BILL ANALYSIS
------------------------------------------------------------
|SENATE RULES COMMITTEE | AB 926|
|Office of Senate Floor Analyses | |
|1020 N Street, Suite 524 | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
------------------------------------------------------------
THIRD READING
Bill No: AB 926
Author: Ruskin (D), et al
Amended: As introduced
Vote: 21
SENATE GOVERNMENTAL ORG. COMMITTEE : 12-0, 6/23/09
AYES: Wright, Harman, Benoit, Denham, Florez, Negrete
McLeod, Oropeza, Padilla, Price, Wiggins, Wyland, Yee
NO VOTE RECORDED: Calderon
SENATE APPROPRIATIONS COMMITTEE : 12-0, 7/13/09
AYES: Kehoe, Cox, Corbett, Denham, Hancock, Leno, Price,
Runner, Walters, Wolk, Wyland, Yee
NO VOTE RECORDED: Oropeza
ASSEMBLY FLOOR : 80-0, 5/26/09 - See last page for vote
SUBJECT : State contracts: goods: loss leader
SOURCE : California Black Chamber of Commerce
California Small Business Association
DIGEST : This bill requires certain advertising of state
contracting opportunities to include a statement explaining
current state law against the use of "loss leaders."
ANALYSIS : Existing law establishes the State Contract
Act for the purpose of providing guidance on state
contracting for goods, services, and information
technology.
CONTINUED
AB 926
Page
2
Existing law prohibits a person engaged in business to sell
any product at less than the cost or give away any product
for the purpose of injuring competitors or destroying
competition.
Existing law defines "loss leader" as selling a product at
less than the cost: (1) where the purpose is to induce,
promote or encourage the purchase of other merchandise; (2)
the effect is a tendency or capacity to mislead or deceive
purchasers or perspective purchasers; or (3) where the
effect is to divert trade from or otherwise injure
competitors.
Existing law requires the Department of General Services
(DGS) to advertise contracts for goods worth at least
$25,000, in the Register and to publicly post a copy of the
solicitation.
Existing law also requires DGS to administer the Small
Business Act, including a certification process for
disabled veteran-owned business enterprises (DVBEs) and
small businesses, and a streamlined procurement process for
state contracts under $100,000 that are exempt from
advertising, bidding, and protest provisions in the State
Contract Act.
Existing law defines a small business as a business entity
that is independently owned, not dominant in its field of
operation, domiciled in California, employing 100 or fewer
employees, and earning $10 million or less in average
annual gross revenues for the three previous years. A DVBE
is defined as a business entity that is at least majority
owned or controlled by one or more disabled veterans.
This bill:
1.Stipulates that, with respect to a solicitation for a
state contract for goods, a request for proposal for a
contract for services that involves the furnishing of
equipment, materials, or supplies, and a request for
proposal for a state contract for the acquisition of
information technology goods and services, the following
statement must appear in every solicitation: "it is
AB 926
Page
3
unlawful for any person engaged in business within this
state to sell or use any article or product as a 'loss
leader' as defined in Section 17030 of the Business and
Professions Code. (Loss leaders are items sold at less
than cost.)
2.Makes several minor technical and code maintenance
changes to various statutes.
Comments
According to the author's office, the loss leader law is
the protection guaranteed to small businesses that larger
businesses cannot undercut market prices to drive
competitors out of business or win state contracts with
low-ball bids, and attempt to charge the state higher
prices later to recoup those costs.
The impetus for this bill stems from two separate
incidences of fraud and abuse. Last year, the state
bundled together its four major paper contracts that it had
previously bid separately into one single contract. In the
summer of 2008, the state awarded that contract. Several
of the companies which lost the bid argued that the winning
company was offering certain types of paper, notably
newsprint, at substantially below cost, thus allowing them
to win the contract - to print the ballot statements for
the 2008 general election - the company that won the
contract filed a price change, raising the price of
newsprint to levels above what other companies had bid.
The state ruled this as a violation and canceled that part
of the contract. Because of constitutional requirements
for mailing ballot statements, the state had to rush a bid
for newsprint and then rush the printing of the ballots
which led to additional printing costs of over $800,000.
Another such incident occurred with the acquisition of
office supplies. Among several major inconsistencies found
during an investigation of the state's office supply
contract with Office Depot, was the discovery of
"bait-and-switch" pricing for some products. Products were
offered at below cost prices, but these products were found
to be discontinued or sold out when state buyers tried to
AB 926
Page
4
purchase them.
The Florida Attorney General is currently investigating
this in their office supply contract with Office Depot, and
the City of Berkeley recently revoked their contract with
Office Depot over the same issue. Despite concern that the
loss leader law is being violated; the author's office
argues that a lack of knowledge about the law or its
obligations results in a lack of enforcement of the law.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
Fiscal Impact (in thousands)
Major Provisions 2009-10 2010-11
2011-12 Fund
Revision of state $70 Up to $60
annually, ongoing General/
contracting
Special*
provision
*Service Revolving Fund (non governmental cost fund of
working capital
and revolving funds used to record and report activities
from various
sources; approximately 30 percent of the monies in this
fund are federal
with the remaining funds split by an unknown percent
between the General
Fund and special funds)
SUPPORT : (Verified 7/15/09)
California Black Chamber of Commerce (co-source)
California Small Business Association (co-source)
ASSEMBLY FLOOR :
AYES: Adams, Ammiano, Anderson, Arambula, Beall, Bill
Berryhill, Tom Berryhill, Blakeslee, Block, Blumenfield,
Brownley, Buchanan, Caballero, Charles Calderon, Carter,
AB 926
Page
5
Chesbro, Conway, Cook, Coto, Davis, De La Torre, De Leon,
DeVore, Duvall, Emmerson, Eng, Evans, Feuer, Fletcher,
Fong, Fuentes, Fuller, Furutani, Gaines, Galgiani,
Garrick, Gilmore, Hagman, Hall, Harkey, Hayashi,
Hernandez, Hill, Huber, Huffman, Jeffries, Jones, Knight,
Krekorian, Lieu, Logue, Bonnie Lowenthal, Ma, Mendoza,
Miller, Monning, Nava, Nestande, Niello, Nielsen, John A.
Perez, V. Manuel Perez, Portantino, Price, Ruskin, Salas,
Saldana, Silva, Skinner, Smyth, Solorio, Audra
Strickland, Swanson, Torlakson, Torres, Torrico, Tran,
Villines, Yamada, Bass
TSM:cm 7/15/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****