BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



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          |SENATE RULES COMMITTEE            |                   SB 879|
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                                 THIRD READING


          Bill No:  SB 879
          Author:   Cox (R)
          Amended:  4/26/10
          Vote:     21

           
           SENATE LOCAL GOVERNMENT COMMITTEE  :  3-2, 4/19/10
          AYES:  Cox, Aanestad, Kehoe
          NOES:  DeSaulnier, Price

           SENATE APPROPRIATIONS COMMITTEE  :  6-3, 5/10/10
          AYES:  Kehoe, Cox, Alquist, Walters, Wolk, Wyland
          NOES:  Leno, Price, Yee
          NO VOTE RECORDED:  Corbett, Denham


           SUBJECT  :    Construction projects:  alternative bidding  
          procedures: 
                      design-build

           SOURCE  :     Author


           DIGEST  :    This bill make the following changes to the  
          authority for cities and counties to use the design-build  
          procurement method for contracting:  
          (1) Extends the authority for counties to use design-build  
          for five years, requires an additional report of  
          information to the Legislative Analyst's Office (LAO), and  
          requires the LAO to report to the Legislature.  The  
          reporting requirements and sunset date for the county  
          authority would align with the existing sunset and  
          reporting requirements for cities' authority to use of  
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          design-build. (2) Lowers the cost threshold for county  
          design-build projects from $2.5 million to $1 million.  (3)  
          Requires prospective design-build entities to disclose  
          detailed information if a court found that the firm  
          submitted a claim that violated federal or state False  
          Claims Acts.  (4) Requires a successful design-build entity  
          to submit lists of subcontractors, bidders, and bid awards  
          within 14 days of the awarding of the contract.  These  
          documents would be public records and available for public  
          inspection.  (5) Makes several other changes to make the  
          county and city authority and requirements consistent.

           ANALYSIS  :    The Local Agency Public Construction Act  
          requires local officials to invite bids for construction  
          projects and then award contracts to the lowest responsible  
          bidder.  This design-bid-build method is the traditional  
          approach to public works construction.  By contrast, the  
          design-build method allows local officials to procure both  
          design and construction services from a single company  
          before the development of complete plans and  
          specifications.

          Counties can use the design-build method for projects worth  
          more than $2.5 million.  The counties' authority sunsets on  
          January 1, 2011 (SB 416 [Ashburn], Chapter 585, Statutes of  
          2007).  Cities can use the design-build method on projects  
          worth more than $1 million.  The cities' design-build  
          statute sunsets on January 1, 2016 (AB 642 [Wolk], Chapter  
          314, Statutes of 2008).

           Background  

          On January 20, 2010, the Senate Local Government Committee  
          held an oversight hearing called, "Faster, Cheaper, Better?  
           How Counties Use Design-Build Contracting."  After a  
          briefing from the LAO, the Committee heard from 18 speakers  
          and received additional written advice.  The Committee's  
          staff summarized the hearing's results with six staff  
          findings:

          1. Broad support exists, especially among counties, to  
             repeal the sunset clause and make permanent the state  
             law that allows counties to use the design-build  
             contracting method.  One labor group conditionally  

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             supports an extension of the sunset clause.

          2. The Legislative Analyst's recommendation to eliminate  
             the current $2.5 million price threshold attracted  
             endorsements from counties and contractors, although one  
             group affiliated with labor interests disagreed.

          3. The Legislative Analyst's recommendation to enact a  
             uniform design-build contracting statute that applies to  
             all local governments drew similar support from counties  
             and contractors, although one labor group is opposed.

          4. Some counties want the Legislature to allow them to use  
             design-build contracting for any capital improvement  
             projects, but labor groups are opposed.

          5. No consensus exists over how to define the criteria and  
             assign weights for the best-value selection procedures.   
             Most of the Legislature's debate over the future of the  
             counties' design-build law will need to focus on  
             controversies over these criteria and weights.

             A.    While the Legislative Analyst wants legislators to  
                place more emphasis on a project's cost, contractors  
                disagree and argue that other criteria can be more  
                important.

             B.    While the Legislative Analyst suggested that state  
                law explicitly allow so-called "two-envelope"  
                bidding, there was disagreement over its usefulness  
                and over the usefulness of the stipulated sum method.

             C.    Some counties and labor groups disagree about  
                retaining or eliminating consideration of life cycle  
                costs and contractors' safety records.

             D.    There is support for a new criterion that asks  
                prospective design-build entities about past  
                violations of state or federal False Claims Acts.

          6. Because some counties and labor groups disagree about  
             the counties' faithful observance of state laws that  
             govern the counties' use of design-build contracts,  
             legislators may wish to consider creating a forum to  

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             investigate allegations.  Legislators may wish to  
             consider assigning this function to the existing  
             California Uniform Construction Cost Accounting  
             Commission which already investigates allegations  
             regarding misuse of local public works contracts.

          This bill changes the design-build statutes for both  
             counties and cities:
          
          1.  Project limits  .  Counties can use the design-build  
             contracting method on construction projects worth more  
             than $2.5 million.  The statutory cost threshold for  
             cities' design-build projects is $1 million.  This bill  
             lowers the cost threshold for counties' design-build  
             projects from $2.5 million to $1 million.

