BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 177|
|Office of Senate Floor Analyses | |
|1020 N Street, Suite 524 | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
------------------------------------------------------------
THIRD READING
Bill No: AB 177
Author: Ruskin (D) and V. Manual Perez (D), et al
Amended: 7/15/10 in Senate
Vote: 21
SENATE GOVERNMENTAL ORG. COMMITTEE : 6-0, 6/9/10
AYES: Wright, Negrete McLeod, Padilla, Price, Wyland, Yee
NO VOTE RECORDED: Harman, Calderon, Denham, Florez,
Oropeza
SENATE VETERANS AFFAIRS COMMITTEE : 4-0, 6/22/10
AYES: Denham, Correa, Negrete McLeod, Cedillo
NO VOTE RECORDED: Wyland
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 67-0, 1/25/10 - See last page for vote
SUBJECT : Public contracts: small businesses and disabled
veteran
business enterprises
SOURCE : Author
DIGEST : This bill increases and conforms penalties for
persons who falsely engage in activities relating to the
Small Business Procurement and Contract Act, including
small businesses, microbusinesses, and disabled
veteran-owned business enterprises.
CONTINUED
AB 177
Page
2
ANALYSIS : Existing law establishes a preference for bids
made by certified small businesses and microbusinesses,
including providing a 5 percent 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. Non-small businesses that subcontract at least
25 percent of their contracts with small businesses may
also qualify for the small business bidder's preference.
Existing law limits 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.
Existing law imposes civil penalties and fines for
businesses that fraudulently obtain classification as a
small business or microbusiness. Civil penalties cannot
exceed $5,000. Also, existing law provides suspensions
from participation in state contracts for periods of not
less than six months and not more than three years. In
addition, existing law requires DGS to revoke the small
business certification of a business found to have
fraudulently obtained certification for a period of not
less than one year. For an additional or subsequent
violation, the period of certification revocation or
suspension must be extended for a period up to three years.
Under existing law, contracts awarded by state entities for
professional bond services, construction, and acquisition
of materials, supplies, and services are required to have
annual statewide participation goals of not less than three
percent for disabled veteran-owned business enterprises
(DVBEs).
Existing law imposes civil penalties and fines for
businesses that fraudulently obtain certification as a
DVBE. Such violations are misdemeanors punishable by
imprisonment in the county jail not to exceed six months or
by a fine not to exceed $1,000, or by both. In addition,
AB 177
Page
3
existing law provides that the person shall be liable for
civil penalties of up to $30,000 for the first offense and
up to $50,000 for additional or subsequent violations.
Furthermore, existing law provides for certain periods of
revocation and suspension for such violations.
This bill:
1. Increases the current three-year maximum suspension from
transacting any business with the State to10-years for
any person who obtains classification as a small
business or microbusiness by reason of having furnished
incorrect supporting information or withholding relevant
information.
2. Increases the current one year revocation period to five
years for a small business which has obtained
certification by reason of having furnished incorrect
information or withholding relevant information. Also,
with respect to subsequent violations, increases the
period of certification revocation or suspension to ten
years instead of the current three year period.
3. Requires a business that has been found to have
fraudulently obtained classification as a small business
or microbusiness to pay the awarding state agency and
the department an amount that is equal to the costs
incurred for investigating the improperly obtained
certification.
4. Increases existing civil penalties, as specified, for a
variety of fraudulent activities related to certified
small businesses. Also, increases the existing
suspension and revocation time periods, relative to
fraudulent activities, to mirror those referenced in
item #1 and item #2 above.
5. Adds a new provision to the Act that requires any
existing contract between any awarding department and
contractor to be terminated if the contractor knowingly
and fraudulently represents that a "commercially useful
function" is being performed by a small business or
microbusiness. Also, provides that if a contractor is
found to be in violation of this provision, any existing
AB 177
Page
4
contract must be terminated and the State Controller
must set off penalties and costs due to the state
against any payments due to that contractor.
6. Requires any person who violates specified fraudulent
activities to pay all costs incurred by the awarding
department and DGS for any investigation involving the
finding of the violation.
7. With respect to the State's DVBE program, adds a new
provision to the Military and Veterans Code making it
unlawful to knowingly and fraudulently represents that a
"commercially useful function" is being performed by a
DVBE in order to obtain or retain a bid preference.
