BILL ANALYSIS                                                                                                                                                                                                    



                                                                  SB 258
                                                                  Page  1

          Date of Hearing:   August 4, 2010

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                Felipe Fuentes, Chair

                    SB 258 (Oropeza) - As Amended:  June 10, 2010 

          Policy Committee:                              Business and  
          Professions  Vote:                            7-3

          Urgency:     No                   State Mandated Local Program:  
          Yes    Reimbursable:  Yes

           SUMMARY  

          This bill requires school districts to prequalify contractors on  
          public works projects exceeding $1 million, pursuant to  
          specified procedures. Specifically, this bill:

          1)Requires a school district, when requiring contractors to  
            prequalify on any public works project, to use a  
            prequalification questionnaire and a rating system that, at a  
            minimum, are substantially similar to standard forms developed  
            by the Department of Industrial Relations (DIR) pursuant to  
            current law.

          2)Requires every school district to prequalify contractors for  
            all projects exceeding $1 million, using either a district  
            questionnaire rating system meeting the requirements in (1) or  
            using the DIR standard questionnaire and rating system.

           FISCAL EFFECT  

          1)Unknown, but significant ongoing state-reimbursable General  
            Fund (Proposition 98) costs to school districts related to  
            establishing and administering the prequalification  
            process-likely as an additional contract cost for construction  
            management consultants-for projects exceeding $1 million.  
            Additional costs would be incurred to address appeals from  
            contractors denied qualification. If this process added 0.5%  
            to project costs, for every $500 million in school  
            construction projects exceeding $1 million, state mandated  
            costs would be $2.5 million.

          2)To the extent this process eliminated unqualified contractors  








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            who would otherwise be the winning bidder, districts might  
            avoid certain costs associated with an underperforming  
            contractor, such as time delays or inferior construction.

           COMMENTS  

           1)Background  . AB 574 (Hertzberg)/Chapter 972 of 1999 authorized  
            certain public agencies to prequalify contractors wishing to  
            bid on public works projects. AB 574 further required the DIR,  
            in collaboration with affected agencies and interested  
            parties, to develop a standardized questionnaire and model  
            guidelines for rating bidders that public entities may use for  
            prequalification. AB 574 applied to cities, counties, and  
            special districts, but not to school districts, which already  
            had statutory authority to prequalify contractors. Currently,  
            no government entity of any type is required to prequalify  
            contractors.

           2)Purpose  . According to the author's office, given current  
            economic conditions, school districts are receiving bids from  
            contractors with little or no experience with public works,  
            which increases the risk that contractors will not be able to  
            successfully complete projects. This bill is sponsored by the  
            State Building and Construction Trades Council, which argues  
            that the prequalification process, using the standard  
            documents developed by DIR, "will help minimize the risk of  
            awarding a contract to an unqualified and inexperienced  
            contractor."

           3)Another School Mandate  ? The state currently owes school  
            districts about $3 billion in deferred mandate payments.  
            Moreover, annual state costs for district mandates total  
            almost $200 million. Given these significant costs, and the  
            state's massive structural budget deficit, is this an  
            appropriate time to enact yet another state reimbursable  
            mandate on school districts? 

          4)This bill was a gut and amend in the Assembly, and was not  
            heard in the Senate.

           5)Opposition  . The Coalition of Adequate School Housing  
            (C.A.S.H.) notes that, for large construction projects, school  
            districts, in lieu of having a single prime contractor,  
            typically hire a construction manager to coordinate the  
            bidding and oversight of 30-40 separate, trade-specific  








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            contracts. C.A.S.H. argues that mandating prequalification  
            would result in significant administrative costs to review  
            huge volumes of documentation-given the large number of  
            contracts involved-or would dissuade districts from using the  
            construction management approach. 

            The California School Boards Association, the California  
            Association of School Business Officials, and the Small School  
            Districts Association also oppose. 

           Analysis Prepared by :    Chuck Nicol / APPR. / (916) 319-2081