

(B) The department determines, based on its findings during
the course of any certification eligibility review of the applicant
or certified firm, that the action described in paragraph (1) is
necessary.

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(c) The amendments made to this section by the act adding this
subdivision shall become operative on July 1, 2017.

end insert

SEC. 10.  

Section 14842 of the Government Code is amended
to read:

14842.  

(a) A business that has obtained classification as a
small business, microbusiness, or employment social begin delete enterprise, end delete
begin insert enterprise end insert by reason of having furnished incorrect supporting
information or by reason of having withheld information, and that
knew, or should have known, the information furnished was
incorrect or the information withheld was relevant to its request
for classification, and that by reason of that classification has been
awarded a contract to which it would not otherwise have been
entitled, shall do all of the following:

(1) Pay to the state any difference between the contract amount
and what the state’s costs would have been if the contract had been
properly awarded.

(2) Pay to the awarding state agency and the department an
amount that is equal to the costs incurred for investigating the
small business or microbusiness certification that led to the finding
that the contract had been improperly awarded. Costs incurred
shall include, but are not limited to, costs and attorney’s fees paid
by the awarding state agency or the department related to hearings
and court appearances.

(3) In addition to the amounts described in paragraphs (1) and
(2), be assessed a penalty in an amount of not more than 10 percent
of the amount of the contract involved.

(b) The department shall suspend any person who violates
subdivision (a) 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 3 years and not more than 10 years. State
agencies may reject the bid of a supplier offering goods,
information technology, or services manufactured or provided by
a subcontractor if that subcontractor has been declared ineligible
to transact any business with the state under this chapter, even
though the bidder is a business in good standing.

(c) All payments to the state pursuant to paragraphs (1) and (2)
of subdivision (a) shall be deposited in the fund or funds out of
which payments on the contract involved were made, except
payments to the department made pursuant to paragraph (2) of
subdivision (a) shall be deposited in the Service Revolving Fund.

(d) All payments to the state pursuant to paragraph (3) of
subdivision (a) shall be deposited in the state General Fund.

(e) The small business certification, employment social
enterprise certification, and the disabled veteran business enterprise
certification if the business has multiple certifications, of a business
found to have violated subdivision (a) shall be revoked by the
department for a period of not less than five years. For an additional
or subsequent violation, the period of certification revocation or
suspension shall be extended for a period of up to 10 years. The
certification revocation shall apply to the principals of the business
and any subsequent businesses formed by one or more of those
principals.

(f) Prior to the imposition of any sanctions under this article, a
business shall be entitled to a public hearing and to at least five
working days’ notice of the time and place thereof. The notice
shall state the reasons for the hearing.

(g) Any business or person that fails to satisfy any of the
amounts specified in paragraphs (1) to (3), inclusive, of subdivision
(a) shall be prohibited from further contracting with the state until
all amounts are satisfied.

(h) For purposes of this section, “awarding state agency” means
a state agency or other state governmental entity that awarded the
contract, if it was not awarded by the department.

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(i) The amendments made to this section by the act adding this
subdivision shall become operative on July 1, 2017.

end insert

SEC. 11.  

Section 14842.5 of the Government Code is amended
to read:

14842.5.  

(a) It shall be unlawful for a person to do any of the
following:

(1) Knowingly and with intent to defraud, fraudulently obtain,
retain, attempt to obtain or retain, or aid another in fraudulently
obtaining or retaining or attempting to obtain or retain, certification
as a small business, microbusiness, or employment social enterprise
for the purposes of this chapter.

(2) Willfully and knowingly make a false statement with the
intent to defraud, whether by affidavit, report, or other
representation, to a state official or employee for the purpose of
influencing the certification or denial of certification of any entity
as a small business, microbusiness, or employment social
enterprise.

(3) Willfully and knowingly obstruct, impede, or attempt to
obstruct or impede, any state official or employee who is
investigating the qualifications of a business entity that has
requested certification as a small business, microbusiness, or
employment social enterprise.

(4) Knowingly and with intent to defraud, fraudulently obtain,
attempt to obtain, or aid another person in fraudulently obtaining
or attempting to obtain, public moneys, contracts, or funds
expended under a contract, that are awarded by any state agency,
department, officer, or other state governmental agency, to which
the person is not entitled under this chapter.