Also, provides that if a contractor is found to be in
violation of this provision, any existing contract must
be terminated and the State Controller must set off
penalties and costs due to the state against any
payments due to that contractor.
8. Additionally, with respect to the DVBE program,
increases existing suspension and revocation penalties,
as specified.
Comments
According to the author's office, this bill is intended to
address fraudulent behavior by individuals and businesses
who seek to improperly obtain or retain small business and
DVBE certification, bidding preferences or participation in
state contracts.
The author's office notes that testimony provided in
legislative hearings by DGS, small business groups and DVBE
advocates indicates that some current and prospective state
contractors have fraudulently represented that they are a
certified small business, DVBE, or that they will be
utilizing the services of a certified small business or
DVBE subcontractor.
The author's office points out that in other reported
cases, individuals and businesses have made false
statements in order to assist an ineligible business to
become certified or to help them retain their improperly
AB 177
Page
5
obtained certification once the business is being
investigated by state officials. Still other individuals
and businesses have fraudulently submitted bid packages
that commit to using a certified DVBE or small business,
but in actuality the subcontract is never let or the
contracted work is inconsequential and only included in
order to obtain a bid preference.
The author's office claims that while existing law contains
penalties for contractors that fraudulently bid -
enforcement of these laws has been limited. This bill
substantially increases penalties for a variety of
fraudulent behaviors and extend existing periods of
revocation, including terms of suspension for participating
in state contracts. The author's office emphasizes that
this bill also creates an enforcement incentive by
authorizing awarding departments to be reimbursed for the
cost of successful investigations. Additionally, the bill
provides substantial deterrents to knowingly and willingly
make false representations.
Prior/Related Legislation
AB 31 (Price) Chapter 212, Statutes of 2009, among other
things, increased from $100,000 to $250,000 the maximum
contract threshold for awards to small business, including
microbusinesses and DVBEs under a specific streamlined
procurement process.
AB 1942 (Ruskin) 2007-08 Session, is nearly identical to AB
177 (Ruskin) of 2009-10 Session. (Vetoed by Governor on
the basis that the historic delay in passing the 2008-09
Budget forced him to prioritize bills sent to his desk and
only sign bills of highest priority)
AB 761 (Coto) Chapter 611, Statutes of 2007, requires each
state agency awarding contracts that are financed with
proceeds from the infrastructure bonds approved by voters
in November 2006 to establish a 25 percent small business
participation goal for state infrastructure construction
contracts and to provide specified assistance to small
businesses bidding on state infrastructure bond-related
contracts.
AB 177
Page
6
SB 1008 (Machado) Chapter 632, Statutes of 2004, among
other things, strengthenes the sanctions that can be levied
against businesses that fraudulently misrepresent their
eligibility for DVBE certification.
AB 669 (Cohn) Chapter 623, Statutes of 2004, among other
things, requires DVBEs and small businesses, as defined, to
perform commercially useful functions, as defined, in
relation to any contract those businesses are awarded under
certain provisions of law. Also, imposes certain civil
penalties for fraudulent misrepresentations regarding DVBE
and small business state contracts.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 7/26/10)
The Elite SDVOB Network
ASSEMBLY FLOOR :
AYES: Adams, Ammiano, Anderson, Arambula, Beall, Bill
Berryhill, Tom Berryhill, Blakeslee, Block, Blumenfield,
Bradford, Brownley, Buchanan, Chesbro, Conway, Cook,
Coto, De La Torre, De Leon, DeVore, Emmerson, Eng, Evans,
Feuer, Fletcher, Fong, Fuentes, Fuller, Gaines, Galgiani,
Garrick, Gilmore, Hagman, Hernandez, Hill, Huber,
Huffman, Jeffries, Jones, Knight, Lieu, Logue, Mendoza,
Miller, Monning, Nava, Niello, Nielsen, John A. Perez, V.
