BILL ANALYSIS

C.S.H.B. 129

By: McQueeney

Homeland Security, Public Safety & Veterans' Affairs

Committee Report (Substituted)

BACKGROUND AND PURPOSE

The bill author has informed the committee that foreign adversaries of the United States seek to develop economic and technological dependencies in the American economy as a way to achieve leverage over the United States. For example, a U.S. State Department memo describes the economic strategy of military-civil fusion, through which a foreign adversary leverages state subsidies and intellectual property theft to indigenize the production of critical technologies that have both civilian and military use, such as drones, 5G communication equipment, laser sensors, and surveillance devices. The bill author has also informed the committee that another economic strategy pursued by foreign adversaries is dual circulation, which involves making the foreign adversary's domestic market less dependent on other nations while making other nations more dependent on the foreign adversary's economy. C.S.H.B. 129 seeks to address these issues by prohibiting foreign adversary companies and federally banned companies from submitting a bid for a contract or entering into a contract with a governmental entity relating to goods or services and by ensuring that foreign adversaries are unable to collect sensitive data from the state through access to government technologies.

CRIMINAL JUSTICE IMPACT

It is the committee's opinion that this bill does not expressly create a criminal offense, increase the punishment for an existing criminal offense or category of offenses, or change the eligibility of a person for community supervision, parole, or mandatory supervision.

RULEMAKING AUTHORITY

It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency, or institution.

ANALYSIS

C.S.H.B. 129 amends the Government Code to prohibit a foreign adversary company or a federally banned company from submitting a bid for a contract or entering into a contract with a governmental entity relating to goods or services. The bill establishes that a company is considered a foreign adversary company if the company enters into a contract with a governmental entity to sell to the entity any final products or services produced by a foreign adversary company or a federally banned company. However, the bill authorizes a governmental entity to enter into a contract with such a company under the following conditions:

· there is no other reasonable option for procuring the good or service;

· the entity preapproves the contract; and

· failure to procure the good or service would pose a greater threat to the state than the threat associated with procuring the good or service.

C.S.H.B. 129 requires a governmental entity to do the following:

· require a vendor submitting a bid for a contract relating to goods or services to include in the bid a written certification that the vendor is not prohibited from submitting the bid or entering into the contract under the bill's provisions; and

· if the governmental entity determines that a vendor holding a contract with the entity was ineligible to have the contract awarded because the vendor's written certification was false, notify the vendor that the vendor is in violation of the bill's provisions.

The bill requires the notice to include the basis for the entity's determination and requires a governmental entity, on making a final determination that a vendor violated the bill's provisions, to do the following:

· refer the matter to the attorney general for enforcement; and

· immediately terminate the contract without further obligation to the vendor.

The bill authorizes the comptroller of public accounts, on receiving notice from a governmental entity of a contract termination because a vendor violated the bill's provisions, to bar the vendor from participating in state contracts using procedures prescribed by applicable state law. The bill establishes that such a debarment expires on the fifth anniversary of the date of the debarment.

C.S.H.B. 129 makes a vendor that violates the bill's provisions liable to the state for a civil penalty in an amount equal to the greater of twice the amount of the terminated contract or $250,000 and authorizes the attorney general to bring an action to recover that civil penalty.

C.S.H.B. 129 defines the following terms for purposes of the bill's provisions:

· "company" by reference to Business & Commerce Code provisions relating to the prohibition on agreements with certain foreign-owned companies in connection with critical infrastructure;

· "federally banned company" as any of the following companies:

o a company that produces or provides communications equipment or services listed on the covered list published by the Public Safety and Homeland Security Bureau of the FCC, as required by federal regulations;

o a company listed in Supplement No. 4 to 15 C.F.R. Part 744;

o a company prohibited from participating in federal contracts under the federal John S. McCain National Defense Authorization Act for Fiscal Year 2019;

o a company identified as a Chinese military company by the U.S. Department of Defense in accordance with the federal William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021;

o a company prohibited from participating in federal contracts under the federal James M. Inhofe National Defense Authorization Act for Fiscal Year 2023;

o a company subject to economic and trade sanctions administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury;

o a company subject to an order issued by the Federal Acquisition Security Council under the Federal Acquisition Supply Chain Security Act of 2018; or

o a company restricted under any similar sanction program under federal law;

· "foreign adversary" as any of the following:

o the People's Republic of China, including the Hong Kong special administrative region;

o the Republic of Cuba;

o the Islamic Republic of Iran;

o the Democratic People's Republic of Korea;

o the Russian Federation;

o the Syrian Arab Republic;

o the Venezuelan regime under Nicolás Maduro; or

o an agent or entity under significant control of any of those countries;

· "foreign adversary company":

o as a company that meets any of the following criteria:

§ is domiciled, incorporated, headquartered, issued, or listed in a foreign adversary;

§ has its principal place of business in a foreign adversary;

§ is controlled by the government, military, or ruling political party of a foreign adversary; or

§ is majority owned by such an entity; and

o does not include the following:

§ a U.S. citizen;

§ a U.S. subsidiary, as defined by federal Export Administration Regulations; or

§ a parent company that derives not more than 50 percent of the company's total annual global revenue from subsidiaries from a foreign adversary, regardless of whether the subsidiaries are considered foreign adversary companies; and

· "governmental entity" by reference to provisions relating to payment for goods and services.

C.S.H.B. 129 applies only to a contract for which the request for bids or proposals or other applicable expression of interest is made public on or after the bill's effective date. A contract for which the request for bids or proposals or other applicable expression of interest is made public before that date is governed by the law in effect on the date the request or other expression of interest is made public, and the former law is continued in effect for that purpose.

EFFECTIVE DATE

September 1, 2025.

COMPARISON OF INTRODUCED AND SUBSTITUTE

While C.S.H.B. 129 may differ from the introduced in minor or nonsubstantive ways, the following summarizes the substantial differences between the introduced and committee substitute versions of the bill.

The substitute includes a specification in the definition of "foreign adversary" that the People's Republic of China includes the Hong Kong special administrative region, whereas the introduced did not.

Whereas the introduced prohibited a foreign adversary company, federally banned company, or company that provides final goods or services manufactured or produced by a foreign adversary company or federally banned company from submitting a bid for a contract or entering into a contract with a governmental entity relating to goods or services, the substitute prohibits a foreign adversary company or a federally banned company from doing so. The substitute includes a provision absent from the introduced establishing that a company is considered a foreign adversary company if the company enters into a contract with a governmental entity to sell to the entity any final products or services produced by a foreign adversary company or a federally banned company.

Whereas the introduced established that a vendor that violates the bill's provisions is barred from responding to a solicitation for or being awarded a contract for goods or services by any governmental entity until the fifth anniversary of the date the vender receives a final determination from the entity, the substitute authorizes the comptroller, on receiving notice from a governmental entity of a contract termination because a vendor violated the bill's provisions, to bar the vendor from participating in state contracts using the prescribed procedures. The substitute includes a provision absent from the introduced establishing that such a debarment expires on the fifth anniversary of the date of the debarment.