BILL ANALYSIS
Bill No: AB
1853
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2009-2010 Regular Session
Staff Analysis
AB 1853 Author: Huffman
As Amended: May 28, 2010
Hearing Date: June 29, 2010
Consultant: Art Terzakis
SUBJECT
Public Contracts
DESCRIPTION
AB 1853 requires state agencies to provide a 2% bid
preference on public works contracts if the bidder and
subcontractors provide health care coverage to employees.
Specifically, this measure:
1. Requires a state agency to provide a 2% bid preference
to the lowest responsible bidder if, during the 12-month
period immediately preceding submission of the bid, the
bidder, or subcontractor, provided "credible health care
coverage" to employees.
2. Provides that a bidder, or a subcontractor, that
employed individuals in California for more than 3-months
but fewer than 12-months immediately preceding submission
of the bid qualifies for the bid preference if, during
that time frame, the bidder or subcontractor, provided
credible health care coverage.
3. Requires a winning bidder, or subcontractor, to provide
credible health care for each employee for at least one
year following a bid acceptance; failure to do so will
result in payment to the state agency of an amount equal
to twice the cost that the bidder, or subcontractor,
would have incurred for health care, if it had complied
with this provision. Also, makes it explicit that a
bidder shall not be liable for a subcontractor's failure
to comply with this provision.
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4. Allows a bidder to claim an employee health care
expenditure bid preference by submitting separate
statements from the bidder and subcontractors certifying
qualification, and requires the Department of General
Services (DGS) to work with the Department of Industrial
Relations (DIR) to develop a form for this purpose.
Also, establishes penalties of a minimum amount of $2,500
and a maximum amount of $25,000 against contractors who
falsify information in the certification.
5. Provides that, if a winning bidder is denied the
employee health care expenditure bid preference because
of the sub-contractor's failure to do so, the bidder is
allowed 14 days to find an acceptable substitute
subcontractor.
6. Defines "credible health care coverage" to mean any
group policy, contract, or program that is written or
administered by a disability insurer, health care service
plan, fraternal benefits society, self-insured employer
plan, or any other entity, in this state or elsewhere,
and that arranges or provides medical, hospital, and
surgical coverage not designated to supplement other
private or governmental plans.
7. Stipulates that this measure shall become operative on
January 1, 2012 and shall not apply to any contract
advertised for bid on or after January 1, 2017 (5-year
sunset).
EXISTING LAW
Under the State Contract Act and various provisions in the
Local Agency Public Construction Act, state and local
agencies awarding contracts are required to award the
contract to the lowest responsible bidder.
Existing law governs the solicitation, review and award of
state contracts and establishes various programs and
preferences in public contract law designed to serve a
broad public purpose, such as preference for small
businesses, disabled veteran business enterprises (DVBE)
and recycled products. Existing law designates the
Department of General Services (DGS) to administer the
Small Business Procurement and Contract Act, including, but
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not limited to, small business, microbusinesses and DVBE
certification processes.
The Small Business Procurement and Contract Act requires
the Director of DGS and the heads of other state agencies
that enter into contracts for the provision of goods,
services,
and information technology and for the construction of
state facilities to establish goals for the participation
of small businesses in these contracts, to provide for
small business preference in the award of these contracts,
to give special consideration and special assistance to
small businesses, and, whenever possible, to make awards to
small businesses, as specified.
Existing law requires state agencies to give
"California-based" small businesses, as defined, a 5% bid
preference in contracts for construction, the procurement
of goods, or the delivery of services.
Existing law requires all employees who work on public
works projects with a budget of $1,000 or more to be paid
the general prevailing wage as determined by the Department
of Industrial Relations.
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 15%
for minority-owned firms, 5% for women-owned firms, and 3%
for disabled veteran-owned business enterprises.
Contractors must achieve these minimum participation goals
or demonstrate that they have made a "good faith effort" to
achieve participation. (These statutes have essentially
been rendered inoperative as a result of a U.S. 9th Circuit
Court of Appeals decision - Monterey Mechanical v. State of
California.) Unaffected by that court order are
contracting preferences for disabled veterans.
