Amended in Assembly June 30, 2016

Amended in Senate May 31, 2016

Amended in Senate April 4, 2016

Senate Bill No. 1219

Introduced by Senator Hancock

(Coauthors: Senators Hall and Hueso)

(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, begin insert and to amend Section 10111 of the Public Contract Code, end insert 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 of 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. begin insert Existing law requires the Department of General Services to make available a report on contracting activity. end insert

This bill would, on and after July 1, 2017, grant an employment social enterprise begin delete the end delete begin insert a end insert preference and status begin delete that is provided end delete begin insert similar end insert to a begin insert small business or end insert microbusiness begin delete for purposes of the provisions end delete begin insert as end insert described above. The bill would define an employment social enterprise as begin delete a for-profit business or nonprofit business end delete begin insert a California-based social purpose corporation, a benefit corporation, or a nonprofit corporation end insert that earns begin delete a majority end delete begin insert 51% or more end insert of its enterprise revenue from the production begin insert or assembly end insert of goods begin delete and services, end delete begin insert or the provision of services end insert 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 begin delete a majority end delete begin insert 80% or more end insert of begin delete individuals end delete begin insert enterprise participants end insert who face begin delete significant end delete begin insert multiple end insert barriers to employment. The bill would define begin delete “individuals end delete begin insert an “enterprise participant end insert who begin delete face end delete begin insert faces end insert significant barriers to employment” to include begin delete individuals who recently have been released from a federal, state, or local correctional facility or who have a criminal record or history, individuals who are, or have been, homeless, and 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. end delete begin insert an individual that has employment barriers, is or was homeless, or is an out-of-school youth. The bill would require the above-described report by the department to include information relating to the level of participation of employment social enterprises in state contracting. The bill would require specified documents and facts to be certified under penalty of perjury. By expanding the crime of perjury, this bill would impose a state-mandated local program. end insert

begin insert

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

end insert begin insert

This bill would provide that no reimbursement is required by this act for a specified reason.

end insert

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

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

begin insert

begin insert SECTION 1. end insert   

end insert begin insert

The Legislature finds and declares all of the
following:

end insert begin insert

(a) Unrelenting unemployment and deepening poverty are a
reality for many Californians. According to the United States
Census Bureau, California’s poverty rate is 16.4 percent as
compared to a national rate of 15.6 percent. It is estimated that
nearly a quarter of California’s children, 22.7 percent, are living
in households with annual incomes below the federal poverty line.
A significant contributing factor to these poverty rates are the
education and basic skill deficit of many Californians from rural
and inner-city areas, historically underserved population groups,
and those who are more recently encountering employment
challenges, including the formerly incarcerated and the homeless.
Without comprehensive, thoughtful, and strategic intervention, the
economic disparity within the state will only increase.

end insert begin insert

(b) Smaller-sized businesses and social enterprises can function
as economic engines. The social enterprise model uses
entrepreneurial activity to pursue a social purpose. Social
enterprises advance the social mission through market-based
strategies and may be structured as independent for-profit
businesses, nonprofit ventures, or a business unit or division within
a larger nonprofit organization. Small businesses and social
enterprises are expected to become increasingly important due to
their ability to be more flexible and better suited to meet niche
market needs and respond to the necessities of vulnerable
communities. However, their small to medium size and double
bottom line mission also entail challenges when meeting regulatory
requirements, accessing capital, competing for large-size contracts,
and marketing their goods and services.

end insert begin insert

(c) California is home to a dynamic and growing sector of social
enterprises. According to the national Social Enterprise Alliance,
there are 98 social enterprises from California registered in its
database. The San Francisco chapter was founded in 2009 and
the Los Angeles chapter was founded in 2010. In 2015, 80
California-based employment social enterprises, from startups to
mature businesses, competed in a national grant solicitation for
the Social Innovation Fund/REDF. Eight were awarded funding
and are projected to generate up to 14,000 job opportunities and
over $375 million in revenues between 2016 and 2020. In the
Four-Year County Small Business and Social Enterprise Utilization
Plan of Los Angeles County, prepared in May 2016, 19 social
enterprises meet the Transitional Jobs Opportunity Preference
serving the county’s workforce. Although this is still a very young
sector, a recent report by Mathematica Policy Research found that
for every dollar spent by a social enterprise, there was a $2.23
return on investment to society. This includes benefits to taxpayers,
including reductions in government transfers, incarceration, and
health and housing costs paid for by the public sector.
Furthermore, the study also showed that the percentage of total
income from government transfers decreased from 71 percent to
24 percent and the total monthly income for workers increased by
91 percent. This study concludes that investing in the growth of
social enterprises, as well as their additional support services for
workers, can have a positive impact on people’s lives, while
lessening the burden on government resources.