          2.  Evaluation factors  .  When counties and cities prepare  
             requests for proposals for design-build projects, they  
             must include at least 11 types of information.   
             Specifically, they must include the "significant  
             factors" which they will consider when evaluating  
             proposals, including cost or price and all nonprime  
             factors.  For both counties and cities, this bill  
             requires these significant factors to be "objective."
          
          3.  False claims  .  When counties and cities prepare requests  
             for proposals for design-build projects, they must  
             include at least 11 types of information.  For its  
             oversight hearing, the Committee received written advice  
             which recommended that counties and cities ask  
             prospective design-build entities about past violations  
             of the federal or state or False Claims Acts.  This bill  
             requires prospective design-build entities to disclose  
             detailed information if a court found that the firm  
             submitted (or that the firm admitted to having  
             submitted) a claim that violated the federal or state  
             False Claims Acts. 

          4.  Subcontractor information  .  When counties and cities  
             prepare requests for proposals for design-build  
             projects, they must include at least 11 types of  
             information, including a listing of all partners and  
             subcontractors.  A witness at the Committee's oversight  
             hearing said that it was hard to obtain public records  

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             of subcontractors' bid lists and payroll records.  This  
             bill requires a successful design-build entity to submit  
             lists of subcontractors, bidders, and bid awards within  
             14 days of the contract's award.  This bill declares  
             that those documents are public records and available  
             for public inspection.  The bill also requires the  
             design-build entity to provide the awarding party with  
             certified payroll records with 14 days of a request  
             under the Labor Code.

          5.  County reports and termination  .  When the Legislature  
             extended the design-build contracting authority to all  
             counties, it required counties to tell the LAO about  
             their experiences by December 1, 2009.  The LAO had to  
             report on these experiences by January 1, 2010.  The LAO  
             report came out in early January 2010.  The counties'  
             design-build statute automatically terminates (sunsets)  
             on January 1, 2011.  This bill extends the January 1,  
             2011 sunset date for the county's design-build  
             contracting authority to January 1, 2016.  

           FISCAL EFFECT  :    Appropriation:  Yes   Fiscal Com.:  Yes    
          Local:  No

          According to the Senate Appropriations Committee:

                          Fiscal Impact (in thousands)

           Major Provisions               2010-11      2011-12        
           2012-13            Fund  

          DIR: LCP oversight           minor costs, covered by  
          feesSpecial*

          LAO report       minor costs to add county  
          design-buildGeneral
                           information to existing city design-build  
          report

          * State Public Works Enforcement Fund (a continuously  
          appropriated fund)

           SUPPORT  :   (Verified  5/11/10)


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          American Institute of Architects, California Council
          California Chamber of Commerce
          California Special Districts Association
          California State Association of Counties
          California State Sheriff's Association
          CH2M HILL
          Counties of Imperial, Orange, Sacramento, and San Diego 
          Greater Riverside Chamber of Commerce
          Regional Council of Rural Counties
          Santa Clara Valley Water District
           
           OPPOSITION  :    (Verified  5/11/10)

          American Federation of State, County and Municipal  
          Employees AFL-CIO
          California State Association of Electrical Workers
          California State Pipe Trades Council
          Professional Engineers in California Government
          Western States Council of Sheet Metal Workers   

           ARGUMENTS IN SUPPORT  :    The California Chamber of Commerce  
          (CalChamber) states they support "the expanded use of  
          design-build and other alternative project delivery methods  
          by local governments.  While design-build is not  
          appropriate in all cases, for instances that do fit, it can  
          get projects completed for quickly and at a lower cost than  
          through traditional design-bid-build contracting.  The  
          number of change orders are lessened as is the potential of  
          disagreements and lawsuits among contractors, architects,  
          and the local government entity as the project is being  
          built.  Essentially, design-build can put more construction  
          and engineering jobs on the ground faster, which is  
          integral to stimulating the state's economy and  
          rehabilitating infrastructure network.  The Legislative  
          Analyst's Office made a series of recommendations,  
          including utilizing a uniform statute for all design-build  
          local government entities and removing any limitations to  
          project costs.  The CalChamber supports these proposals and  
          would recommend broadening design-build authority to all  
          local governments-cities, counties and special districts.   
          Design-build is an important tool in local governments'  
          tool box that can save taxpayers' money, get projects  
          completed quickly and get jobs on the ground faster."


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           ARGUMENTS IN OPPOSITION  :    The Professional Engineers in  
          California Government (PECG) state:  "In the LAO analysis  
          entitled "Counties and Design-Build," the LAO noted, 'It is  
          difficult to find conclusive evidence as to the benefits of  
          the design-build method from information provided by the  
          counties.'  The LAO report does not provide enough details  
          or a large enough sample size to warrant establishing  
          design-build as a permanent delivery method, which your  
          bill is attempting to do.  As you know, PECG is opposed to  
          design-build for many reasons, including, but not limited  
          to:

                 eliminates competitive bidding
                 the qualification criteria are highly subjective  
               and can be manipulated
                 eliminates public inspection"

          It is the opinion of PECG that "the counties' design-build  
          authority is ripe for abuse by the mere fact that a small  
          group of individuals are responsible for picking winners  
          and losers of huge public contracts."  They also believe  
          strongly that "public oversight and inspection are  
          essential to ensuring the safety and long-term viability of  
          our public works."  PECG is also opposed "to the expansion  
          of design-build authority to other project areas or  
          entities."


          AGB:mw  5/12/10   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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