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<ns0:Id>20250SB__117499INT</ns0:Id>
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<ns0:ActionText>INTRODUCED</ns0:ActionText>
<ns0:ActionDate>2026-02-18</ns0:ActionDate>
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<ns0:SessionYear>2025</ns0:SessionYear>
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<ns0:AuthorText authorType="LEAD_AUTHOR">Introduced by Senator Valladares</ns0:AuthorText>
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<ns0:House>SENATE</ns0:House>
<ns0:Name>Valladares</ns0:Name>
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<ns0:Title> 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.</ns0:Title>
<ns0:RelatingClause>public contracts</ns0:RelatingClause>
<ns0:GeneralSubject>
<ns0:Subject>Public contracts: Department of Transportation: bid preferences: employee stock ownership plans.</ns0:Subject>
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<html:p>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.</html:p>
<html:p>This bill would, on and after January 1, 2028, require the department to provide certain bid preferences to a contractor with an employee stock ownership plan (ESOP) that bids on a state-funded construction contract, as specified. The bill would make it unlawful for a person or contractor to engage in specified behaviors related to the fraudulent obtaining or retaining of an ESOP bid preference and would subject a person or contractor 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.</html:p>
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<ns0:Preamble>The people of the State of California do enact as follows:</ns0:Preamble>
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<ns0:Num>SECTION 1.</ns0:Num>
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Chapter 8 (commencing with Section 15000) is added to Part 2 of Division 2 of the
<ns0:DocName>Public Contract Code</ns0:DocName>
, to read:
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<ns0:LawHeading type="CHAPTER" id="id_A9EFD856-EFBA-4B97-BA3A-65CE36CEECEA">
<ns0:Num>8.</ns0:Num>
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<ns0:LawHeadingText>Department of Transportation</ns0:LawHeadingText>
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<ns0:Num>15000.</ns0:Num>
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<html:p>For purposes of this chapter, the following definitions apply:</html:p>
<html:p>
(a)
<html:span class="EnSpace"/>
“Contractor” means any person or entity who submits a bid and performs work on a state-funded construction contract.
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<html:p>
(b)
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“Department” means the Department of Transportation.
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<html:p>
(c)
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“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.
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<html:p>
(d)
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“ESOP contractor” means a contractor that presents the following documentation at the time of bid:
</html:p>
<html:p>
(1)
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A valid and favorable ESOP determination letter from the Internal Revenue Service.
</html:p>
<html:p>
(2)
<html:span class="EnSpace"/>
Its most recently filed Internal Revenue Service Form 5500. The department may request any additional schedules associated with the form.
</html:p>
<html:p>
(3)
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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:
</html:p>
<html:p>
(A)
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Certification that the review was performed in accordance with standards established by the American Institute of Certified Public Accountants.
</html:p>
<html:p>
(B)
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Certification that the statements are the representations of management.
</html:p>
<html:p>
(C)
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Certification that the review consisted of inquiries and analytical procedures that are lesser in scope than those of an audit.
</html:p>
<html:p>
(D)
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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.
</html:p>
<html:p>
(e)
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“Person” means any individual, firm, corporation, association, or other entity doing business in California.
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<ns0:Num>15001.</ns0:Num>
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<html:p>
(a)
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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. The bid preference shall be awarded as follows:
</html:p>
<html:p>
(1)
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If 30 to 49 percent, inclusive, of the ESOP contractor is owned by its ESOP, one of the following may apply:
</html:p>
<html:p>
(A)
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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.
</html:p>
<html:p>
(B)
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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.
</html:p>
<html:p>
(2)
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If 50 to 99 percent, inclusive, of the ESOP contractor is owned by its ESOP, one of the following may apply:
</html:p>
<html:p>
(A)
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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.
</html:p>
<html:p>
(B)
<html:span class="EnSpace"/>
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.
</html:p>
<html:p>
(3)
<html:span class="EnSpace"/>
If 100 percent of the ESOP contractor is owned by its ESOP, one of the following may apply:
</html:p>
<html:p>
(A)
<html:span class="EnSpace"/>
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.
</html:p>
<html:p>
(B)
<html:span class="EnSpace"/>
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.
</html:p>
<html:p>
(b)
<html:span class="EnSpace"/>
An additional 1 percent to the bid preferences under subdivision (a) shall be provided to an ESOP contractor that includes employees covered by a collective
bargaining agreement or master labor agreement.
</html:p>
<html:p>
(c)
<html:span class="EnSpace"/>
(1)
<html:span class="EnSpace"/>
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.
</html:p>
<html:p>
(2)
<html:span class="EnSpace"/>
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.
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<html:p>
(d)
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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.
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<ns0:LawSection id="id_5CBB1EC0-B4B8-40CB-9BBF-91185E92800C">
<ns0:Num>15002.</ns0:Num>
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<html:p>
(a)
<html:span class="EnSpace"/>
It shall be unlawful for a person or contractor to do any of the following:
</html:p>
<html:p>
(1)
<html:span class="EnSpace"/>
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.
</html:p>
<html:p>
(2)
<html:span class="EnSpace"/>
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.
</html:p>
<html:p>
(3)
<html:span class="EnSpace"/>
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 that has requested acceptance as an ESOP contractor.
</html:p>
<html:p>
(4)
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Knowingly and with intent to defraud, fraudulently obtain, attempt to obtain, or aid another person or contractor in fraudulently obtaining or attempting to obtain, public moneys to which the person is not entitled under this chapter.
</html:p>
<html:p>
(5)
<html:span class="EnSpace"/>
Establish, or cooperate in the establishment of, or exercise control over, a contractor found to have violated any of paragraphs (1) to (4), inclusive.
</html:p>
<html:p>
(b)
<html:span class="EnSpace"/>
(1)
<html:span class="EnSpace"/>
A person or contractor 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.
</html:p>
<html:p>
(2)
<html:span class="EnSpace"/>
A person or contractor 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.
</html:p>
<html:p>
(c)
<html:span class="EnSpace"/>
A person or contractor 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 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.
</html:p>
<html:p>
(d)
<html:span class="EnSpace"/>
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 violation of this section.
</html:p>
<html:p>
(e)
<html:span class="EnSpace"/>
The department shall not enter into a contract with a person or contractor 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 suspended for violating this section during the period of the suspension.
</html:p>
<html:p>
(f)
<html:span class="EnSpace"/>
The department shall verify that the contractor to whom a contract is being awarded, or a person or contractor being used by that contractor, is not
under suspension for violating this section.
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<ns0:LawSection id="id_EB6F521C-DA36-429A-9C9B-F75C2ACAC610">
<ns0:Num>15003.</ns0:Num>
<ns0:LawSectionVersion id="id_94FD43BC-3D29-4425-9176-D63105C48D00">
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<html:p>This chapter shall become operative on January 1, 2028.</html:p>
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