BILL ANALYSIS
AB 926
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 926 (Ruskin)
As Amended September 4, 2009
Majority vote
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|ASSEMBLY: |80-0 |(May 26, 2009) |SENATE: |40-0 |(September 10, |
| | | | | |2009) |
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Original Committee Reference: J.,E.D. & E.
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 Senate amendments modify the disclosure requirements to
reduce the potential cost of implementing the measure.
EXISTING LAW :
1)Establishes the State Contract Act, administered through the
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.
AB 926
Page 2
AS PASSED BY THE ASSEMBLY , this bill required 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 made
other technical, nonsubstantive changes relating to the Small
Business Procurement Act.
FISCAL EFFECT : According to the Senate Appropriations
Committee, the cost for implementing this measure, prior to the
provisions added on the Senate Floor, is up to $70,000 in fiscal
year 2009-10 and up to $60,000 in 2010-11.
COMMENTS :
1)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
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
AB 926
Page 3
improvements to its contract oversight and administration
functions to better manage multi-faceted programs like the
Office Depot contract in the future.
2)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.
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916)
319-2090
FN: 0003057