BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 1565
                                                                  Page  1

          Date of Hearing:   May 2, 2012

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                Felipe Fuentes, Chair

                   AB 1565 (Fuentes) - As Amended:  April 26, 2012 

          Policy Committee:                              Business and 
          Professions  Vote:                            7-2
                        Education                             8-1

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

           SUMMARY  

          This bill requires large school districts to prequalify 
          prospective bidders on certain school construction projects 
          using a specified process. Specifically, this bill: 

          1)Requires all school districts with average daily attendance of 
            2,500 or more, for contracts on state-funded projects awarded 
            on or after January 1, 2014, to prequalify prospective 
            bidders, including subcontractors that would perform work 
            equivalent to more than 3% of the project cost.

          2)Requires a school district, when requiring contractors to 
            prequalify on any public works project, to either use the 
            standardized forms and procedures developed by the Department 
            of Industrial Relations (DIR) pursuant to current law, or 
            develop a prequalification questionnaire and a contractor 
            rating system that, at a minimum, covers the issues addressed 
            in the DIR forms.

          3)Makes all of the above inoperative on January 1, 2019.

          4)Requires the Director of Industrial Relations (DIR), by 
            January 1, 2018, to report to the Legislature whether there 
            was a decrease in Labor Code violations on school contracts 
            during the time the bill's provisions were in effect and to 
            recommend improvements to the prequalification process.

           FISCAL EFFECT  

          1)Unknown, but significant ongoing state-reimbursable General 








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            Fund (Prop 98) costs to school districts related to 
            establishing and administering the prequalification 
            process-likely as an additional contract cost for construction 
            management consultants. (About one-third of school districts 
            meet the enrollment threshold mandated under this bill.) 
            Additional costs would be incurred to address appeals from 
            contractors denied qualification. If this process added 0.1% 
            to 0.5% to project costs, for every $500 million in 
            state-funded school construction projects, state mandated 
            costs would be $500,000 to $2.5 million.

          2)To the extent this process eliminates unqualified contractors 
            who would otherwise be the winning bidder, districts might 
            avoid certain costs associated with an underperforming 
            contractor, such as time delays or inferior construction, and 
            any associated legal costs.


          3)The DIR will incur minor one-time costs ($75,000 or less) to 
            determine any impact of the prequalification process on Labor 
            Code violations and to make any recommendations for improving 
            the process.

           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 and supporters, because state 
            law requires public contracts to be awarded to the lowest 
            bidder, many unqualified contractors, who lack adequate 
            financial resources to accomplish a project on time and on 
            budget, are bidding on school construction projects.  This can 
            result in a significant number of change orders and/or cutting 
            corners that produce defects, prevailing wage violations and 
            unsafe working conditions for workers.  








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            The author asserts that "This bill will help ensure quality 
            construction of California schools at the lowest price by 
            requiring that school districts pre-qualify their contractors 
            on large construction projects.  This will allow schools to 
            continue to utilize the lowest responsible bidder contracting 
            method which protects tax dollars, while ensuring that the 
            bidding pool is made up of competent and qualified 
            contractors."  

            This bill is sponsored by the State Building and Construction 
            Trades Council of California and supported by other labor 
            organizations and contractor organizations.

           3)Another School Mandate  ? The state currently owes school 
            districts about $3.4 billion in deferred mandate payments. 
            Moreover, annual state costs for district mandates total about 
            $200 million. Given these significant costs, and the state's 
            ongoing budget challenges, is this an appropriate time to 
            enact another state reimbursable mandate on school districts? 

           4)Opposition  . The Coalition of Adequate School Housing 
            (C.A.S.H.) opposes this new mandate on schools, as do the 
            California School Boards Association, and the Association of 
            California Construction Managers. These entities contend local 
            school boards should have the discretion to decide whether 
            prequalification is necessary and within their best interests. 


           5)Prior Legislation  . This bill is identical to SB 600 (Rubio) of 
            2011 and substantially similar to SB 258 (Oropeza) of 2010, 
            both of which were held on this committee's Suspense File. SB 
            258 applied to all school districts on projects exceeding $1 
            million, regardless of fund source.

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