end insert begin insert

(d) (1) In major economies like those in the United Kingdom
and Australia, social enterprise is a mature sector. United Kingdom
government statistics identify around 70,000 social enterprises
contributing £24 billion to the economy and employing nearly a
million people. According to the Social Enterprise Survey for 2015,
50 percent of social enterprises reported a profit, 73 percent of
social enterprises earn more than 75 percent of their income from
trade, and 27 percent of social enterprises have the public sector
as their main source of income. Furthermore, 59 percent of social
enterprises employ at least one person who is disadvantaged in
the labor market, and for 16 percent of social enterprises, this
group forms at least half of all employees.

end insert begin insert

(2) Another recent study, by Social Ventures in Australia, found
that social enterprises have demonstrated that they can create jobs
for people excluded from the mainstream workforce, particularly
the long-term unemployed, and showed that this equity outcome
is also efficient, as government investment in the creation of
businesses is returned via taxation revenue and savings in social
security expenditure. In developing economies of Latin America,
Asia, and sub-Saharan Africa, social entrepreneurs are creating
enterprises that help solve social problems in their countries with
a reduced reliance on government or international aid to finance
it.

end insert begin insert

(e) (1) Under the social enterprise umbrella, there are
mission-driven businesses known as employment social enterprises
(ESE) which are dedicated to hiring and assisting people who face
barriers to employment. They combine commercial
activities-producing, manufacturing, and distributing products
and services-with a transitional job that has supportive
management and assistance to foster the success of people who
want to work but are often not given the opportunity by mainstream
employers. ESEs combine market wage-paying transitional jobs
while providing essential job readiness services that help
participants develop appropriate work habits and basic skills,
build real work experience, and manage life issues. A 2015
California study, the Mathematica Jobs Study, showed that the
percentage of people who had a job six to 12 months after their
ESE position was 20 points higher than people who received only
traditional workforce training support.

end insert begin insert

(2) Due to the ESE social mission, the cost of doing business
includes on-the-job workforce and employment training for a labor
force that is largely comprised of participants with significant
barriers to employment. In the nonprofit sector, business profits
are reinvested into the business to support training and grow more
jobs. It is also common for businesses to leverage other public and
private resources to support the additional cost of workforce
training.

end insert begin insert

(f) ESEs consist of the following elements:

end insert begin insert

(1) Small and medium-size nonprofit or for-profit businesses
that sell goods or services.

end insert begin insert

(2) A mission to employ low-income people with multiple
barriers to employment.

end insert begin insert

(3) Short- or long-term wage-paying employment that combines
real work, training and skill development, and supportive services
for participants who are overcoming barriers to employment.

end insert begin insert

(g) Elements of participant training and supportive services
may include one or more of the following:

end insert begin insert

(1) Experience with workplace norms and general behaviors
that facilitate success in any work environment and on-the-job
training.

end insert begin insert

(2) Worksite supervision which includes feedback on
performance and coaching to help participants become work ready
and transition to traditional, unsupported employment.

end insert begin insert

(3) Linking participants to services that can help them stabilize
their lives, avoid relapse of behaviors such as drug abuse or
criminal activity, and obtain life supports related to needs such
as child care or housing.

end insert begin insert

(4) Job search and retention services which includes assistance
with resumes and cover letters, interview preparation, and job
searches.

end insert begin insert

(5) Job development and placement services to identify job
openings, schedule interviews, and follow up with employers after
a participant has an interview.

end insert begin insert

(6) Promote and support the completion of industry-recognized
certificates.

end insert begin insert

(7) Connections and enrollment support to community colleges,
educational institutions, vocational training and certificate
programs, preapprenticeship and apprenticeship programs, or
other opportunities to pursue career and education advancement.

end insert

begin delete SECTION 1. end delete

begin insert SEC. 2. end insert   

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 begin delete 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. end delete begin insert enterprises. end insert

(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.

begin delete SEC. 2. end delete

begin insert SEC. 3. end insert   

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.

