BILL NUMBER: AB 574 CHAPTERED 10/10/99 CHAPTER 972 FILED WITH SECRETARY OF STATE OCTOBER 10, 1999 APPROVED BY GOVERNOR OCTOBER 10, 1999 PASSED THE ASSEMBLY SEPTEMBER 9, 1999 PASSED THE SENATE SEPTEMBER 8, 1999 AMENDED IN SENATE AUGUST 31, 1999 AMENDED IN SENATE AUGUST 17, 1999 AMENDED IN SENATE AUGUST 16, 1999 AMENDED IN SENATE JUNE 28, 1999 INTRODUCED BY Assembly Member Hertzberg FEBRUARY 19, 1999 An act to amend Section 4107 of, and to add Sections 1103 and 20101 to, the Public Contract Code, relating to public contracts. LEGISLATIVE COUNSEL'S DIGEST AB 574, Hertzberg. Public contracts: responsible bidder. Existing law defines the terms "public entity" and "public works contract" for the purposes of specified provisions of the Public Contract Code. This bill would define the term "responsible bidder" for these purposes, and would authorize a public entity to require each prospective bidder for a contract to complete and submit to the entity a standardized questionnaire and financial statement. This bill would require, with a specified exception, any public entity requiring standard questionnaires and financial statements to adopt and apply a uniform system of rating bidders on the basis of standard questionnaires and financial statements. This bill would require the Department of Industrial Relations, in collaboration with affected agencies and interested parties, to develop and draft a standardized questionnaire that public entities may use and to develop guidelines for rating bidders. The bill would also require the public entity requiring the prequalification to establish a process to permit prospective bidders to dispute their proposed prequalification rating. Under existing law, a prime contractor whose bid is accepted may not substitute a person as subcontractor in place of the subcontractor listed in the original bid, except that the awarding authority may, except as otherwise provided, consent to the substitution of another person as a subcontractor in specified situations. This bill would provide for the consent to the substitution in the situation when the awarding authority determines that a listed subcontractor is not a responsible contractor. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. The Legislature hereby finds and declares that the establishment by public agencies of a uniform system to evaluate the ability, competency, and integrity of bidders on public works projects is in the public interest, will result in the construction of public works projects of the highest quality for the lowest costs, and is in furtherance of the objectives stated in Section 100 of the Public Contract Code. SEC. 2. Section 1103 is added to the Public Contract Code, to read: 1103. "Responsible bidder," as used in this part, means a bidder who has demonstrated the attribute of trustworthiness, as well as quality, fitness, capacity, and experience to satisfactorily perform the public works contract. The Legislature finds and declares that this section is declaratory of existing law. SEC. 3. Section 4107 of the Public Contract Code is amended to read: 4107. A prime contractor whose bid is accepted may not: (a) Substitute a person as subcontractor in place of the subcontractor listed in the original bid, except that the awarding authority, or its duly authorized officer, may, except as otherwise provided in Section 4107.5, consent to the substitution of another person as a subcontractor in any of the following situations: (1) When the subcontractor listed in the bid after having had a reasonable opportunity to do so fails or refuses to execute a written contract, when that written contract, based upon the general terms, conditions, plans and specifications for the project involved or the terms of that subcontractor's written bid, is presented to the subcontractor by the prime contractor. (2) When the listed subcontractor becomes bankrupt or insolvent. (3) When the listed subcontractor fails or refuses to perform his or her subcontract. (4) When the listed subcontractor fails or refuses to meet the bond requirements of the prime contractor as set forth in Section 4108. (5) When the prime contractor demonstrates to the awarding authority, or its duly authorized officer, subject to the further provisions set forth in Section 4107.5, that the name of the subcontractor was listed as the result of an inadvertent clerical error. (6) When the listed subcontractor is not licensed pursuant to the Contractors License Law. (7) When the awarding authority, or its duly authorized officer, determines that the work performed by the listed subcontractor is substantially unsatisfactory and not in substantial accordance with the plans and specifications, or that the subcontractor is substantially delaying or disrupting the progress of the work. (8) When the listed subcontractor is ineligible to work on a public works project pursuant to Section 1777.1 or 1777.7 of the Labor Code. (9) When the awarding authority determines that a listed subcontractor is not a responsible contractor. Prior to approval of the prime contractor's request for the substitution the awarding authority, or its duly authorized officer, shall give notice in writing to the listed subcontractor of the prime contractor's request to substitute and of the reasons for the request. The notice shall be served by certified or registered mail to the last known address of the subcontractor. The listed subcontractor