Manuel Perez, Portantino, Ruskin, Salas, Saldana, Silva,
Skinner, Smyth, Solorio, Audra Strickland, Swanson,
Torlakson, Torres, Torrico, Tran, Villines, Yamada, Bass
NO VOTE RECORDED: Caballero, Charles Calderon, Carter,
Davis, Furutani, Hall, Harkey, Hayashi, Bonnie Lowenthal,
Ma, Nestande
TSM:nl 8/2/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****
------------------------------------------------------------
|SENATE RULES COMMITTEE | AB 177|
|Office of Senate Floor Analyses | |
|1020 N Street, Suite 524 | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
------------------------------------------------------------
THIRD READING
Bill No: AB 177
Author: Ruskin (D) and V. Manual Perez (D), et al
Amended: 7/15/10 in Senate
Vote: 21
SENATE GOVERNMENTAL ORG. COMMITTEE : 6-0, 6/9/10
AYES: Wright, Negrete McLeod, Padilla, Price, Wyland, Yee
NO VOTE RECORDED: Harman, Calderon, Denham, Florez,
Oropeza
SENATE VETERANS AFFAIRS COMMITTEE : 4-0, 6/22/10
AYES: Denham, Correa, Negrete McLeod, Cedillo
NO VOTE RECORDED: Wyland
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 67-0, 1/25/10 - See last page for vote
SUBJECT : Public contracts: small businesses and disabled
veteran
business enterprises
SOURCE : Author
DIGEST : This bill increases and conforms penalties for
persons who falsely engage in activities relating to the
Small Business Procurement and Contract Act, including
small businesses, microbusinesses, and disabled
veteran-owned business enterprises.
CONTINUED
AB 177
Page
2
ANALYSIS : Existing law establishes a preference for bids
made by certified small businesses and microbusinesses,
including providing a 5 percent 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. Non-small businesses that subcontract at least
25 percent of their contracts with small businesses may
also qualify for the small business bidder's preference.
Existing law limits 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.
Existing law imposes civil penalties and fines for
businesses that fraudulently obtain classification as a
small business or microbusiness. Civil penalties cannot
exceed $5,000. Also, existing law provides suspensions
from participation in state contracts for periods of not
less than six months and not more than three years. In
addition, existing law requires DGS to revoke the small
business certification of a business found to have
fraudulently obtained certification for a period of not
less than one year. For an additional or subsequent
violation, the period of certification revocation or
suspension must be extended for a period up to three years.
Under existing law, contracts awarded by state entities for
professional bond services, construction, and acquisition
of materials, supplies, and services are required to have
annual statewide participation goals of not less than three
percent for disabled veteran-owned business enterprises
(DVBEs).
Existing law imposes civil penalties and fines for
businesses that fraudulently obtain certification as a
DVBE. Such violations are misdemeanors punishable by
imprisonment in the county jail not to exceed six months or
by a fine not to exceed $1,000, or by both. In addition,
AB 177
Page
3
existing law provides that the person shall be liable for
civil penalties of up to $30,000 for the first offense and
up to $50,000 for additional or subsequent violations.
Furthermore, existing law provides for certain periods of
revocation and suspension for such violations.
This bill:
1. Increases the current three-year maximum suspension from
transacting any business with the State to10-years for
any person who obtains classification as a small
business or microbusiness by reason of having furnished
incorrect supporting information or withholding relevant
information.
2. Increases the current one year revocation period to five
years for a small business which has obtained
certification by reason of having furnished incorrect
information or withholding relevant information. Also,
with respect to subsequent violations, increases the
period of certification revocation or suspension to ten
years instead of the current three year period.
3. Requires a business that has been found to have
fraudulently obtained classification as a small business
or microbusiness to pay the awarding state agency and
the department an amount that is equal to the costs
incurred for investigating the improperly obtained
certification.
4. Increases existing civil penalties, as specified, for a
variety of fraudulent activities related to certified
small businesses. Also, increases the existing
suspension and revocation time periods, relative to
fraudulent activities, to mirror those referenced in
item #1 and item #2 above.
5. Adds a new provision to the Act that requires any
existing contract between any awarding department and
contractor to be terminated if the contractor knowingly
and fraudulently represents that a "commercially useful
function" is being performed by a small business or
microbusiness. Also, provides that if a contractor is
found to be in violation of this provision, any existing
AB 177
Page
4
contract must be terminated and the State Controller
must set off penalties and costs due to the state
against any payments due to that contractor.
6. Requires any person who violates specified fraudulent
activities to pay all costs incurred by the awarding
department and DGS for any investigation involving the
finding of the violation.
7. With respect to the State's DVBE program, adds a new
provision to the Military and Veterans Code making it
unlawful to knowingly and fraudulently represents that a
"commercially useful function" is being performed by a
DVBE in order to obtain or retain a bid preference.
