BILL ANALYSIS
AB 926
Page 1
ASSEMBLY THIRD READING
AB 926 (Ruskin)
As Introduced February 26, 2009
Majority vote
ECONOMIC DEVELOPMENT 7-0 BUSSINESS & PROFESSIONS 11-0
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|Ayes:|V. Manuel Perez, Logue, |Ayes:|Hayashi, Emmerson, |
| |Beall, | |Conway, |
| |Bill Berryhill, Block, | |Eng, Hernandez, Nava, |
| |Huber, Salas | |Niello, |
| | | |John A. Perez, Price, |
| | | |Ruskin, Smyth |
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APPROPRIATIONS 16-0
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|Ayes:|De Leon, Nielsen, | | |
| |Ammiano, | | |
| |Charles Calderon, Davis, | | |
| |Duvall, | | |
| |Krekorian, Hall, Harkey, | | |
| |Miller, | | |
| |John A. Perez, Price, | | |
| |Skinner, Solorio, | | |
| |Audra Strickland, | | |
| |Torlakson, | | |
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SUMMARY : Requires every solicitation that appears in the
California State Contracts Register, or specified requests for
proposals relating to the furnishing of equipment, materials,
supplies, or telecommunications to contain the following statement,
"It is unlawful for any person engaged in business within this
state to sell or use any article or product as a "loss leader," as
defined. The bill also makes other technical, nonsubstantive
changes relating to the Small Business Procurement Act.
EXISTING LAW :
1)Establishes the State Contract Act, administered through the
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Department of General Services (DGS), for the purpose of
providing guidance on state contracting for goods, services, and
information technology.
2)Prohibits a person engaged in business in California to sell any
product at less than the cost or give away any product for the
purpose of injuring competitors or destroying competition. More
specifically, existing law defines a "loss leader" as selling a
product at less than cost:
a) Where the purpose is to induce, promote or encourage the
purchase of other merchandise;
b) Where the effect is a tendency or capacity to mislead or
deceive purchasers or perspective purchasers; or,
c) Where the effect is to divert trade from or otherwise
injure competitors.
FISCAL EFFECT : According to the analysis of the Assembly
Appropriations Committee, implementation of this bill would result
in minor costs, likely less than $75,000 General Fund, for updating
materials, developing policies, and the workload associated with
disputes, inquiries, and general assistance.
COMMENTS :
1)According to the author, the purpose of AB 926 is to ensure that
the existing loss leader protections for small businesses are
fully enforced and that larger businesses cannot undercut market
prices to drive competitors out of business.
2)In August of 2008, DGS released an internal compliance audit of
an office supply contract with Office Depot, Inc (Office Depot),
Contract No. 1S-06-75-55. In this contract, DGS had consolidated
the state's primary office supply purchases into a single
contract with the expectation of the state receiving significant
discounts.
Key issues investigated included whether the contract complied
with state pricing rules and the small business and DVBE
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contracting requirement that they serve a commercially useful
function (CUF). In its findings the audit stated that over all,
Office Depot had met the CUF requirements and that items covered
in the contract had been accurately priced. However, the audit
found $34,399 (13%) in over-charges on items identified within
the contract.
Further, the auditor identified approximately 16,000 items ($14.2
million) that had been purchased by the state that were not
specifically covered in the contract and therefore received no
discounts. While initially, Office Depot stated that they were
not aware of any contract limitation on offering "off-contract"
products within their catalog and online ordering website, Office
Depot ultimately agreed to repay the state $2.5 million.
In addition to the issues addressed above, the audit identified
some shortcomings in the state's administration of this contract.
As a result, DGS states that it has made improvements to its
contract oversight and administration functions to better manage
multi-faceted programs like the Office Depot contract in the
future.
3)While the scope of the Office Depot audit included a review of
whether the pricing generally conformed with state laws, the
author contends that the audit should have specifically addressed
the issue of whether Office Depot engaged in the illegal activity
of using certain low cost products as a loss leader to either win
the contract or in the implementation of the contract.
Historically, many state agencies have used their office supply
contracts to meet their annual 25% procurement goal for small
businesses and their 3% goal for DVBEs. By bundling the state
office supply contract, many small businesses believe an
important business opportunity is being eliminated. Small
businesses are potentially already at a disadvantage to larger
office suppliers who have access to bulk discounts. Therefore,
enhanced enforcement of this existing loss leader law is central
to small businesses ongoing ability to obtain state contracting
opportunities.
According to the author, when DGS was asked whether they had
audited for violations of the loss leader law, the auditors
responded that they were not aware of the law. The author states
that implementation AB 926 addresses this lack of knowledge of a
1950s law by placing a reference to it within the State
Contracting Code.
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Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916)
319-2090
FN: 0000738