(3) “Employment social enterprise” begin delete is a for-profit business or
nonprofit business that earns a majority of its enterprise revenue end delete

begin insert means an entity that meets all of the following: end insert

begin insert

(A) Is organized as a social purpose corporation, a benefit
corporation, or a nonprofit corporation.

end insert begin insert

(B) Is a California-based entity that meets one or more of the
following:

end insert begin insert

(i) The entity has a principal office in California, and the officers
are domiciled in California.

end insert begin insert

(ii) The entity has a major office or manufacturing facility
located in California that has been licensed by the state on a
continuous basis to conduct business within the state and has
continuously employed California residents for work within the
state during the prior three years.

end insert begin insert

(iii) The entity is a nonprofit organization incorporated in
another state that has sponsored or co-sponsored substantive
economic and workforce development activities within this state
and has provided services to individuals who face multiple barriers
to employment in at least 20 of the prior 24 months.

end insert

begin insert (C) end insert begin insert   end insert begin insert Earns 51 percent or more of end insert begin insert its enterprise revenue end insert from the
production begin insert or assembly end insert of goods begin delete and services and that demonstrates end delete

begin insert or the provision of services, or a combination of both. end insert

begin insert (D) end insert begin insert   end insert begin insert Demonstrates end insert evidence in its articles of incorporation,
bylaws, or both, of begin delete its end delete begin insert the employment social enterprise’s end insert mission
to provide employment with on-the-job and life skills training to
a direct labor begin delete force end delete begin insert force, not including supervisors and
administration, end insert that is comprised of begin delete a majority end delete begin insert at least 80 percent end insert
of begin delete individuals end delete begin insert enterprise participants end insert who face begin delete significant end delete begin insert multiple end insert
barriers to employment. begin delete “Individuals end delete begin insert end insert begin insert To document on-the-job and
life skills training, an employment social enterprise shall provide
documentation, under penalty of perjury, that one or more of the
following services is being offered to individuals who face multiple
barriers to employment: end insert

begin insert

(i) Basic skills and job readiness assessment.

end insert begin insert

(ii) Referral system to industry-recognized certificates and
training.

end insert begin insert

(iii) Linkage to community colleges, adult schools, or other
education institutions to gain an education diploma or certificate.

end insert begin insert

(iv) Partnership with local or regional workforce development
boards.

end insert begin insert

(v) Job placement and retention services.

end insert begin insert

(E) (i) Has two or more enterprise participants who face
multiple barriers to employment.

end insert

begin insert (ii) end insert begin insert   end insert begin insert “Enterprise participant end insert who begin delete face significant end delete begin insert faces multiple end insert
barriers to employment” begin delete are defined as end delete begin insert means an individual that
meets end insert one or more of the following:

begin delete

(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.

end delete begin insert

(I) Is an individual with employment barriers, as defined in
subdivision (j) of Section 14005 of the Unemployment Insurance
Code.

end insert begin delete

(B) Individuals who are, or have been,

end delete

begin insert (II) end insert begin insert   end insert begin insert Is or has been end insert homeless, as defined by the United States
Department of Health and Human Services as of January 1, 2016.

begin delete

(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.

end delete begin insert

(III) Is an out-of-school youth. “Out-of-school youth” means
an individual who meets the definition in Section 3164(a)(1)(B)
of Title 29 of the United States Code.

end insert

(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 begin delete businesses end delete begin insert a small business or microbusiness end insert
that begin delete are end delete begin insert is end insert dominant in begin delete their end delete begin insert its end insert 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.

