Existing law establishes procedures for state agencies to enter into contracts for goods and services, including generally requiring that certain contracts by a state agency be approved by the Department of General Services.

This bill would establish the California Nonprofit Fairness in Contracting Act and would define, among other terms, covered contract to mean a contract for goods or services by a state or local agency using state funds, including a grant made by a state or local agency using state funds. The bill would require a state or local agency to, among other things, establish a preference for covered contracts that last longer than one year when awarding a covered contract to a nonprofit, and would require those contracts to include a provision allowing for automatic cost of doing business increases. The bill would require a covered contract to provide the full cost of delivering services and projects, including paying at least state minimum wage and allowing for compensation and employee benefit packages that support competitive salaries and annual cost of living increases, as specified. By imposing new contracting requirements on local agencies, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.

Date of Hearing: April 19, 2023

ASSEMBLY COMMITTEE ON ACCOUNTABILITY AND ADMINISTRATIVE REVIEW

Cottie Petrie-Norris, Chair

ABPCA Bill Id:AB 885 (

Author:Luz Rivas) – As Introduced Ver:February 14, 2023

SUBJECT: Public contracts: nonprofit organizations

SUMMARY: Would establish the “California Nonprofit Fairness in Contracting Act” which would provide nonprofits preferential treatment when contracting with the state for goods or services or when contracting with a local agency using state funds. Specifically, this bill:

1. Would apply the following definitions for this chapter:
2. “Covered contract” means a contract for goods or services by a state agency or by a local agency using state funds. “Covered contract” also includes a grant made by a state agency or a local agency using state funds.
3. “Local agency” means any city, county, special district, authority, or other potential subdivision of the state.
4. “Nonprofit organization” means an organization exempt from federal income taxation pursuant to Section 501(c)(3) of the Internal Revenue Code.
5. Would require a state or a local agency to establish a preference in awarding multiyear “covered contracts” to nonprofit organizations and allowing for an “automatic cost of doing business” provision.
6. Would require a state or local agency to ensure prompt and expedited renewal of a covered contract with a nonprofit organization that is meeting the performance objectives identified in the covered contract.
7. Would require any covered contract between a state or local agency and a nonprofit organization to fully fund the cost of delivering services, including:
8. Paying at least the state minimum wage.
9. Allowing for compensation and employee benefit packages that support competitive salaries.
10. Providing annual cost of living increases.

EXISTING LAW:

The State Contract Act sets forth requirements for the procurement of materials, supplies, equipment, and services by state agencies. Existing law generally specifies procedures that govern state procurement and provides the Department of General Services authority over the business management function of the state, including contracting programs, policies and procedures.

Each individual state agency has its unique authorization to award grants.

FISCAL EFFECT: Unknown. This bill has not been analyzed by a fiscal committee.

COMMENTS:

Author’s Stated Intent and Purpose:

“Our nonprofits are the backbone of our communities and need support from the State to fight against homelessness, unemployment, and food insecurity. Rigid state contracts have left nonprofits empty-handed leaving little funding to pay their staff and services. AB 885 will fix this issue by having the State enter into multiyear contracts, to ensure that nonprofits have the financial stability to retain and hire staff to continue to provide services.”

Background.

As noted in the existing law section, the state administers “contracts” and “grants” differently. The Department of General Services (DGS) is the lead state agency overseeing the state contracting policies. The department will oversee all the large contracts but can also delegate contact approval authority to state agencies for smaller contracts. DGS’ authority is established in the California Government Code Sections 14600 – 14985.11 and the contracting laws are generally located in the California Public Contract Code.

DGS does not manage or have statutory authority over program grant awards. Every state agency will have its own unique statutory authority to issue grants. If a state agency awards a grant to any entity without express statutory authority, the grant award would be considered a gift of public funds. (California Constitution, Article XVI, Section 6)

Contracts versus Grants.

Establishing state agency regulations for awarding grants in the Public Contract Code (PCC) would not be consistent with the purpose of this code section. The PCC requirements are for state contracts. It would also be inconsistent with the PCC to statutorily set contracting conditions on a local agency receiving a grant funded by the state. Any requirements on a local agency receiving a grant funded by the state would be set in a state agency’s statutory grant authority.

The Author should consider removing “grants” from this proposal.

Automatic Cost of Doing Business.

Contract cost increases are generally a negotiated term of a contract. Statutorily mandating “automatic” cost increases is contrary to the competitive bid process.

That Author should consider redrafting this provision to provide more guidance in handling significant unanticipated costs in providing goods and/or services for a covered contract.

Mandating “Full Cost” of Covered Contracts.

A state agency will typically establish contract specifications and announce a Request for Bids. Through a competitive bidding process, the entity with the lowest responsible bid will receive the award. Statutorily setting hourly wage rates, compensation, employee benefits and cost of living increases significantly narrows the contracting solutions. Without any incentive to manage program cost, this could ultimately lead to inefficient operational costs.

The Author should consider redrafting this provision to focus on ensuring that contracts provide sufficient resources to fund the positions necessary to meet the contract objectives.

REGISTERED SUPPORT / OPPOSITION:

Support

California Family Resource Association

Child Abuse Prevention Center

Opposition

None on file.

Analysis Prepared by: Bernie Orozco / A. & A.R. / (916) 319-3600