BILL ANALYSIS Bill No: AB 635 SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION Senator Roderick D. Wright, Chair 2009-2010 Regular Session Staff Analysis AB 635 Author: De La Torre As Amended: August 5, 2010 Hearing Date: August 10, 2010 Consultant: Art Terzakis SUBJECT Public Contracts: roof projects DESCRIPTION AB 635 is an urgency measure that adds a new article to the Public Contract Code to promote competition and enhance bidding practices for the replacement or repair of roofing projects for public schools, community colleges, state universities, or any facility owned or operated by the state. Specifically, this measure: 1. Stipulates that in order to promote competition, specifications for any roofing project for any public school, community college, state university or state facility shall: (1) name a minimum of three separate manufacturers that share no financial, partnership, or subsidiary relationships, or interests, or shared product lines, or (2) require performance standards that at least three manufacturers have indicated, in advance of the bidding period, the ability to comply with. 2. Makes it explicit that specifications requiring proprietary products or a proprietary warranty may not be included in specifications for a roof project if these items would cost more than 10% more than for similar projects utilizing open competitive bidding without a requirement for proprietary products or a proprietary warranty. AB 635 (De La Torre) continued Page 2 3. Provides that if a substitution is offered in a bid for a roof project, the governing body (e.g., school district, community college district, state university, or state agency) shall require decisions on whether the proposed substitution is "equal," to be made by an independent architect, engineer, or roofing consultant based on industry standards for performance characteristics and any necessary generic industry testing standards. 4. Provides that for any roofing project, a material, product, thing, or service shall be considered "equal" if it meets all the following requirements: (a) it's at least equal in quality, durability, design, and appearance but not necessarily of an identical color; (b) it will perform the intended function at least equally well; and, (c) it conforms substantially, even with deviations, to the detailed requirements contained in the specifications. 5. Provides the governing body must ensure and verify in writing that an architect, engineer, or roofing consultant develops the plans and specifications for a roof project to ensure the project is designed to conform to state codes and structural integrity and conformity with existing law. 6. Requires financial disclosure on each roofing project for state buildings and public schools of any financial relationship between any manufacturers, contractors, architects, engineers or consultants involved in the project. This disclosure must be filed with the governing body initiating the roofing project. Also provides that any person who knowingly provides false information and fails to disclose a financial relationship shall be liable to the governing body for any reasonable costs and also subject to a civil penalty, as specified, in addition to any other available remedies. 7. Provides a toll-free phone line, as specified, for contractors and others to report bid rigging and to file a complaint or request an investigation regarding improper bidding and requires the governing body to publish on its Internet Web site the specifications for a roof project from the day those specifications are issued until six months after the bid is accepted and awarded. AB 635 (De La Torre) continued Page 3 8. Specifies that the State Allocation Board, the Office of Public School Construction and the Department of General Services may provide educational programs, information, or on-line material to school and state government administrators to ensure they are adequately informed regarding the statutory requirements for a fair and transparent bidding process. EXISTING LAW Under existing law, the Department of General Services (DGS) generally governs state procurement activities, including acquisition of materials, supplies, and services. Under existing law (the State Contract Act) and various provisions in the Local Agency Public Construction Act, state and local agencies awarding contracts are required to award the contract to the lowest responsible bidder. Existing law prohibits a state agency or political subdivision of the state letting a bid from requiring public works specifications that require specific brand materials (sole-sourcing) or that limits bidding to one material, product, or service, unless an "or equal" clause is applied, allowing bidders to provide equal materials, products, or services as a substitute. Existing law also requires that the bid specifications provide a time period prior to, after, or prior to and after, the award of a contract for the contractor to submit data substantiating that items are equal when requesting permission to use substitutes. If no time period is specified, data may be submitted any time within 35 days after the award of a contract. (Public Contract Code Sec. 3400.) Existing law provides for the State Allocation Board (Board) which is responsible for determining the allocation of state resources (proceeds from General Obligation Bond Issues and other designated State funds) used for the new construction and modernization of local public school facilities. The Board is the policy level body for the programs administered by the Office of Public School Construction (OPSC). The OPSC facilitates the processing of school applications and makes funding available to qualifying school districts. The OPSC is also charged with the responsibility of AB 635 (De La Torre) continued Page 4 verifying that all applicant school districts meet specific criteria based on the type of funding which is being requested. It is also incumbent on the OPSC staff to prepare