SB 1174

SB1174:v98#DOCUMENT

Bill Start

CALIFORNIA LEGISLATURE— 2025–2026 REGULAR SESSION

Senate Bill

No. 1174

An act to add Chapter 8 (commencing with Section 15000) to Part 2 of Division 2 of the Public Contract Code, relating to public contracts.

LEGISLATIVE COUNSEL'S DIGEST

SB 1174, as amended, Valladares. Public contracts: Department of Transportation: bid preferences: employee stock ownership plans.

Existing law establishes the Department of Transportation and requires it to improve and maintain the state highways. Existing law authorizes the department to enter into any contracts required for the performance of its duties, as provided. Existing law establishes bid preferences in public contracting for certain types of bidders, including, but not limited to, small business and microbusiness bidders.

This bill would, on and after January 1, 2028, require the department to provide certain bid preferences to a contractor or subcontractor with an employee stock ownership plan (ESOP) that bids in which 30% or more is owned by the ESOP when the contractor or subcontractor bids or is part of a bid on a state-funded construction contract, as specified. The bill would make it unlawful for a person or contractor person, contractor, or subcontractor to engage in specified behaviors related to the fraudulent obtaining or retaining of an ESOP bid preference and would subject a person or contractor person, contractor, or subcontractor engaged in those behaviors to a suspension from bidding on or participating in any contract with the department for certain periods and specified civil penalties.

Digest Key

Vote: MAJORITY Appropriation: NO Fiscal Committee: YES Local Program: NO

Bill Text

The people of the State of California do enact as follows:

SECTION 1.

Chapter 8 (commencing with Section 15000) is added to Part 2 of Division 2 of the Public Contract Code, to read:

CHAPTER 8. Department of Transportation

15000.

For purposes of this chapter, the following definitions apply:

(a) “Contractor” means any person or entity entity, within the meaning of the provisions of Chapter 9 (commencing with Section 7000) of Division 3 of the Business and Professions Code, who submits a bid and performs work on a state-funded construction contract.

(b) “Department” means the Department of Transportation.

(c) “Employee stock ownership plan” or “ESOP” has the same definition as that term is defined in paragraph (7) of subsection (e) of Section 4975 of the Internal Revenue Code, as that provision read on January 1, 2022.

(d) “ESOP contractor” means a contractor or subcontractor that presents the following documentation at the time of bid: an attestation by an independent, certified public accountant, as defined in Section 5033 of the Business and Professions Code, of a percentage equal to or greater than 30 percent of the issued and outstanding shares of the contractor that are owned by its ESOP at the time of bid.

(1)A valid and favorable ESOP determination letter from the Internal Revenue Service.

(2)Its most recently filed Internal Revenue Service Form 5500. The department may request any additional schedules associated with the form.

(3)An independent review that establishes the percentage of the ESOP contractor that is owned by its ESOP. The independent review shall be performed by an independent accounting firm and shall cover, at minimum, all of the following:

(A)Certification that the review was performed in accordance with standards established by the American Institute of Certified Public Accountants.

(B)Certification that the statements are the representations of management.

(C)Certification that the review consisted of inquiries and analytical procedures that are lesser in scope than those of an audit.

(D)Certification that the accountant is not aware of any material modifications that need to be made to the statements for them to be in conformity with generally accepted accounting principles.

(e) “Person” means any individual, firm, corporation, association, or other entity doing business in California.

(f) “Subcontractor” means a contractor who contracts to perform work on a project without contracting directly with the awarding authority.

15001.

(a) Whenever the department prepares a solicitation for a state-funded construction contract, including, but not limited to, the alteration, demolition, repair, or improvement of a state facility, the department shall provide a bid preference to an ESOP contractor. each ESOP contractor based on the bid value of the work to be performed by the ESOP contractor. The bid preference shall be the cumulative total of bid preferences of all ESOP contractors listed in the bid and shall be awarded as follows:

(1) If 30 to 49 percent, inclusive, of the ESOP contractor is owned by its ESOP, one of the following may apply:

(A) In solicitations where an award is to be made to the lowest responsible bidder meeting specifications, the preference to the ESOP contractor shall be 2 percent of the lowest responsible bidder meeting specifications. bid value of the work to be performed by the ESOP contractor.

(B) In solicitations where an award is to be made to the highest scored bidder based on evaluation factors in addition to price, the preference to the ESOP contractor shall be 2 percent of the highest responsible bidder’s total score. bid value of the work to be performed by the ESOP contractor.

(2) If 50 to 99 percent, inclusive, of the ESOP contractor is owned by its ESOP, one of the following may apply:

(A) In solicitations where an award is to be made to the lowest responsible bidder meeting specifications, the preference to the ESOP contractor shall be 3 percent of the lowest responsible bidder meeting specifications. bid value of the work to be performed by the ESOP contractor.

