BILL ANALYSIS
SENATE COMMITTEE ON VETERANS AFFAIRS
JEFF DENHAM, CHAIRMAN
Bill No: AB 1918
Author: Davis
Version: As amended April 5, 2010
Hearing Date: June 22, 2010
Fiscal: Yes
SUBJECT OF BILL
Public Utilities and procurement for Disabled Veterans'
Business Enterprises (DVBE).
PROPOSED LAW
1. Extend DVBE requirements to telecommunication
providers.
EXISTING LAW AND BACKGROUND
1. Since 1989 California has encouraged a goal of
awarding a 3% set aside to DVBE on state contracts.
2. In the early 2000s, rampant fraud was exposed in
the program, and the state legislature has attempted
to close fraud loopholes ever since.
3. Among other forms of fraud were "pass through"
companies that did not manufacture or compete in the
market place. They only added their mark- up to the
state's price for commodities.
AB 669 of 2003 (Cohn) codified the requirement for a
DVBE to perform a "commercially useful function"
(CUF). E.g.- State Department "X" needs 100 widgets.
Corporation "A" sells them for $10 a piece.
Corporation "A" sold 100 widgets to "DVBE widget
salesman", who in turn sells the widgets to the state
for $1025. State department "X" then claimed $1025
worth of business with a DVBE instead of $25.
4. Another form of fraud that had been detected was
the use of limited liability corporations (LLC) to
hide the fact that disabled veterans were no longer
owners of companies in spite of the fact that the
state was awarding contracts to those companies as
part of the DVBE program.
SB 1008 of 2003 (Machado) eliminated LLC for DVBEs
unless the company was 100% owned by disabled
veterans.
5. Fraud also came in the disguise of "equipment
brokering." SB 1008 of 2003 (Machado) also eliminated
counting brokered equipment costs towards satisfying
the DVBE goal.
6. AB 1942 of 2008 (Ruskin) increased the penalty for
violating the CUF clause and allowed the Department of
General Services (DGS) to recover fraud losses. The
bill made to the governor's desk but was a vetoed
casualty of the governor's budget ultimatum that year.
7. SB 548 of 2009 (Huff), which was signed into law,
required proof after completion of the contract that
DVBEs listed on contracts were actually paid.
8. After those fraud loopholes were closed the most
often used fraud was the exploitation of a "Good Faith
Effort" (GFE) in which companies would pretend to
contact a DVBE, or contact a DVBE for work in fields
other than the work DVBE did, and then report to the
state that the contractor in question had in good
faith attempted to hire a DVBE. At the time a GFE
could substitute for actual participation in the
program.
ABx4 21 of the 2009 Budget Act eliminated the GFE.
COMMENT
1. This bill recodifies outdated provisions of the
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DVBE program that have the potential to reintroduce
fraudulent DVBEs back into the California marketplace.
2. This committee's concern should be obvious. Since
the DVBE program was wracked with fraud in the early
2000s, the Legislature in general, and the Senate in
particular, have worked to close loopholes and end
fraud within the DVBE program.
3. If this bill passes in its present form, then it
will set the precedent for undoing all the reforms
that this Legislature, this house, and this committee
have worked on since 2003 by recodifying the elements
of the Public Utilities Code that allow the Public
Utilities Commission (PUC) to certify what is a DVBE
without any regard to state law or the legitimacy of
those DVBEs.
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STRONGLY SUGGESTED AMENDMENTS-
4. Section 8283 of the Public Utilities Code must be
amended to bring DVBE definitions in line with those
used by DGS. This section also needs to clarify that
the PUC can only use those DVBEs that are certified
and in good standing with DGS.
5. Section 8284 must also be amended to bring DVBE
definitions in line with those used by DGS. Like
section 8283 this section also needs to clarify that
the PUC can only use those DVBEs that are certified
and in good standing with DGS.
6. Likewise section 8285 of the Public Utilities Code
needs to be amended to implement the already existing
penalties for violation of the DVBE program. There is
no more a reason for the PUC to be able to set its own
penalties apart from DGS then there is to allow it to
arbitrarily determine what constitutes a DVBE.
7. AB 2758 (Bradford) is a companion bill (scheduled
for hearing on June 29 in the Senate Energy,
Utilities, and Communications Committee) to this one
and needs chaptering language and/or double jointing
language. If this bill is not signed but AB 2758 is,
then that bill will recodify the same fraud loopholes
and undo the work of this house and committee in the
same manner as AB 1918 if this bill leaves this
committee unamended.
PRIOR ACTIONS
Assembly Jobs 4-2
Assembly Appropriations 11-5
Assembly Floor 45-26
Senate Energy 7-2
SB 548 (Huff) 9/2/2009
Denham Aye
Correa Aye
Cedillo Aye
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Negrete-McLeod Aye
Wyland Aye
ABx4 21 (Evans) 7/23/2009
Denham Aye
Correa Aye
Cedillo No vote recorded
Negrete-McLeod Aye
Wyland Aye
AB 1942 (Ruskin) 8/11/2008
Denham Aye
Correa Aye
Cedillo Aye
Negrete-McLeod Aye
Wyland Aye
SB 1008 of 2003 (Machado)
Senator Denham Aye 9/10/2003
Senator Cedillo Aye 9/10/2003
Assemblywoman Negrete-McLeod Aye 9/8/2003
Assemblyman Wyland Aye 9/8/2003
AB 669 of 2003 (Cohn)
Senator Denham Aye 9/2/2003
Senator Cedillo Aye 9/2/2003
Assemblywoman Negrete-McLeod Aye 5/15/2003
Assemblyman Wyland Aye 5/15/2003
SUPPORT
None received
OPPOSE
Elite SDVOB Network, Northern CA Chapter
Compliance News and Paving Net
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