AB2653 - State contracts: report: modern foundation models and associated artificial intelligence systems.

Amended IN Assembly April 23, 2026 Amended IN Assembly March 19, 2026 CALIFORNIA LEGISLATURE— 2025–2026 REGULAR SESSION Assembly Bill No. 2653 Introduced by Assembly Member Lee February 20, 2026 An act to amend Section 6108 of the Public Contract Code, relating to public contracts. An act to add Chapter 6.5 (commencing with Section 12450) to Part 2 of Division 2 of the Public Contract Code, relating to public contracts. LEGISLATIVE COUNSEL'S DIGEST AB 2653, as amended, Lee. State contracts: certification process: Sweatfree AI Code of Conduct. report: modern foundation models and associated artificial intelligence systems. Existing law, the Transparency in Frontier Artificial Intelligence Act, among other things related to ensuring the safety of certain artificial intelligence models, requires a large frontier developer to write, implement, and clearly and conspicuously publish on its internet website a frontier AI framework that applies to the large frontier developer’s frontier models and describes how the large frontier developer approaches, among other things, incorporating national standards, international standards, and industry-consensus best practices into its frontier AI framework. Existing law requires the Department of Technology to make recommendations about whether and how to update certain definitions for the purposes of the act, including the definition of “frontier model” so that it applies to foundation models at the frontier of artificial intelligence development. Existing law requires a contract entered into by any state agency for the procurement or laundering of apparel, garments, or corresponding accessories, or the procurement of equipment, materials, or supplies, other than procurement related to a public works contract, to require that a contractor certify that nothing furnished to the state pursuant to the contract has been laundered or produced by certain types of labor, including sweatshop labor and forced labor, as defined. Existing law requires the Department of Industrial Relations to establish a contractor responsibility program, including a Sweatfree Code of Conduct, to be signed by all bidders on state contracts and subcontracts, as provided. This bill would require the Department of Industrial Relations, in consultation with the Department of Technology, to convene a Foundation Model Labor and Procurement Working Group consisting of 9 members, as provided, to, among other things, assess labor practices underlying the development of modern foundation models and associated artificial intelligence systems and develop recommendations regarding whether and how the state should incorporate labor standards into procurement decisions for foundation models and associated artificial intelligence systems. The bill would require the working group to compile their findings and recommendations into a report and submit that report to the Legislature on or before December 31, 2027. Existing law requires a contract entered into by any state agency for the procurement or laundering of apparel, garments, or corresponding accessories, or the procurement of equipment, materials, or supplies, other than procurement related to a public works contract, to require that a contractor certify that nothing furnished to the state pursuant to the contract has been laundered or produced by certain types of labor, including sweatshop labor and forced labor, as defined. Existing law makes any person who falsely certifies pursuant to these provisions guilty of a misdemeanor. This bill would additionally require a contract entered into by any state agency for the procurement of artificial intelligence (AI) products that require data enrichment services in their production, other than procurement related to a public works contract, to require that a contractor certify that nothing furnished to the state pursuant to the contract has been laundered or produced by certain types of labor, including sweatshop labor and forced labor, and would make conforming changes. The bill would define “data enrichment services” to mean services, including, but not limited to, content moderation, data labeling, model training and evaluation, AI Fauxtomation, and data annotation services, obtained as part of the deployment, creation, and testing of AI models in order to secure reliable and safe data. Existing law requires the Department of Industrial Relations to establish a contractor responsibility program, including a Sweatfree Code of Conduct, to be signed by all bidders on state contracts and subcontracts, as provided. Existing law requires contractors to ensure that their subcontractors comply in writing with the Sweatfree Code of Conduct, under penalty of perjury. This bill would require the Department of Industrial Relations to, on or before July 1, 2027, update its contractor responsibility program to include a Sweatfree AI Code of Conduct to be signed by all bidders on state contracts and subcontracts, similar to the Sweatfree Code of Conduct, and solicit input from an advisory panel, as provided, for that purpose. The bill would require the updated contractor responsibility program and Sweatfree AI Code of Conduct to include specified information related to AI products that require data enrichment services in their production and to establish a process for independent monitoring or inspections for complaints, as defined, against contractors and subcontractors. The bill would require the updated contractor responsibility program and Sweatfree AI Code of Conduct to require contractors and subcontractors to, among other things, compensate workers, at a minimum, wages and benefits consistent with a living wage for contracts for AI products that require data enrichment in their production and ensure the workplace is free from psychological harms. The bill would redefine “sweatshop labor” to include all work or service extracted from or performed by any person contrary to the conditions outlined in the Sweatfree AI Code of Conduct. By expanding the scope of perjury and a misdemeanor, 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 no reimbursement is required by this act for a specified reason. Digest Key Vote: MAJORITY Appropriation: NO Fiscal Committee: YES Local Program: YES NO Bill Text The people of the State of California do enact as follows: SECTION 1. Chapter 6.5 (commencing with Section 12450) is added to Part 2 of Division 2 of the Public Contract Code, to read: CHAPTER 6.5. Foundation Model Labor and Procurement Working Group 12450. For purposes of this chapter, the following definitions apply: (a) “Artificial intelligence” means an engineered or machine-based system that varies in its level of autonomy and that can, for explicit or implicit objectives, infer from the input it receives how to generate outputs that can influence physical or virtual environments. (b) “Foundation model” means an artificial intelligence model that is all of the following: (1) Trained on a broad data set. (2) Designed for generality of output. (3) Adaptable to a wide range of distinctive tasks. 