(B) In solicitations where an award is to be made to the highest scored bidder based on evaluation factors in addition to price, the preference to the ESOP contractor shall be 3 percent of the highest responsible bidder’s total score. bid value of the work to be performed by the ESOP contractor.

(3) If 100 percent of the ESOP contractor is owned by its ESOP, one of the following may apply:

(A) In solicitations where an award is to be made to the lowest responsible bidder meeting specifications, the preference to the ESOP contractor shall be 4 percent of the lowest responsible bidder meeting specifications. bid value of the work to be performed by the ESOP contractor.

(B) In solicitations where an award is to be made to the highest scored bidder based on evaluation factors in addition to price, the preference to the ESOP contractor shall be 4 percent of the highest responsible bidder’s total score. bid value of the work to be performed by the ESOP contractor.

(b) An additional 1 percent to the bid preferences under subdivision (a) shall be provided to an ESOP contractor that includes employees covered by is a signatory to a collective bargaining agreement or master labor agreement. agreement that covers the contract to be awarded.

(c) (1) The bid preference amount in solicitations where an award is to be made to the lowest responsible bidder shall be computed by assessing the sum of the percentages pursuant to subdivisions (a) and (b) on the ESOP contractor’s lowest responsive bid. The bid preference shall then be subtracted from the bid. This amount shall be used for bid evaluation purposes.

(2) The bid preference amount in solicitations where an award is to be made to the highest scored bidder based on evaluation factors in addition to price shall be computed by assessing the sum of the percentages pursuant to subdivisions (a) and (b) on the ESOP contractor’s highest scored bid. The bid preference shall then be subtracted from the bid. This amount shall be used for bid evaluation purposes.

(d) The bid preferences in this section shall not be awarded to a noncompliant bidder and shall not be used to achieve any applicable minimum requirements.

15002.

(a) It shall be unlawful for a person or contractor person, contractor, or subcontractor to do any of the following:

(1) Knowingly and with intent to defraud, fraudulently obtain, retain, attempt to obtain or retain, or aid another in fraudulently obtaining or retaining or attempting to obtain or retain, acceptance as an ESOP contractor.

(2) Willfully and knowingly make a false statement with the intent to defraud, whether by affidavit, report, or other representation, to a state official or employee for the purpose of influencing the acceptance as an ESOP contractor.

(3) Willfully and knowingly obstruct, impede, or attempt to obstruct or impede, any state official or employee who is investigating the qualifications of a person or contractor person, contractor, or subcontractor that has requested acceptance as an ESOP contractor.

(4) Knowingly and with intent to defraud, fraudulently obtain, attempt to obtain, or aid another person or contractor person, contractor, or subcontractor in fraudulently obtaining or attempting to obtain, public moneys to which the person is not entitled under this chapter.

(5) Establish, or cooperate in the establishment of, or exercise control over, a contractor found to have violated any of paragraphs (1) to (4), inclusive.

(b) (1) A person or contractor person, contractor, or subcontractor who violates paragraphs (1) to (4), inclusive, of subdivision (a) shall be liable for a civil penalty not to exceed five thousand dollars ($5,000) for the first violation, and a civil penalty not to exceed twenty thousand dollars ($20,000) for each additional or subsequent violation.

(2) A person or contractor person, contractor, or subcontractor who violates paragraph (5) of subdivision (a) shall be liable for a civil penalty not to exceed fifty thousand dollars ($50,000) for the first violation, and a civil penalty not to exceed two hundred thousand dollars ($200,000) for each additional, or subsequent violation.

(c) A person or contractor person, contractor, or subcontractor that violates subdivision (a) shall, in addition to the penalties provided for in subdivision (b), be suspended from bidding on or participating as either a contractor, subcontractor, or supplier, in any contract or project for the department for a period of not less than 30 days nor more than one year. However, for an additional or subsequent violation the period of suspension shall be extended for a period of up to three years. A person or contractor person, contractor, or subcontractor that fails to satisfy the penalties imposed pursuant to this subdivision and subdivision (b) shall be prohibited from further contracting with the department until the penalties are satisfied.

(d) The department shall report an alleged violation to the Attorney General, who shall determine whether to bring a civil action against any person or contractor for person, contractor, or subcontractor for a violation of this section.

(e) The department shall not enter into a contract with a person or contractor person, contractor, or subcontractor suspended for a violation of this section during the period of the suspension. The department shall not award a contract to any contractor using the services of a person or contractor person, contractor, or subcontractor suspended for violating this section during the period of the suspension.

(f) The department shall verify that the contractor to whom a contract is being awarded, or a person or contractor subcontractor being used by that contractor, is not under suspension for violating this section.

15003.

This chapter shall become operative on January 1, 2028.