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

begin delete SEC. 3. end delete

begin insert SEC. 4. end insert   

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 begin delete enterprise, end delete
begin insert enterprise end insert 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 begin insert a end insert small business begin insert or employment social enterprise end insert
preference, or nonsmall business preference for bidders that provide
for small business, microbusiness, and employment social
begin delete enterprise, end delete begin insert enterprise end insert 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.

begin insert

(5) A bidder may be awarded a preference for both of the
following in a single bid:

end insert begin insert

(A) A small business preference or a nonsmall business
preference for bidders that provide for small business or
microbusiness subcontractor participation.

end insert begin insert

(B) An employment social enterprise preference or a nonsmall
business preference for bidders that provide for employment social
enterprise subcontractor participation.

end insert

(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).

begin insert

(g) In order to qualify for the incentives under this section, an
employment social enterprise shall demonstrate and certify under
penalty of perjury the following:

end insert begin insert

(1) Not less than 70 percent of the total labor hours, excluding
supervisors and administration, required to perform the
information technology or construction contact shall be completed
by an enterprise participant who faces multiple barriers to
employment.

end insert begin insert

(2) Not less than 70 percent of the total labor hours, excluding
supervisors and administration, required to manufacture the goods
and perform the contract shall be completed by an enterprise
participant who faces multiple barriers to employment. For an
employment social enterprise with 25 or fewer total employees,
50 percent of the total labor hours, excluding supervisors and
administration, required to manufacture the goods and perform
the contract shall be completed by an enterprise participant who
faces multiple barriers to employment.

end insert begin insert

(3) Not less than 80 percent of the total labor hours, excluding
supervisors and administration, required to provide services and
perform the contract shall be completed by an enterprise
participant who faces multiple barriers to employment.

end insert begin delete

(g)

end delete

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

begin delete SEC. 4. end delete

begin insert SEC. 5. end insert   

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.

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

begin delete SEC. 5. end delete

begin insert SEC. 6. end insert   

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.

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

begin delete SEC. 6. end delete

begin insert SEC. 7. end insert   

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.

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

begin delete SEC. 7. end delete

begin insert SEC. 8. end insert   

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 federal 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.

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

begin delete SEC. 8. end delete

begin insert SEC. 9. end insert   

Section 14839.1 of the Government Code is amended
to read:

14839.1.  

(a) The department shall have sole begin delete responsibility end delete
begin insert responsibility, except as provided for in subdivision (c), end insert for
certifying and determining the eligibility of small businesses,
microbusinesses, and employment social enterprises 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.

begin insert

(c) The department may assign all or portions of the certification
process, the determination of eligibility, or the auditing of
compliance with the articles of incorporation and the bylaws of
employment social enterprises to another state entity or local
entity.

end insert begin delete

(c)

end delete

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

begin delete SEC. 9. end delete

begin insert SEC. 10. end insert   

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 or Form 990 from the Internal
Revenue Service, United States Department of the Treasury,
requesting a transcript of a tax return. begin insert For an employment social
enterprise, the department may require documentation that the
employment social enterprise is operating in a manner consistent
with its articles of incorporation or bylaws end insert begin insert . end insert

(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.

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

begin delete SEC. 10. end delete

begin insert SEC. 11. end insert   

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 enterprise
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.

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

begin delete SEC. 11. end delete

begin insert SEC. 12. end insert   

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.

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

begin insert

begin insert SEC. 13. end insert   

end insert

begin insert Section 10111 of the end insert begin insert Public Contract Code end insert begin insert is amended
to read: end insert

10111.  

Commencing January 1, 2007, the department shall
make available a report on contracting activity containing the
following information:

(a) A listing of consulting services contracts that the state has
entered into during the previous fiscal year. The listing shall
include the following:

(1) The name and identification number of each contractor.

(2) The type of bidding entered into, the number of bidders,
whether the low bidder was accepted, and if the low bidder was
not accepted, an explanation of why another contractor was
selected.

(3) The amount of the contract price.

(4) Whether the contract was a noncompetitive bid contract,
and why the contract was a noncompetitive bid contract.

(5) Justification for entering into each consulting services
contract.