BACKGROUND
Purpose of AB 1853: The Legislature has recently explored
a variety of policy proposals to extend or increase health
coverage to workers who are either under-covered or
uninsured. A primary reason for these initiatives is the
decline of employer-provided health insurance, as well as
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the increase in state-based healthcare costs due to the
increase of individuals requiring state subsidized
healthcare. Although many employees working on public
works jobs covered by prevailing wage determinations will
be well compensated, their ability to purchase health plans
for their families can be outstripped by the increase in
the costs of health insurance premiums, particularly when
purchasing these plans as individuals.
A study by the UC Berkeley Center of Labor Research and
Education found that, between 2000 and 2004, there were
average annual increases of 11% in insurance premiums.
This study found that for every premium increase of 10%,
910,000 adults and 442,000 children would lose
employer-based coverage - increasing the number of
uninsured individuals by 817,000 and the number of people
on publicly subsidized health plans by 380,000.
This measure, sponsored by the State Buildings and
Construction Trades Council, is intended to provide an
incentive for bidders on state contracts who provide health
care benefits for their employees. The sponsor notes that
"working families with incomes of more than $50,000 a year
now make up more than a third of the uninsured population"
in California. Given the increased burden placed on public
health care programs, by maintaining employer-based health
care, this measure is intended to reduce the number of
families who become dependent on these programs.
Arguments in Opposition: Opponents recognize that too many
workers in the construction industry remain uninsured
however they note that recent enactment of federal health
care reform should help eliminate the problem.
Opponents contend that this measure would create an unfair
advantage for certain contractors and subcontractors in the
bidding process, increase costs to government, and
disadvantage those employers who cannot afford to provide
health care coverage. Opponents also contend that they are
already making a significant contribution to employee
healthcare due to the fact that all contractors on public
works projects are required to pay "prevailing wage" which
includes a portion of the wage rate as health and welfare.
Opponents also express concern with the fact that the bid
preference contained in this measure could inadvertently
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harm the competitiveness of small contractors in California
by giving a new "uncapped" bid preference to large
contractors who already have the lion's share of public
works contracts. Opponents argue that "large construction
contractors, who for the most part already provide employee
health coverage, could, under this measure, submit higher
bids for projects knowing they would automatically capture
the 2% preference without incurring any additional
expenses."
Center on Policy Initiatives (CPI) Report: The CPI
issued a report in March 2009 entitled, "Construction:
Working without a Healthcare Net." The survey estimated
that there are 1.3 million construction workers in
California and that 356,000 construction workers (or 27%)
did not have any health insurance for the entire year.
While the construction industry represents 7.3% of the
state workforce, it accounts for 15% of the chronically
uninsured. CPI's survey also found that 35% of
construction industry workers received employer-funded
health insurance, compared to 50% of workers across all
industries. CPI concluded that construction workers often
forego doctor visits, which leads to undiagnosed health
problems and costlier emergency room bills.
The Small Business Act : The Small Business Act,
administered through DGS, was implemented more than 30
years ago to establish a small business preference within
the state's procurement process that would increase the
number of contracts between the state and small businesses.
In 1989, a DVBE component was added to state procurement
practices (SB 1517 - Dills, Chapter 1207 of 1989).
Certification of small businesses, including
microbusinesses, and DVBEs is generally undertaken by DGS.
The Small Business Act declares that it is the policy of
the State of California that the state aid the interests of
small businesses in order to preserve free competitive
enterprise and to ensure that a fair portion of the total
purchases and contracts of the state be placed with these
enterprises.
Since 2001, there have been four Executive Orders (EO)
specifying goals for small business and DVBE participation
in state procurement contracts, including EO D-37-01
(2001), EO S-02-06 (2006), EO D-43-01(2001), and EO S-11-06
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(2006). The first two EOs set 25% small business
participation goals, and the third set a 3% DVBE
participation goal for all state procurement contracts.
The fourth EO set a 25% participation goal for state
construction contracts, particularly those awarded by the
California Department of Transportation (Caltrans) when
implementing Proposition 1B.
Bidding Preferences: Under current law, there are certain
circumstances where contractors bidding on a state contract
can have the overall cost of their bid discounted by 5% in
order to make them more competitive as a low bidder.
