Small Business (SB)/Disabled Veteran Business Enterprise (DVBE) Program Violations and Sanctions

Investigate alleged program abuse or suspected program violations immediately. Review Government Code Section 14842.5 for Small Business (SB), Military & Veterans Code Section (M&VC) Section 999.9 for DVBE, California Code of Regulations, Title 2, Section 1896 et seq., and Public Contract Code Section 10115.10 to identify appropriate violations and sanctions. Submit a written report and recommended action commensurate with the findings to the Office of Small Business & DVBE Services (OSDS). The report, a public record, is due within 60 working days of notification of the alleged violation. In preparation for a suspension action based on fraudulently obtaining State monies (a contract), the OSDS will work with the awarding department. The awarding department may terminate the contract for default when the suspension is imposed and a contract has been determined to have been obtained fraudulently.

Notify the awarding department immediately. Submit documentation for alleged program abuse to the awarding department's contract administrator or SB/DVBE Advocate. If the awarding department is not known, submit the documentation to the DGS, Procurement Division, Office of Small Business and DVBE Services (OSDS), Compliance – Potential Program Abuse Unit.

The law requires that contractors and persons who have been determined to be in violation that resulted in suspension be identified on a list made available to State Buyers and the public. See List of Suspended Firms.

Definition

"Suspended" means a firm (contractor, subcontractor, supplier, subsidiary, or affiliate) has been deemed as violating State small business or DVBE certification laws in conjunction with State contracting laws. The suspended firm(s) and its principal(s) are prohibited from entering into a State project or contract until all imposed penalties, costs, and attorney fees are satisfied.

• Awarding departments will check the suspension list to ensure a contractor or subcontractor is not under suspension from State contracting.
• No awarding department will enter into any contract with any business and/or person identified in the listing during the business' and/or person's suspension period.
• No awarding department will award a contract to any contractor utilizing the services of a suspended subcontractor during the suspended subcontractor's suspension period.

Authority

• Government Code Section 14842.5(a)
• Military & Veterans Code Section 999.9

Fraudulent intent and activity as defined under Government Code (GC) Sections 14842(a) and 14842.5(a)(1-9) are considered Small Business Certification Program violations. Sanctions and penalties are found in GC Sections 14842(a-g) and 14842.5(b-e), as follows:

• Pay the state any difference between the contract amount and what the state's costs would have been if the contract had been properly awarded.
• Pay to the awarding state agency and the department an amount that is equal to the costs incurred for investigating the certification that led to the finding for the improperly awarded contract(s). Costs include, but are not limited to, costs and attorney’s fees related to hearings and court appearances.
• Pay an assessed penalty not to exceed 10 percent of the contract amount.
• Suspends violators from transacting any business with the state either directly as a prime contractor or indirectly as subcontractor for three to ten years. Extends suspensions for ten years for additional or subsequent violations.
• State agencies may reject the bid of a supplier offering goods, information technology, or services manufactured or provided by a subcontractor if that subcontractor has been declared ineligible to transact business with the state, even though the bidder is a business in good standing.
• Deposit all payments to the state in the fund or funds out, Service Revolving Fund, or state General Fund pursuant to the appropriate code subdivision.
• Revocation of SB or SB/DVBE certification(s) for five years (first violation). Extends revocation up to ten years for additional or subsequent violations.
• The certification revocation and suspension from contracting with the state shall apply to the principals of the business and any subsequent business formed or financed by, or affiliated with one or more of those principals.
• Any business or person that fails to satisfy any of the specified payment amounts are prohibited from further contracting with the state until all payment amounts are satisfied.
• Any person who violates GC Section 14842(5)(a) is liable for civil penalties of $10,000 to $30,000 (first violation) and $30,000 to $50,000 for additional or subsequent violations; in addition to the following:
• Costs for any investigations that led to the findings of the violation including, but not limited to, costs and attorney’s fees paid by the awarding state agency or department related to hearings and court appearances.
• Revocation of SB or SB/DVBE certification(s) for five years (first violation) and up to three additional years for subsequent violations.
• Suspension from bidding on, or participating as a contractor, subcontractor, or supplier in any state contract or project for three to ten years (first violation). Up to three years for additional or subsequent violations.
• The certification revocation shall apply to the principals of the business and any subsequent business formed by one or more of those principals.
• Any business or person that fails to satisfy any of the penalties are prohibited from further contracting with the state until all penalties are satisfied.

Fraudulent intent and activity as defined under Military and Veterans Code (MVC) Sections 999.9(a)(1-10) and Public Contract Code (PCC) Section 10115.10(a)(1-4) are considered DVBE Program violations. Sanctions and penalties are found in MVC Section 999.9(b-c), PCC Section 10115.10(a)(5), and California Code of Regulations (CCR), Title 2, Section 1896 et seq, as follows:

• A misdemeanor punishable by imprisonment in the county jail up to six months, or fined $1000, or both
• Civil penalties of $10,000 to $30,000 (first violation) and $30,000 to $50,000 for each additional or subsequent violation
• Costs and attorney’s fees incurred by the plaintiff, awarding department, or the DGS.
• Suspension from bidding on, or participating as either a contractor, subcontractor, or supplier in any state contract or project for three to ten years (first violation). Extends suspensions for ten years for additional or subsequent violations.
• Revocation of the DVBE or SB/DVBE certification(s) for five years (first violation). Extends suspensions for ten years for additional or subsequent violations.
• The certification revocation and suspension from contracting with the state shall apply to the principals of the business and any subsequent business formed or financed by, or affiliated with one or more of those principals.
• Any person who established, or cooperate in the establishment of, or exercises control over a firm found in violation of PCC Section 101115.10(a)(1-4) inclusive, is guilty of a misdemeanor and is liable for a civil penalties of $50,000 (first violation) and $200,000 for each additional or subsequent violation.

Failure by the NVSA to comply with any of the statutory requirements at any time during certification or any contract period is grounds for immediate termination of the contract and/or purchase order.

If the potential for contract termination is identified by the state agency, the Office of Small Business and DVBE Services (OSDS) Compliance Manager must immediately be notified. Upon notification from the OSDS, the NVSA will be suspended from state contracting for two years and listed on the OSDS list of Suspended Firms.

Certified Nonprofit Veteran Service Agencies (NVSA) who become ineligible for certification will also be displayed on the list of suspended suppliers.