Also, provides that if a contractor is found to be in
violation of this provision, any existing contract must
be terminated and the State Controller must set off
penalties and costs due to the state against any
payments due to that contractor.
8. Additionally, with respect to the DVBE program,
increases existing suspension and revocation penalties,
as specified.
Comments
According to the author's office, this bill is intended to
address fraudulent behavior by individuals and businesses
who seek to improperly obtain or retain small business and
DVBE certification, bidding preferences or participation in
state contracts.
The author's office notes that testimony provided in
legislative hearings by DGS, small business groups and DVBE
advocates indicates that some current and prospective state
contractors have fraudulently represented that they are a
certified small business, DVBE, or that they will be
utilizing the services of a certified small business or
DVBE subcontractor.
The author's office points out that in other reported
cases, individuals and businesses have made false
statements in order to assist an ineligible business to
become certified or to help them retain their improperly
AB 177
Page
5
obtained certification once the business is being
investigated by state officials. Still other individuals
and businesses have fraudulently submitted bid packages
that commit to using a certified DVBE or small business,
but in actuality the subcontract is never let or the
contracted work is inconsequential and only included in
order to obtain a bid preference.
The author's office claims that while existing law contains
penalties for contractors that fraudulently bid -
enforcement of these laws has been limited. This bill
substantially increases penalties for a variety of
fraudulent behaviors and extend existing periods of
revocation, including terms of suspension for participating
in state contracts. The author's office emphasizes that
this bill also creates an enforcement incentive by
authorizing awarding departments to be reimbursed for the
cost of successful investigations. Additionally, the bill
provides substantial deterrents to knowingly and willingly
make false representations.
Prior/Related Legislation
AB 31 (Price) Chapter 212, Statutes of 2009, among other
things, increased from $100,000 to $250,000 the maximum
contract threshold for awards to small business, including
microbusinesses and DVBEs under a specific streamlined
procurement process.
AB 1942 (Ruskin) 2007-08 Session, is nearly identical to AB
177 (Ruskin) of 2009-10 Session. (Vetoed by Governor on
the basis that the historic delay in passing the 2008-09
Budget forced him to prioritize bills sent to his desk and
only sign bills of highest priority)
AB 761 (Coto) Chapter 611, Statutes of 2007, requires each
state agency awarding contracts that are financed with
proceeds from the infrastructure bonds approved by voters
in November 2006 to establish a 25 percent small business
participation goal for state infrastructure construction
contracts and to provide specified assistance to small
businesses bidding on state infrastructure bond-related
contracts.
AB 177
Page
6
SB 1008 (Machado) Chapter 632, Statutes of 2004, among
other things, strengthenes the sanctions that can be levied
against businesses that fraudulently misrepresent their
eligibility for DVBE certification.
AB 669 (Cohn) Chapter 623, Statutes of 2004, among other
things, requires DVBEs and small businesses, as defined, to
perform commercially useful functions, as defined, in
relation to any contract those businesses are awarded under
certain provisions of law. Also, imposes certain civil
penalties for fraudulent misrepresentations regarding DVBE
and small business state contracts.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 7/26/10)
The Elite SDVOB Network
ASSEMBLY FLOOR :
AYES: Adams, Ammiano, Anderson, Arambula, Beall, Bill
Berryhill, Tom Berryhill, Blakeslee, Block, Blumenfield,
Bradford, Brownley, Buchanan, Chesbro, Conway, Cook,
Coto, De La Torre, De Leon, DeVore, Emmerson, Eng, Evans,
Feuer, Fletcher, Fong, Fuentes, Fuller, Gaines, Galgiani,
Garrick, Gilmore, Hagman, Hernandez, Hill, Huber,
Huffman, Jeffries, Jones, Knight, Lieu, Logue, Mendoza,
Miller, Monning, Nava, Niello, Nielsen, John A. Perez, V.
Manuel Perez, Portantino, Ruskin, Salas, Saldana, Silva,
Skinner, Smyth, Solorio, Audra Strickland, Swanson,
Torlakson, Torres, Torrico, Tran, Villines, Yamada, Bass
NO VOTE RECORDED: Caballero, Charles Calderon, Carter,
Davis, Furutani, Hall, Harkey, Hayashi, Bonnie Lowenthal,
Ma, Nestande
TSM:nl 8/2/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****