BILL ANALYSIS Ó SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: AB 720 SENATOR MARK DESAULNIER, CHAIRMAN AUTHOR: hall VERSION: 5/23/11 Analysis by: Art Bauer FISCAL: no Hearing date: June 21, 2011 SUBJECT: Uniform construction cost accounting: alternative procedures DESCRIPTION: This bill prohibits a county that chooses to comply with the Uniform Public Construction Cost Accounting Act from utilizing an alternative contracting procedure that applies to contracts entered into by county boards of supervisors and county road commissioners. ANALYSIS: Since 1935, state law has specified the conditions governing how a county road commissioner, or a registered civil engineer under the direction of the county director of transportation, may use force account (i.e., county employees), day labor, or contracts with private firms to perform work on county streets and roads. In 1983, the Legislature enacted the Uniform Public Construction Cost Accounting Act (act) to alleviate disputes between public agencies and the construction industry over what projects should be put out to bid and what projects should be completed with county employees. The act achieves this objective in two principle ways. First, it establishes a process for developing uniform cost accounting procedures for public construction projects and for recommending the procedures to the State Controller for adoption. Second, it establishes the dollar limits, which the State Controller may adjust over time, for what work must be done in-house and what work must be contracted out. The use of the act is a discretionary decision of county boards of supervisors, cities, and special districts. The act only applies to public agencies whose governing boards have elected by resolution to become subject to the act's uniform construction cost accounting procedures. (Signatories to the AB 720 (HALL) Page 2 act) Counties that elect to be subject to the act's uniform construction accounting procedures, they may continue to use the "road commissioner" procurement procedures established in 1935 for highway construction only. This is known as the "road commissioner exemption." The Uniform Public Construction Cost Accounting Act of 1983: 1. Defines "public agency" as a city, county, city and county, including chartered cities and chartered counties, any special district, and any other agency of the state for the local performance of governmental or proprietary functions within limited boundaries. Included within the definition is a nonprofit transit corporation that is wholly owned by a public agency and formed to carry out the purposes of the public agency. 2. Defines a "public project" as: a. The construction, reconstruction, erection, alteration, renovation, improvement, demolition, and repair work involving any publicly-owned, leased, or operated facility. b. Painting or repainting of any publicly-owned, leased, or operated facility. c. In the case of a publicly owned utility system, "public project" includes only the construction, erection, improvement, or repair of dams, reservoirs, power plants, and electrical transmission lines of 230,000 volts and higher. 3. Excludes maintenance work from the definition of a "public project" and defines "maintenance work" as: a. Routine, recurring, and usual work for the preservation or protection of any publicly-owned or publicly-operated facility for its intended purposes. b. Minor repainting. c. Resurfacing of streets and highways at less than one inch. d. Landscape maintenance, including mowing, watering, trimming, pruning, planting, replacement of plants, and servicing of irrigation and sprinkler systems. AB 720 (HALL) Page 3 e. Work performed to keep, operate, and maintain publicly owned water, power, or waste disposal systems, including, but not limited to, dams, reservoirs, power plants, and electrical transmission lines of 230,000 volts and higher. 4. Authorizes the governing boards of public agencies to adopt a resolution agreeing to be subject to uniform cost accounting procedures established by the act. 5. Establishes the following contracting procedures for public agencies that have adopted a resolution: a. Public projects of $25,000 or less may be performed by agency employees, by force account, by negotiated contract, or by purchase order. b. Public projects of $100,000 or less may be let to contract by informal procedures specified in the act. c. Public projects of greater than $100,000 are let to contract by a formal bidding procedure specified in the act and must be awarded to the lowest responsible bidder. d. The above limits may be, and have been, adjusted by the Controller to account for inflation. The current limit for use of agency workforce is $30,000, the informal bidding limit is up to $120,000, and the formal bidding procedure must be followed for construction procurement over $120,000. 6. Establishes procedures for performing work during emergencies and allows the work to be performed by day labor, under the direction of the agency, by a contractor, or by both. The Road Commissioner Authority The 1935 Road Commissioner Authority authorizes a county road commissioner or a county engineer to use an alternative procurement procedure for street and road purposes that the Legislature adopted in 1935. This procedure includes the following contract options: a. Awarding a contract covering both work and AB 720 (HALL) Page 4 material, with the contract let to the lowest responsible bidder. b. Purchasing the material and letting a contract for the performance of the workwith the material bought at the lowest possible cost and the contract let to the lowest responsible bidder. c. Purchasing the material and having the work done by day labor, in which case advertising for bids is not required. d. Authorizing the county road commissioner or a registered civil engineer under the direction of the county director of transportation to execute changes up to $5,000 for any contract of $50,000 or less, or ten percent for contracts over $50,000 but not to exceed $250,000. For contracts whose original cost exceeds $250,000, the extra cost for any change or addition to the work so ordered cannot exceed $25,000, plus five percent of the amount of the original contract costs in excess of $250,000. e. Purchasing the material and letting a contract for the work or by letting a contract covering both work and material without advertising for bids when the estimated cost of emergency work necessitated by the imminence or occurrence of a landslide, flood, storm damage, or other emergency exceeds $25,000 and the public interest and necessity demand immediate action to safeguard life, health, or property. This bill: 1. Limits the discretion of a county that is a signatory to the act from using its road commissioner exemption by placing a cap on the value of new construction and reconstruction contracted for under the road commissioner exemption to 20 percent of the value of all work performed by force account as reported in the Controller's Streets and Roads Annual Report as of January 1 of each year. Maintenance and emergency work, however, is exempt from this limitation. 