who has been so notified shall have five working days within which to submit written objections to the substitution to the awarding authority. Failure to file these written objections shall constitute the listed subcontractor's consent to the substitution. If written objections are filed, the awarding authority shall give notice in writing of at least five working days to the listed subcontractor of a hearing by the awarding authority on the prime contractor's request for substitution. (b) Permit a subcontract to be voluntarily assigned or transferred or allow it to be performed by anyone other than the original subcontractor listed in the original bid, without the consent of the awarding authority, or its duly authorized officer. (c) Other than in the performance of "change orders" causing changes or deviations from the original contract, sublet or subcontract any portion of the work in excess of one-half of 1 percent of the prime contractor's total bid as to which his or her original bid did not designate a subcontractor. SEC. 4. Section 20101 is added to the Public Contract Code, to read: 20101. (a) Except as provided in Section 20111.5, a public entity subject to this part may require that each prospective bidder for a contract complete and submit to the entity a standardized questionnaire and financial statement in a form specified by the entity, including a complete statement of the prospective bidder's experience in performing public works. The standardized questionnaire may not require prospective bidders to disclose any violations of Chapter 1 (commencing with Section 1720) of Part 7 of Division 2 of the Labor Code committed prior to January 1, 1998, if a violation was based on a subcontractor's failure to comply with these provisions and the bidder had no knowledge of the subcontractor' s violations. The Department of Industrial Relations, in collaboration with affected agencies and interested parties, shall develop model guidelines for rating bidders, and draft the standardized questionnaire, that may be used by public entities for the purposes of this part. The Department of Industrial Relations, in developing the standardized questionnaire, shall consult with affected public agencies, cities and counties, the construction industry, the surety industry, and other interested parties. The questionnaire and financial statement shall be verified under oath by the bidder in the manner in which civil pleadings in civil actions are verified. The questionnaires and financial statements shall not be public records and shall not be open to public inspection; however, records of the names of contractors applying for prequalification status shall be public records subject to disclosure under Chapter 3.5 (commencing with Section 6250) of Division 7 of Title 1 of the Government Code. (b) Any public entity requiring prospective bidders to complete and submit questionnaires and financial statements, as described in subdivision (a), shall adopt and apply a uniform system of rating bidders on the basis of the completed questionnaires and financial statements, in order to determine both the minimum requirements permitted for qualification to bid, and the type and size of the contracts upon which each bidder shall be deemed qualified to bid. The uniform system of rating prospective bidders shall be based on objective criteria. (c) A public entity may establish a process for prequalifying prospective bidders pursuant to this section on a quarterly basis and a prequalification pursuant to this process shall be valid for one calendar year following the date of initial prequalification. (d) Any public entity requiring prospective bidders on a public works project to prequalify pursuant to this section shall establish a process that will allow prospective bidders to dispute their proposed prequalification rating prior to the closing time for receipt of bids. The appeal process shall include the following: (1) Upon request of the prospective bidder, the public entity shall provide notification to the prospective bidder in writing of the basis for the prospective bidder's disqualification and any supporting evidence that has been received from others or adduced as a result of an investigation by the public entity. (2) The prospective bidder shall be given the opportunity to rebut any evidence used as a basis for disqualification and to present evidence to the public entity as to why the prospective bidder should be found qualified. (3) If the prospective bidder chooses not to avail itself of this process, the proposed prequalification rating may be adopted without further proceedings. (e) For the purposes of subdivision (a), a financial statement shall not be required from a contractor who has qualified as a Small Business Administration entity pursuant to paragraph (1) of subdivision (d) of Section 14837 of the Government Code, when the bid is no more than 25 percent of the qualifying amount provided in paragraph (1) of subdivision (d) of Section 14837 of the Government Code. (f) Nothing in this section shall preclude an awarding agency from prequalifying or disqualifying a subcontractor. The disqualification of a subcontractor by an awarding agency does not disqualify an otherwise prequalified contractor. SEC. 5. Nothing contained in this act shall apply to services procured pursuant to Chapter 10 (commencing with Section 4525) of Division 5 of Title 1 of the Government Code.