Preferences can currently be given for small business in
general, disabled veteran-owned business enterprises, for
small businesses in economically target areas, and for
businesses, regardless of size, located in economically
distressed areas. The maximum amount provided for each
qualifying bidding preference is $50,000 with a
total bid maximum of $100,000. This means that contractors
with bids of up to $100,000 higher than the lowest bid can
be awarded the contract if they qualify for two bidding
preferences.
PRIOR/RELATED LEGISLATION
SB 1108 (Price) 2009-10 Session. Among other things,
authorizes DGS to implement a statewide small business
procurement participation goal of 25%. (Pending in
Assembly policy committee)
SB 755 (Negrete McLeod) 2009-10 Session. Would have
established a new participation goal program for persons
with developmental disabilities business enterprises, as
defined, to assist and encourage participation of
developmentally disabled in state contracting
opportunities. (Died Senate Appropriations Suspense File)
AB 26 (Hernandez) 2009-10 Session. Requires state
agencies, effective January 1, 2011, on public works
contracts requiring award to the lowest responsible bidder,
to provide a 2% bid preference if the bidder qualifies for
this preference by meeting a specified threshold for
employer-provided health care benefit expenditures. (Died
Assembly Suspense File)
AB 396 (Hernandez) 2007-08 Session. Similar to AB 26
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(Hernandez) of 2009. (Died Senate Appropriations Suspense
File)
SB 1687 (Negrete McLeod) 2007-08 Session. Would have
established a 2% participation goal for developmentally
disabled business enterprises, as defined, to assist and
encourage participation of developmentally disabled in
state contracting opportunities. (Died Assembly
Appropriations Suspense File)
AB 2323 (Wyman) 2001-02 Session. Would have established
parity between DVBEs and small businesses by creating a 5%
bid preference for DVBEs on public contracts. (Held in
Senate fiscal committee)
SB 1033 (Knight) 2001-02 Session. Would have established
an additional 3% bid preference in the Small Business
Procurement and Contract Law for small businesses that are
also certified as a DVBE. (Held in Assembly fiscal
committee)
SB 73 (Murray) 1999-2000 Session. Would have recast many
of the same requirements previously mandated of bidders
under the MBE and WBE participation statutes, and the
existing DVBE statute for small businesses. (Vetoed by
Governor)
SB 2110 (Knight) 1999-2000 Session. Would have required
state agencies, in evaluating bid submissions, to give a 5%
bid preference, until 1/1/2004, to bids by any DVBE that is
a prime contractor. (Held in Assembly fiscal committee)
SB 2041 (Kopp) 1997-98 Session. Would have dismantled
various programs that promote access for women and
minorities in public sector employment, education and state
contracting. Also, would have enacted the Small Business
Acquisition and Contract Act for the purpose of promoting
and facilitating the participation of California "small
businesses" in state contracting. (Failed passage in this
committee)
SUPPORT: As of June 25, 2010:
State Building and Construction Trades Council of
California (sponsor)
California Conference Board of the Amalgamated Transit
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Union
California Conference of Machinists
California Labor Federation
California Legislative Conference of Plumbing, Heating and
Piping Industry
California Professional Firefighters
California State Pipe Trades Council
California Teamsters
Engineering & Utility Contractors Association
Engineers and Scientists of California, IFPTE Local 20
International Longshore and Warehouse Union
SUPPORT: (continued)
Jockeys' Guild
National Electrical Contractors Association, California
Chapter (NECA)
National Union of Healthcare Workers
Professional and Technical Engineers, IFPTE Local 21
State Association of Electrical Workers
United Food and Commercial Workers Western States Council
UNITE-HERE
Western State Council of Sheet Metal Workers
OPPOSE: As of June 25, 2010:
American Council of Engineering Companies
Associated Builders and Contractors of California
Associated General Contractors
California Framing Contractors Association
California Landscape Contractors Association
California Chamber of Commerce
National Federation of Independent Business
Western Electrical Contractors Association (WECA-IEC)
FISCAL COMMITTEE: Senate Appropriations Committee
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