BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
1853 (Huffman)
Hearing Date: 8/12/2010 Amended: 5/28/2010
Consultant: Bob Franzoia Policy Vote: G O 7-1
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BILL SUMMARY: AB 1853 would require a state agency awarding a
public works
contract to provide a two percent bid preference to a bidder or
subcontractor providing credible employee health care coverage,
as specified. This bill would require a bidder and its
subcontractors to submit statements certifying that they qualify
for the bid preference, would require the bidder and contractors
to continue to make employee health care expenditures, as
specified, and would impose civil penalties in connection
therewith, as provided. This bill would become operative on
January 1, 2012 and would not apply to contracts advertised for
bid on or after January 1, 2017.
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Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12 2012-13 Fund
Bid preference Unknown, but significant annual state
costs, General/
potentially several millions of dollars
or more Special*
to the extent state contracts are awarded
to
other than the low bidder due to the
preference.
Also, to the extent the health care
coverage
preference dissuades contractors from
bid-
ding on state contracts, costs may
increase
due to reduced competition.
Contract administrationUnknown, but significant costs to
determine General/
compliance with the health care
coverageSpecial*
requirement
* Costs between January 1, 2012 and January 1, 2017
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STAFF COMMENTS: SUSPENSE FILE.
This bill 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.
This bill proposes to add Chapter 2.3 of Part 2 of Division 2 of
the Public Contracts Code, which does not apply, for example, to
the University of California which is governed, in part, by
Chapter 2.1. Preliminary information indicates the following
entities would also be exempt from the provisions of this bill:
Bureau of State Audits
California Earthquake Authority
Page 2
AB 1853 (Huffman)
California Public Employees' Retirement System
California State Lottery Commission
California State Teachers' Retirement System
Judicial Council
Legislative Data Center
Prison Industry Authority
The Department of General Services (DGS) and Caltrans, which
award the most public works contracts would have major contract
and administrative cost increases.
Preferences can currently be given for small business in
general, disabled veteran owned business enterprises, for small
businesses in economically targeted areas, and for businesses,
regardless of size, located in economically distressed areas.
These preferences are generally up to five percent. In
combination with this bill, a bidder could be awarded a contract
seven percent more expensive than the low bidder. Staff notes
Government Code Section 4535.2 applies maximum limits, that is,
the combined cost of preferences and incentives granted pursuant
by any provision of law may not exceed $100,000, which in the
case of a two percent preference would be a contract of $5
million.
DGS estimates additional administrative costs of $500 per
contract as DGS will be required to determine if a bidder is
eligible for this preference, enforce compliance with the
preference once awarded, and provide technical assistance. DGS
and the Department of Industrial Relations would be required to
develop a form for use by bidders and subcontractors certifying
each qualify for the bid preference. Because the bidder and
subcontractor(s) shall provide health care coverage for not less
than one year following acceptance of the bid, the state agency
will incur costs to monitor contracts and plans to ensure
compliance.
By one estimate, in 2007-08 and 2008-09, DGS contracted for
approximately $400 million and $200 million, respectively, for
public works. For purposes of illustration, if half of these
contract qualified for the maximum preference, contract costs
could increase by $6 million ($300 million times two percent).
Additionally, a smaller pool of bidder may result in increased
costs and contracting requirements may exclude some bidders
altogether.
Over the past three years, the average amount of state
contracting for goods was $1.4 billion, and services were $5.7
billion.
In 2008-09 and 2009-10, Caltrans contracted for $2.063 billion
(666 contracts) and $2.247 billion (608 contracts),
respectively, for public works.