(6) The purpose of the contract and the potential beneficiaries.

(7) The date when the initial contract was signed, and the date
when the work began and was completed.

(b) The report shall also include a separate listing of consultant
contracts completed during that fiscal year, with the same
information specified in subdivision (a).

(c) The information specified in subdivisions (a) and (b) shall
also include a list of any contracts underway during that fiscal year
on which a change was made regarding the following:

(1) The completion date of the contract.

(2) The amount of money to be received by the contractor, if it
exceeds 3 percent of the original contract price.

(3) The purpose of the contract or duties of the contractor. A
brief explanation shall be given if the change in purpose is
significant.

(d) The level of participation, by agency, of disabled veteran
business enterprises in statewide contracting and shall include
dollar values of contract award for the following categories:

(1) Construction.

(2) Architectural, engineering, and other professional services.

(3) Procurement of materials, supplies, and equipment.

(4) Information technology procurements.

Additionally, the report shall include a statistical summary
detailing each awarding department’s goal achievement and a
statewide total of those goals.

(e) The level of participation by small business in state
contracting including:

(1) Upon request, an up-to-date list of eligible small business
bidders by general procurement and construction contract
categories, noting company names and addresses and also noting
which small businesses also qualify as microbusinesses.

(2) By general procurement and construction contract categories,
statistics comparing the small business and microbusiness contract
participation dollars to the total state contract participation dollars.

(3) By awarding department and general procurement and
construction categories, statistics comparing the small business
and microbusiness contract participation dollars to the total state
contract participation dollars.

(4) Any recommendations for changes in statutes or state
policies to improve opportunities for small businesses and
microbusinesses.

(5) A statistical summary of small businesses and
microbusinesses certified for state contracting by the number of
employees at the business for each of the following categories:
0-5, 26-50, 51-75, and 76-100.

(6) To the extent feasible, beginning in the year 2008, the
number of contracts awarded by the department in the categories
specified in paragraph (5).

(7) The number of contracts and dollar amounts awarded
annually pursuant to Section 14838.5 of the Government Code to
small businesses, microbusinesses, and disabled veteran business
enterprises.

(f) The level of participation of business enterprises, by race,
ethnicity, and gender of the owner, in contracts to the extent that
the information has been voluntarily reported to the department.
In addition, the report shall contain the levels of participation of
business enterprises, by race, ethnicity, and gender of the owner,
and whether the business is a lesbian, gay, bisexual, or transgender
owned business for the following categories of contracts, to the
extent that the information has been voluntarily reported to the
department:

(1) Construction.

(2) Purchases of materials, supplies, or equipment.

(3) Professional services.

(g) In the years 2011 and 2012, any errors reported to the
department by an awarding agency as required by Sections 10302,
10344, and 12104.5, in the previous fiscal year.

begin insert

(h) The level of participation by employment social enterprises
in state contracting, including the following:

end insert begin insert

(1) Upon request, an up-to-date list of eligible employment
social enterprises bidders by general procurement and construction
contract categories.

end insert begin insert

(2) By general procurement and construction contract
categories, statistics comparing the employment social enterprises
contract participation dollars to the total state contract
participation dollars.

end insert begin insert

(3) By awarding department and general procurement and
construction categories, statistics comparing the employment social
enterprises contract participation dollars to the total state contract
participation dollars.

end insert begin insert

(4) Any recommendations for changes in statutes or state
policies to improve opportunities for employment social
enterprises.

end insert begin insert

(5) The aggregate number of employees participating in
employment social enterprises and verification of on-the-job and
life skills training identified in subparagraph (D) of paragraph
(3) of subdivision (d) of Section 14837 of the Government Code.
This information shall be reported by categories, as established
by the department.

end insert begin delete

(h)

end delete

begin insert (i) end insert  The amendments made to this section by the act adding this
subdivision shall apply on and after January 1, 2013.

begin insert

begin insert SEC. 14. end insert   

end insert begin insert

No reimbursement is required by this act pursuant
to Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of
the Government Code, or changes the definition of a crime within
the meaning of Section 6 of Article XIII B of the California
Constitution.

end insert