AB 450
Page 1
ASSEMBLY THIRD READING
AB 450 (Wieckowski)
As Amended May 2, 2011
Majority vote
HIGHER EDUCATION
6-3
APPROPRIATIONS
12-5
Ayes:
Block, Brownley, Fong, Galgiani,
Lara, Portantino
Ayes:
Fuentes, Blumenfield, Bradford,
Charles Calderon, Campos, Davis,
Gatto, Hall, Hill, Lara, Mitchell,
Solorio
Nays:
Donnelly, Achadjian, Miller
Nays:
Harkey, Donnelly, Nielsen, Norby,
Wagner
SUMMARY: Requires the California State University (CSU) service contractors to disclose and
credit manufacturer rebates to CSU campuses. Specifically, this bill:
1) Provides that policies and procedures developed by the CSU Trustees for the acquisition of
services shall specify that any direct or indirect rebates from a third party shall be fully
disclosed and credited to the campus or other unit of the CSU, and be available for review as
part of any audit, as specified.
2) Provides the CSU Trustees, in conjunction with the State Controller (Controller), the right to
examine, at reasonable times and upon reasonable notice, the books, records and other
compilations of data of the services contractor that relate to the provisions and requirements
of all service contracts, including records related to any rebates received by a contractor from
a third party as a consequence of, or incidental to, a contract.
3) Defines "services contractor" to include those providing food, janitorial, laundry,
maintenance, window cleaning or landscape services.
4) Defines "rebate" to include any return of monetary value including, but not limited to, any
volume discounts, allowances, or discount purchase incentives.
EXISTING LAW:
1) Provides the CSU Trustees broad powers to establish policies and procedures governing the
acquisition of services, facilities, materials, goods, supplies, or equipment. Requires the
policies to include a competitive means for obtaining best value while complying with
legislative intent regarding competitive bids or proposals as expressed in the California
Public Contracts Code (Education Code §89036).
2) Authorizes the CSU Trustees to establish a process that allows a campus to make payments
directly to vendors and provides the CSU Trustees authority to draw from appropriated funds
amounts necessary to make payments of obligations of the university directly to vendors.
Provides that payments in excess of 10% of the fund total must be approved by the Director
of Finance (Government Code §12400.1).
AB 450
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3) Requires the CSU Trustees to contract with one or more public accounting firms to conduct
systemwide and individual campus annual financial statement and compliance audits.
Requires audits to test compliance with procurement procedures and the integrity of the
payments made (Government Code §12400.1).
4) Requires every contract involving the expenditure of public funds in excess of $10,000 by
any public entity to be subject to the examination and audit of the State Auditor for a period
of three years after final payment under the contract. Requires every contract to contain a
provision stating that the contracting parties shall be subject to that examination and audit
(Government Code §8546.7).
FISCAL EFFECT: According to the Assembly Appropriations Committee, to the extent the
Controller conducts the authorized audits of services contractors, CSU would be required to
reimburse the Controller for these services. Based on previous costs of Controller audits of
vendor payments, conducting just three audits in one year would cost $150,000. The above costs
could be much more than offset by recovering of rebates.
COMMENTS:
Background: According to the sponsor, food manufacturers commonly give rebates for
purchases from large food service companies such as Sodexo, Chartwells, and Aramark. In
2010, after significant controversy surrounding the amounts of those rebates, the U.S.
Department of Agriculture (USDA) enacted regulations requiring contractors under the federallysubsidized school meals program to disclose all discounts, rebates and other applicable credits
received by the contractor and to credit those rebates back to the school. The regulations are
designed to ensure that the limited school meals program resources are used as efficiently as possible
and that federal agencies are only paying "net costs." After concerns were raised that large food
service vendors were not returning all of the rebates received, the New York Attorney General
conducted an investigation revealing that, over a five-year period beginning in 2004, Sodexo
received significant rebates from suppliers without acknowledging or passing the savings on to
these schools–in violation of the contracts between Sodexo and the schools as well as state and
federal laws. In July of 2010, Sodexo agreed to pay New York $20 million to settle complaints.
While federal regulations are in place to prohibit contractors from pocketing rebates from food
manufacturers in California's federally-subsidized K-12 district meals programs, there appears to
be no federal or state laws governing this practice in California's higher education segments.
Purpose of this bill: According to the author, "There is no specific law or policy in this area
related to rebates nor are there laws relating to the ability of the CSU Trustees or the State
Controller to examine a service contractor’s books or records to determine if the contractor is
receiving off-invoice rebates from its suppliers. This bill will allow CSU to determine if for
example, food service companies are receiving rebate payments for their food purchases on
behalf of the university and whether these rebate payments are being credited back to the
campus. The audit provisions will allow CSU to discover if off-invoice rebates exist which may
point to receipt of rebates from suppliers to the contractor."
Analysis Prepared by:
Laura Metune / HIGHER ED. / (916) 319-3960
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