2. Increases force account cap that allows signatories to use their own work force from $30,000 to $45,000 and increases the formal bidding threshold under the act from $125,000 to $175,000. COMMENTS: AB 720 (HALL) Page 5 1. Purpose . According to the proponents, the bill brings into alignment conflicting provisions between the act and the road commissioner authority by placing a threshold on the amount of new road construction projects counties may perform themselves before they have to put the work out to bid. 2. Background . The act was established to ensure a fair, open, and transparent bidding and accounting procedures for all local public agencies-cities, counties, school districts, special districts- that are signatories to the act and adhere to its rules, in exchange for more flexible bidding and advertising procedures. Thirty-four of the state's fifty-eight counties are signatories, including small counties such as Trinity and Alpine and large counties like Riverside and Contra Costa. From the prospective of contractors, the act creates uniformity in the construction procurement market. The road commissioner authority, established in 1935, was an early effort at legislating uniform contracting procedure for county public works programs. A notable feature of the road commissioner authority is it does not include a dollar cap above which the counties must seek competitive bids. A unique feature of the act, which only counties enjoy, is that counties that are signatories to it may also select to procure construction services under the terms of the road commissioner authority. Many smaller counties use the road commissioner authority because their projects are modest in value and the local construction industry may have limited capacity. A few larger counties who are signatories to the act continue to use the road commissioner authority notably Riverside County, which is in a metropolitan region. 3. How this bill affects contracting . This bill limits the discretion of a county that is a signatory to the act by placing a cap on the dollar value of the new construction or reconstruction projects performed by its own workforce. The cap is calculated as follows: a county may use its own workforce provided the value of work it performs does not exceed 20 percent of the total value of all work performed by its employees, except for the cost of maintenance and emergency work, from the previous year. For example, if a county in year one uses its workforce to construct $500,000 AB 720 (HALL) Page 6 of new construction and reconstruction projects, the county in year two would be allowed to use its workforce to construct $100,000 of eligible construction projects. Any amount above the $100,000 cap would have to be put out to contract. Year after year the amount available to a county to use its own workforce would diminish. 4. Arguments for the bill . The Construction Industry Force Account Council argues that by permitting counties to become signatories to the act and at the same time to continue to use the pre-existing authority of the road commissioner provision, the purpose of the act "to ensure a fair, open and transparent bidding and accounting procedures for public agencies" is undermined. 5. Arguments against the bill . The California State Association of Counties (CSAC) believes this bill limits counties' ability to determine "when it is most efficient and cost-effective to use their own forces for new road construction and road reconstruction projects." The counties further argue that requiring competitive procurement on small projects is costly and not cost-effective. Counties also point out that when they use their own workforce, the materials are purchased from the private vendors. Counties also argue that rural counties and remote unincorporated areas of large counties do not have an active contractor presence. Finally, counties contend that that the skill level of road crews will decline because of this bill as there will be insufficient work to maintain a workforce to execute routine maintenance and emergency work. 6. Double referred . Rules Committee has also referred this bill to the Governance and Finance Committee. Assembly Votes: Floor: 48-18 L Gov: 7-0 POSITIONS: (Communicated to the Committee before noon on Wednesday, June 15, 2011) SUPPORT: Associated General Contractors California Chapter of the American Fence Association AB 720 (HALL) Page 7 California Chapters of the National electrical Contractors Association California Fence Contractors Association California Landscape and Irrigation Council California-Nevada Conference of Operating Engineers California State Council of Laborers California State Pipes Trade Council Construction and General Laborers' Local 185 Construction Industry Force Account Council D.T. Benton Construction, Inc. Flasher Barricade Association Golden State Builders Exchange International Brotherhood Electrical Workers Marin Builders Association Sierra Mountain Construction, Inc. State Building and Construction Trades of California Western State Council of Sheet Metal Workers OPPOSED: California State Association of Counties California Emergency Services Association Regional Council of Rural Counties Urban Counties Caucus The following counties: Alpine, Del Norte, Glenn, Humboldt, Imperial, Kings, Los Angeles, Madera, Marin, Mendocino, Mono, Napa Orange, San Mateo, Plumas, Sacramento, San Bernardino, Santa Clara, Sierra, Solano, Riverside, Stanislaus, Trinity, Yolo and Yuba