BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
AB 450 (Wieckowski)
Hearing Date: 08/15/2011 Amended: 08/15/2011
Consultant: Jacqueline Wong-HernandezPolicy Vote: Education 7-2
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BILL SUMMARY: AB 450 requires that the California State
University (CSU) trustees' policies and procedures for the
acquisition of food services ensure that the service contractor
fully discloses to the CSU campus, auxiliary, or other CSU unit
all discounts, rebates, allowances and incentives received from
suppliers, and that the contractor pay the full amount of these
to the CSU campus. The bill also requires that these
requirements be placed in agreements upon their renewal,
extension, or amendment, or be part of any new service
agreement.
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Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13 2013-14 Fund
Disclose and refund rebates Unknown; potentially
significant revenue General
Contract requirements Likely minor, one-time costs
General
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STAFF COMMENTS:
Existing law authorizes the CSU trustees to enter into
agreements with any public or private agency, officer, person,
or institution, corporation, association, or foundation for the
furnishing of services, facilities, materials, goods, supplies,
or equipment by or for the trustees. Current law further
requires the trustees to prescribe policies and procedures for
the acquisition of services, facilities, materials, goods,
supplies, or equipment. (Education Code � 89036)
This bill requires a food service provider contracting with the
CSU that receives a discount, rebate, allowance, or other
AB 450 (Wieckowski)
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incentive from any supplier, to disclose and pay to the CSU
campus the full amount of the discount, rebate, or applicable
credit that is received based on the purchases made on behalf of
the CSU campus, auxiliary organization, or other unit of the
CSU. This bill further requires that the CSU food service
contracting policies and procedures ensure that disclosure, and
language stating this requirement be placed in food service
acquisition agreements.
According to the author, this bill was prompted by a recent $20
million settlement between the New York Attorney General and
Sodexho (a national provider of food services to schools and
colleges). The New York Attorney General sued Sodexho on behalf
of the State University of New York and local school districts
for contract violations. Specifically, Sodexho had agreed to
provide the actual food products at cost, and the Attorney
General claimed that contractors had adopted a business model
that involved overcharging for food by not disclosing that part
of the food costs paid for rebates back to them from the
suppliers. As part of the New York settlement, Sodexho must
disclose in future contracts with public entities any rebates it
receives from suppliers. The settlement was reached concerning
the violation of specific New York contracts that required food
products to be provided at cost.
CSU campuses negotiate their own food service contracts, and can
implement the requirements of this bill without legislation. It
is not known whether food costs are being misrepresented to CSU
campuses by any food service providers, nor the extent to which
those providers are receiving rebates and incentives. To the
extent that any future rebates and incentives given to food
service providers are passed on to CSU campuses that would not
have otherwise been passed on, it would result in revenue to the
contracting CSU. However, to the extent that food service
providers (no longer able to retain any supplier rebates) raise
their prices in response to the new restrictions, CSU savings
would be eroded.
This bill requires contracting procedure and language changes
for CSU food service contracts to be implemented upon the
renewal, extension, or amendment of an existing agreement or as
part of any new service agreement. During a renewal or contract
change, a CSU campus must dedicate staff resources to that
contract; the requirements of this bill are unlikely to result
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in significant additional costs or workload at a time when the
entire contract is already being renewed or changed.
This bill also specifies that any discounts, rebates,
allowances, and incentives paid to the CSU campus be available
for review as part of any audit, either internally or by the
State Controller. This requirement is consistent with existing
requirements to maintain payment records and records of other
financial transactions as part of the audit process. Current
audit processes examine all of a CSU's financial transactions
and contracts required for operation. Retaining records of
rebates received from food services contractors is unlikely to
add any significant costs to existing CSU audits.