BILL ANALYSIS
AB 1650
Page 1
Date of Hearing: May 5, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 1650 (Feuer) - As Amended: April 27, 2010
Policy Committee: JudiciaryVote:
9-0
Business and Professions 11-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill prohibits persons or firms with certain business
activities with Iran from bidding on public contracts.
Specifically, this bill:
1)Prohibits a person or firm engaged in investment activities in
Iran's energy sector, as specified, to bid on, submit a
proposal for, or enter into a contract with the state or with
local public entities.
2)Requires the state and local public entities to require a
person or business seeking a public contract who has had
business activities or other operations outside the U.S.
within the previous three years to certify that they are not
engaged in such investment activities.
3)Makes a false certification subject to all of the following
penalties:
a) A civil penalty of the greater of $250,000 or twice the
amount of the contract for which the false certification
was made.
b) Termination of the contract at the awarding public
entity's discretion.
c) Ineligibility to bid on a contract for three years.
4)Requires the awarding body to report a false certification to
the Attorney General (AG) and requires the AG to determine
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whether to bring a civil action. Also authorizes a local
public entity to report a false certification to a local
prosecutor, who may determine whether to bring a civil action.
5)Requires a public entity-if it determines that a person or
firm either under contract or who has submitted a bid or
proposal is engaged in investment activities in Iran's energy
sector-to provide 90 days written notice of its intent not to
enter into or renew a contract. The notice is to specify
that, if the person or firm ceases involvement in Iran's
energy sector, it may become eligible for a future contract.
6)Stipulates that all of the above are operative only upon
enactment of authorizing federal legislation or January 1,
2011, whichever is later, and are inoperative when federal law
ceases such authorization.
FISCAL EFFECT
1)The state would experience cost increases in several ways:
a) To the extent the new certification requirement leads to
fewer bidders on state contracts, the reduced competition
would likely result in increased costs on some contracts.
(The Department of General Services (DGS) indicates that it
has seen a drop in vendor participation since the
implementation of AB 498 in 2008, which prohibits companies
with business operations in Sudan from bidding on state
contracts for goods and services.) Given the multi-billion
dollar volume of annual state contracts, this impact would
likely be at least in the millions of dollars.
b) One-time costs of around $100,000 for DGS to develop the
certification form. The estimate is based on DGS's
experience in developing a certification form implementing
AB 498. In addition, DGS indicates that 15 other state
contracting entities developed their own certification
forms for AB 498, thus these agencies may incur similar
costs for this bill.
c) The new certification requirement would create a new
basis for bid protests, which will increase contract
administration cost related to protest hearings, delays in
awarding contracts, and re-bidding of contracts.
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2)Local agencies will experience costs similar to those
described above. These costs are not state reimbursable.
COMMENTS
1)Background and Purpose . Pending federal legislation on Iran
sanctions was introduced in response to concern over Iran's
engagement in nuclear proliferation. There are four measures
pending, two in the House and two in the Senate, that seek to
strengthen existing federal sanctions and enable state and
local governments to divest from companies engaging in
business in Iran's energy sector. Most relevant to this bill
are H.R. 2194 (Berman) and S. 2199 (Dodd), which would enact
the Comprehensive Iran Sanctions, Accountability, and
Divestment Act of 2009. Each measure expressly states it is
U.S. policy to support the decision of state and local
governments to prohibit the investment (which includes
contracting for goods or services) of assets that they control
in any person or company with substantial investments in
Iran's energy sector.
Specifically, the federal legislation authorizes a state or
local government to divest assets from, or prohibit the
investment in, any person or entity that (1) invests $20
million or more in Iran's energy sector, including in a firm
that provides oil or liquified natural gas tankers, or
products used to construct or maintain pipelines used to
transport oil or liquified natural gas, for the energy sector
in Iran, or (2) is a financial institutions which extends $20
million or more in credit to another person, for 45 days or
more, if that person will use the credit to invest in Iran's
energy sector.
Finally, the proposed federal legislation specifies that the
Act will cease 30 days after the president certifies to
congress that the government of Iran has ceased (1) providing
support for acts of international terrorism; and (2) the
pursuit, acquisition, and development of nuclear, biological,
and chemical weapons and ballistic missile technology.
2)Opposition includes the California Chamber of Commerce and
several associations representing specific industries.
Opponents argue that a scrutinized person should be subject to
sanctions only for knowingly submitting a false certification,
that the bill's provisions should only apply prospectively,
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and that the bill is premature given that the federal
legislation is still pending.
3)Prior Legislation . AB 961 (Krekorian) of 2009, which
prohibited companies that were engaged in business with
perpetrators of specified genocides and that still held looted
or deposited assets of genocide victims or their heirs from
entering into state contracts, was held on this committee's
Suspense File.
AB 498 (Hernandez)/Chapter 272 of 2008, prohibited companies
with business operations in Sudan from bidding on state
contracts for goods and services.
AB 221 (Anderson)/Chapter 671 of 2007, prohibited CalPERS and
CalSTRS from investing public employee retirement funds in a
company with active business operations in Iran's defense or
nuclear sectors, petroleum or natural gas resource
development, or with companies that engage in business with an
Iranian organization labeled as a terrorist group by the U.S.
government.
Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081