regulations, policies and procedures which carry out the mandates of the Board, and to work with school districts to assist them throughout the application process. The OPSC is responsible for ensuring that funds are disbursed properly and in accordance with the decisions made by the Board. BACKGROUND Purpose of AB 635: According to the author's office, this measure is the result of a lengthy investigation by the Assembly Committee on Accountability and Administrative Review (Committee) and a June 30, 2010 hearing that uncovered evidence of consistent overcharging on school roofing projects in amounts commonly between 30 and 100%. The author's office notes that despite Public Contract Code provisions that require competitive bidding in publicly-funded construction, the Committee found widespread efforts to limit competition in school roofing projects throughout the state. The author's office points out that in both large and small school districts, community college districts and state universities, proprietary specifications are used in bidding documents to force contractors to use a specific roofing manufacturer's products, even though there are more than a dozen roofing manufacturers selling similar products in California. The author's office contends that bidding documents examined by the Committee for school re-roofing projects throughout the state all limited roofing products to a specific manufacturer and created significant hurdles for any contractor attempting to substitute an alternative product that could be similar in quality but at less cost. The author's office emphasizes that roofing industry officials, contractors and school district officials interviewed by the Committee all suggested this limited competition occurs routinely in numerous school districts, community college districts and universities, and leads to non-competitive bidding and higher prices. School roofing projects are typically awarded to a contractor with the lowest bid through a procurement process set up by the purchaser. The author's office AB 635 (De La Torre) continued Page 5 points out that while the bidding processes that the Committee reviewed indicated that multiple contractors bid on these jobs, the contractors were often limited to the products they could use by the specifications put forth by the school district. Some contractors also could not bid on certain jobs because they were not approved by the manufacturer singled out for the project in the specifications. It was found that such a process often leads to inflated project costs amounting to 25 percent or more. Industry officials who testified at the June 30th hearing indicated that at least three roofing manufacturers have specific business models aimed at subverting the competitive bidding process. It was reported that sales representatives from these roofing manufacturers provide free consultations for the district officials, design consultants or architects who do the construction planning and procurement for schools. Additionally, the Committee found that the manufacturers' representatives routinely provided bidding documents with specifications favoring their company. It was disclosed that school district officials use these documents because they often lack in-house roofing expertise. According to the author's office, this measure is intended to provide additional tools and requirements to deter such activity without taking the decision-making authority away from state entities or school districts regarding what products to use. Specifically, this measure would require active financial disclosure on each roofing project (replacement or repair) for state buildings or public schools of any financial relationships between any manufacturer, contractor, architects, engineers or consultants involved in the project. Additionally, AB 635 would require an independent licensed architect, engineer, or certified roofing consultant to make decisions on whether a proposed "or equal" product meets bid specifications. Arguments in Opposition: Writing in opposition, The Garland Company, Inc., believes that this measure "will ultimately increase the construction costs for California schools and result in the installation of inferior roofing products." PRIOR LEGISLATION AB 635 (De La Torre) continued Page 6 AB 1086 (Miller), Chapter 132, Statutes of 2009. Codified the intent of Public Contract Code Section 3400 to encourage contractors and manufacturers to develop and implement new and ingenious materials, products, and services that function as well, in all essential respects, as materials, products, and services that are required by a contract, but at a lower cost to taxpayers. SB 110 (Margett) Chapter 233, Statutes of 2003. Authorized a bid specification of a certain product if the awarding authority makes a finding that a particular material or service is designated by a brand or trade name in order to obtain a necessary item that is only available from one source or to respond to a local or state declared emergency. AB 2666 (Mountjoy) 2001-02 Session. Identical to SB 110 (Margett) of 2003. (Held in Senate G.O. Committee at author's request) AB 1442 (Pescetti) Chapter 267, Statutes of 2001. Revised certain provisions of the Public Contract Code so that the restrictions on the manner of drafting bid specifications would not apply if an awarding authority makes a finding that a particular material or service is designated by a brand name, either to make a field test or to match a material or service in use on a particular public improvement. AB 2156 (Pescetti) Chapter 690, Statutes of 2000. Required, with respect to state contracts, that if no time period is specified, data substantiating a request for a substitution of "an equal" item may be submitted by the bidder 35 days after award of the contract. SUPPORT: None on file as of August 6, 2010. OPPOSE: The Garland Company, Inc. FISCAL COMMITTEE: Senate Appropriations Committee ************ AB 635 (De La Torre) continued Page 7