(5) Knowingly and with intent to defraud, fraudulently represent
certified small business, microbusiness, or employment social
enterprise participation in order to obtain or retain a bid preference
or a state contract.

(6) Knowingly and with intent to defraud, fraudulently represent
that a commercially useful function is being performed by a
certified small business, microbusiness, or employment social
enterprise in order to obtain or retain a bid preference or a state
contract.

(7) 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.

(8) 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 knowledge or consent of the person authorized
or required to present the declaration, statement, or document.

(9) Establish, or knowingly aid in the establishment of, or
exercise control over, a firm found to have violated any provision
of paragraphs (1) to (8), inclusive.

(b) (1) Any person who is found by the department to have
violated any of the provisions of subdivision (a) is subject to a
civil penalty of not less than ten thousand dollars ($10,000) nor
more than thirty thousand dollars ($30,000) for the first violation,
and a civil penalty of not less than thirty thousand dollars ($30,000)
nor more than fifty thousand dollars ($50,000) for each additional
or subsequent violation.

(2) A person who violates any of the provisions of subdivision
(a) shall pay all costs incurred by the awarding department and
the Department of General Services for any investigations that led
to the finding of the violation. Costs incurred shall include, but
are not limited to, costs and attorney’s fees paid by the awarding
state agency or the department related to hearings and court
appearances. All payments to the state pursuant to this paragraph
shall be deposited in the fund or funds out of which payments on
the contract involved were made, except payments to the
department shall be deposited in the Service Revolving Fund.

(c) The department shall revoke the small business,
microbusiness, or employment social enterprise certification, and
the disabled veteran business enterprise certification if the business
has both certifications, of any person that violates subdivision (a)
for a period of not less than five years, and shall, in addition to the
penalties provided for in subdivision (b), suspend the person from
bidding on, or participating as a contractor, a subcontractor, or a
supplier in, any state contract or project for a period of not less
than 3 years nor more than 10 years. However, for an additional
or subsequent violation, the period of certification revocation or
suspension shall be extended for a period of up to three years. The
certification revocation shall apply to the principals of the business
and any subsequent businesses formed by one or more of those
principals. Any business or person who fails to satisfy any of the
penalties imposed pursuant to paragraphs (1) and (2) of subdivision
(b) shall be prohibited from further contracting with the state until
the penalties are satisfied.

(d) If a contractor, subcontractor, supplier, subsidiary, or affiliate
thereof, has been found by the department to have violated
subdivision (a) and that violation occurred within three years of
another violation of subdivision (a) found by the department, the
department shall prohibit that contractor, subcontractor, supplier,
subsidiary, or affiliate thereof, from entering into a state project
or state contract and from further bidding to a state entity, and
from being a subcontractor to a contractor for a state entity, and
from being a supplier to a state entity.

(e) (1) In addition to the penalties imposed by this section, if
a contractor is found to be in violation of paragraph (6) of
subdivision (a), any existing contract between that contractor and
any awarding department may be terminated at the discretion of
the awarding state agency, and, where payment to the contractor
is made directly by the state agency, the agency shall set off
penalties and costs due to the state against any payments due to
that contractor. In the event that the contracting state agency has
forwarded the contract and invoices to the Controller for payment,
the state agency shall reduce the amount due to the contractor as
reflected in the claim schedule submitted to the Controller by the
amount of the penalties and costs due the state. In addition, with
regard to any penalties and costs due to the state that the state
agency has not accounted for by either a set off against payments
due to the contractor or a reduction reflected in the claim schedule
submitted to the Controller, to the extent that the Controller is
making payments to the contractor on behalf of any state agency,
the Controller shall set off penalties and costs due against any
invoices due to the contractor from any other contract awarded to
the contractor.

(2) For purposes of this section:

(A) “Awarding state agency” means any state agency,
department, governmental entity, or other officer or entity
empowered by law to enter into contracts on behalf of the State
of California.

(B) “Contractor” means any person or persons, firm, partnership,
corporation, or combination thereof who submits a bid and enters
into a contract with a representative of a state agency, department,
governmental entity, or other officer empowered by law to enter
into contracts on behalf of the State of California.

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(f) The amendments made to this section by the act adding this
subdivision shall become operative on July 1, 2017.

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