BILL ANALYSIS
AB 177
Page 1
Date of Hearing: January 21, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Kevin De Leon, Chair
AB 177 (Ruskin) - As Amended: January 4, 2010
Policy Committee: Jobs, Econ
Development and the Economy Vote: 6 - 0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill increases penalties for people who falsely engage in
activities relating to the Small Business Procurement and
Contract Act (Small Business Act), including small businesses,
microbusinesses, and disabled veteran-owned business enterprises
(DVBE). Specifically, this bill:
1)Increases penalties for falsely obtaining small business
certification.
2)Requires a business that has been found to have fraudulently
obtained classification as a small business to pay the
awarding department for the costs incurred during the
investigation.
3)Increases penalties for a variety of other fraudulent
activities related to certified small businesses.
4)Extends the length of time a DVBE certification can be
suspended, from three years to five years for a first offense
and to a minimum of 10 years for subsequent offenses.
5)Clarifies that a vendor is prohibited from knowingly making
false statements in order to obtain a small business or DVBE
bid preference or state contract.
FISCAL EFFECT
Increasing the penalties for fraudulent activity and allowing
departments to recoup the costs of investigations should not
require the Department of General Services to conduct any
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additional investigations. That requirement already exists in
current law. Therefore, costs associated with this legislation
should be minor and absorbable within existing resources.
COMMENTS
1)Rationale . This bill stems from an issue that has arisen in
several states where large companies, particularly Office
Depot, have included small businesses in their contracts in
order to receive a bid preference established to benefit small
businesses. There is some question as to whether or not the
small businesses contained in the contracts are actually doing
the work included in the contracts or are simply passing
through the money to the large business. This bill would
require the state auditor to determine, prior to any contracts
being signed, whether or not a small business is being used as
a front for a large business in order to receive small
business bid preferences.
2)Background . There have been reports of questionable billing
practices and charges of over-billing from Office Depot in
North Carolina, Georgia, Florida, and Nebraska. The state of
Georgia recently cancelled its contract with Office Depot
because they determined they had been significantly
over-billed for supplies and equipment. Recently, in Nebraska
the state auditor concluded an investigation that determined
the state overpaid for office supplies and equipment because
of a series of pricing errors and overcharges from Office
Depot. The author's office contends the cancelled office
supply contract in Georgia is almost identical to California's
current contract and that it was set up by the same law firm.
In 2006, state officials announced they had been successful in
getting small businesses involved in selling office supplies
to state agencies. In addition, it was noted that these small
businesses would be partnering with Office Depot, whose
purchasing power would allow the state to significantly reduce
the cost of office supplies and equipment. A San Jose Mercury
News investigation found that nine small businesses that
handle 98% of the state contracts for office supplies and
equipment were not actually responsible for any of the orders
placed by the state departments. Their investigation showed
that none of the employees of any of the companies works at
the Lafayette office where the orders are processed. That
office is staffed by an Office Depot subcontractor. In
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addition, a review of expenditures shows a 20% increase in the
cost of office supplies over the last two years.
3)Small business bid preferences. Current law establishes
preferences for bids made by certified small businesses and
microbusinesses, including:
a) Providing a 5% preference for awards of state
procurement contracts where solicitations are made either
on the basis of lowest responsible dollar bid, or on the
basis of highest score, considering factors in addition to
price.
b) Limiting a single bid preference to $50,000. In
instances where a small business qualifies for multiple bid
preferences, the preference cannot be greater than the bid
price or more than $100,000. Application of the bid
preference is also prohibited from resulting in a bid which
exceeds the amount of funds appropriated by the
Legislature, as specified.
c) Permitting non-small businesses that subcontract at
least 25% of their contracts with small businesses to
qualify for the small business bidder's preference.
4)The DVBE Program was established in 1989 to address the
special needs of disabled veterans seeking rehabilitation and
training through entrepreneurship, and to recognize the
sacrifices of Californians disabled during military service.
Under the provisions of the program, each state agency is
encouraged, in awarding contracts, to honor California's
disabled veterans by taking all practical actions necessary to
meet or exceed a 3% DVBE participation goal.
5)Related Legislation . This bill is virtually identical to AB
1942 (Ruskin) from 2008 that was vetoed due to the late
passage of the 2008-09 budget. In the message the governor
wrote, "I am only signing bills that are the highest priority
for California. This bill does not meet that standard and I
cannot sign it at this time."
Analysis Prepared by : Julie Salley-Gray / APPR. / (916)
319-2081