AI Frontier Institute

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

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AB 2653 (Lee) amends California Public Contract Code to extend labor-standards requirements to state procurement of artificial intelligence products that rely on data enrichment services. The bill does two main things. First, it adds Chapter 6.5 (Section 12450 et seq.) to create a nine-member Foundation Model Labor and Procurement Working Group, convened by the Department of Industrial Relations in consultation with the Department of Technology, to assess labor practices in the development of foundation models and associated AI systems—including data annotation, content moderation, and reinforcement learning with human feedback—and to develop procurement recommendations. The working group must submit a report to the Legislature by December 31, 2027. Second, it amends Section 6108 to require that any state contract for AI products requiring data enrichment services include contractor certification that nothing furnished was produced using sweatshop labor, forced labor, convict labor, indentured labor, abusive child labor, or exploitation of children in sweatshop labor. 'Data enrichment services' is defined to include content moderation, data labeling, model training and evaluation, AI Fauxtomation, and data annotation services. The bill requires the Department of Industrial Relations to update its contractor responsibility program by July 1, 2027 to include a Sweatfree AI Code of Conduct—modeled on the existing Sweatfree Code of Conduct—to be signed by all bidders on covered state contracts and subcontracts. The updated code must require contractors and subcontractors to pay workers at least a living wage, maintain a workplace free from psychological harms, allow just-cause termination only, and permit collective bargaining. The definition of 'sweatshop labor' is expanded so that for AI products requiring data enrichment, it covers any work contrary to the conditions outlined in the Sweatfree AI Code of Conduct. False certification is a misdemeanor under Section 6108(h). No state reimbursement to local agencies is required because the bill's local program impacts derive solely from changes to criminal penalties.

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