12452. (a) The Department of Industrial Relations, in consultation with the Department of Technology, shall convene a Foundation Model Labor and Procurement Working Group consisting of the following nine members: (1) Two experts in labor standards, including at least one representative from a labor union with relevant experience, as appointed by the Speaker of the Assembly. (2) One expert in state information technology procurement, as appointed by the Governor. (3) One expert in state contracting for procurement of ethically sourced goods and services, as appointed by the Governor. (4) One expert from academia with experience researching artificial intelligence, including foundation model development, training data practices, and model evaluation, as appointed by the Senate Committee on Rules. (5) One expert in global labor supply chains, as appointed by the Senate Committee on Rules. (6) One expert from a small private sector entity with experience developing foundation models and associated artificial intelligence systems, as appointed by the Governor. (7) One expert from a large private sector entity with experience developing foundation models and associated artificial intelligence systems, as appointed by the Senate Committee on Rules. (8) One expert in occupational health and safety, as appointed by the Governor. (b) The working group shall do all of the following: (1) Assess labor practices underlying the development of modern foundation models and associated artificial intelligence systems, including, but not limited to, data annotation, content moderation, reinforcement learning with human feedback, and other forms of data enrichment work, and evaluate the prevalence of those practices across domestic and international supply chains. (2) Explore the technical and economic viability of alternative labor practices underlying the development of modern foundation models and associated artificial intelligence systems, including those designed to reduce exposure to harmful content or improve worker conditions, including, but not limited to, psychological harm. (3) Evaluate which foundation models and associated artificial intelligence systems have been procured, licensed, or otherwise deployed by state agencies, and, to the extent feasible, assess the labor practices underlying the development of those models, including the extent to which those practices comply with internationally recognized labor standards and applicable state and federal law. (4) Assess whether and how other states, the federal government, and foreign jurisdictions have adopted or are considering adopting procurement standards for foundation models and associated artificial intelligence systems, including standards relating to labor conditions, supply chain transparency, and contractor certification requirements. (5) Assess and review guidelines and best practices developed by domestic and international labor organizations for foundation models and associated artificial intelligence systems, and any barriers to workers seeking out and exercising a right to collectively bargain or join a union. (6) Analyze the likely impacts of restricting or prohibiting specified labor practices through state procurement standards, including effects on domestic and international labor conditions, model performance, reliability, safety, availability, and cost, as well as potential impacts on competition, innovation, and market concentration. (7) Identify data gaps, barriers to transparency, and challenges associated with assessing labor practices in global artificial intelligence supply chains, including the role of proprietary information and nondisclosure agreements. (8) Develop recommendations regarding whether and how the state should incorporate labor standards into procurement decisions for foundation models and associated artificial intelligence systems, including whether state procurement standards should require contractors and subcontractors to certify compliance with minimum labor standards consistent with Section 6108. (c) On or before December 31, 2027, the working group shall compile the findings made pursuant to subdivision (b), and any related findings or recommendations, into a report and shall submit that report to the Legislature in compliance with Section 9795 of the Government Code. SECTION 1. Section 6108 of the Public Contract Code is amended to read: 6108. (a) (1) Every contract entered into by any state agency for the procurement or laundering of apparel, garments, or corresponding accessories, or the procurement of equipment, materials, supplies, or artificial intelligence (AI) products that require data enrichment services in their production, other than procurement related to a public works contract, shall require that a contractor certify that no apparel, garments, corresponding accessories, equipment, materials, supplies, or AI products that require data enrichment services in their production furnished to the state pursuant to the contract have been laundered or produced in whole or in part by sweatshop labor, forced labor, convict labor, indentured labor under penal sanction, abusive forms of child labor, or exploitation of children in sweatshop labor, or with the benefit of sweatshop labor, forced labor, convict labor, indentured labor under penal sanction, abusive forms of child labor, or exploitation of children in sweatshop labor. The contractor shall agree to comply with this provision of the contract. (2) The contract shall specify that the contractor is required to cooperate fully in providing reasonable access to the contractor’s records, documents, agents, employees, or premises if reasonably required by authorized officials of the contracting agency, the Department of Industrial Relations, or the Department of Justice determine the contractor’s compliance with the requirements under paragraph (1). (b) (1) Any contractor contracting with the state who knew or should have known that the apparel, garments, corresponding accessories, equipment, materials, supplies, or AI products that require data enrichment services in their production furnished to the state were laundered or produced in violation of the conditions specified in subdivision (a) when entering into a contract pursuant to subdivision (a), may, subject to subdivision (c), have any or all of the following sanctions imposed: (A) The contract under which the prohibited apparel, garments, or corresponding accessories, equipment, materials, supplies, or AI products that require data enrichment services in their production were laundered or provided may be voided at the option of the state agency to which the equipment, materials, supplies, or AI products that require data enrichment services in their production were provided. (B) The contractor may be assessed a penalty that shall be the greater of one thousand dollars ($1,000) or an amount equaling 20 percent of the value of the apparel, garments, corresponding accessories, equipment, materials, supplies, or AI products that require data enrichment services in their production that the state agency demonstrates were produced in violation of the conditions specified in paragraph (1) of subdivision (a) and that were supplied to the state agency under the contract. (C) The contractor may be removed from the bidder’s list for a period not to exceed 360 days. (2) Any moneys collected pursuant to this subdivision shall be deposited into the General Fund. (c) (1) When imposing the sanctions described in subdivision (b), the contracting agency shall notify the contractor of the right to a hearing, if requested, wi [Text truncated for display. Full text available on Congress.gov.]