BILL ANALYSIS                                                                                                                                                                                                    Ó




                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair


          AB 1565 (Fuentes) - Public Contracts: School Districts
          
          Amended: July 6, 2012           Policy Vote: Education 7-1
          Urgency: No                     Mandate: Yes.
          Hearing Date: August 6, 2012                                
          Consultant: Jacqueline Wong-Hernandez                       
          
          This bill meets the criteria for referral to the Suspense File. 

          
          Bill Summary: AB 1565 requires a school district to prequalify a 
          prime contractor who provides a bid and all electrical, 
          mechanical and plumbing subcontractors utilized, if it meets 
          specified conditions. 

          Fiscal Impact: 
                Bonds: Substantial ongoing cost pressure on Proposition 
               1D funding and all future K-12 construction bonds.

          Background: Existing law requires the governing board of a 
          school district to competitively bid, and award to the lowest 
          responsible bidder, any contract for a public project involving 
          an expenditure of $15,000 or more. (Public Contract Code § 
          20111) 

          Existing law also authorizes the governing board of the district 
          to require prequalification of prospective bidders for a 
          contract for a public project. A prospective bidder may be 
          required to complete and submit to the district a standardized 
          questionnaire and financial statement in a form specified by the 
          district, including a complete statement of the prospective 
          bidder's financial ability and experience in performing public 
          works.  A school district that establishes a prequalification 
          process is required to adopt and apply a uniform system of 
          rating bidders on the basis of the completed questionnaires and 
          financial statements. School districts are authorized to 
          establish a process for prequalifying prospective bidders on a 
          quarterly basis and to consider a prequalification to be valid 
          for up to one calendar year following the date of initial 
          prequalification.  (Public Contract Code § 20111.5) 

          Existing law also establishes the Local Agency Public 








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          Construction Act (applicable to all public entities except 
          school districts), which, as the result of AB 574 (Hertzberg, 
          Chapter 972, Statutes of 1999), also authorizes a public entity 
          to require prequalification of prospective bidders for a 
          contract. Generally, these procedures parallel those that apply 
          to school districts. In addition, AB 574 established the right 
          of a bidder to dispute a public entity's proposed 
          prequalification rating and requires an appeal process that 
          includes notification to the bidder, in writing, of the basis 
          for disqualification and supporting evidence and the opportunity 
          for the bidder to rebut this evidence. As required under AB 574, 
          the Department of Industrial Relations (DIR), in collaboration 
          and consultation with affected agencies and interested parties, 
          has developed model guidelines for rating bidders and drafted a 
          standardized questionnaire for use by public entities for the 
          purpose of prequalification.  (Public Contract Code § 20100, § 
          20101)

          Proposed Law: AB 1565, beginning with contracts awarded on or 
          after January 1, 2014 and until January 1, 2019, requires a 
          school district to prequalify a prime contractor who provides a 
          bid and all electrical, mechanical and plumbing subcontractors 
          utilized, if it meets all the following conditions: 1) Has an 
          average daily attendance (ADA) of 2,500 or greater; 2) receives 
          funds for any school facility construction project from the 
          state School Facility Program or from a future state school 
          bond; and, 3) involves a projected expenditure of $1,000,000 or 
          more. 

          This bill also requires school districts that opt to prequalify 
          bidders for a construction contract and that have an ADA of 
          2,500 or greater to: 1) Use a questionnaire that covers, at a 
          minimum, the issues covered by the standardized questionnaire 
          and model guidelines for rating bidders developed by the DIR, 
          and 2) prequalify a prime contractor who provides a bid and, if 
          utilized, all electrical, mechanical and plumbing 
          subcontractors.

          Related Legislation: SB 600 (Rubio) 2011 was substantially 
          similar to this bill. That bill was held under submission in the 
          Assembly Appropriations Committee.

          Staff Comments: Under existing law, the governing board of a 
          school district is authorized to require each prospective bidder 








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          for specified contracts to submit a standardized questionnaire 
          and financial statement, including information relating to 
          financial ability and experience in performing public works, 
          which is required to be verified under oath. Existing law 
          further requires a school district that has chosen to require 
          that information to adopt and apply a uniform system of rating 
          bidders on the basis of the completed questionnaires and 
          financial statements.



          This bill would require school districts meeting the above 
          criteria to pre-qualify bidders for any project for which they 
          use state bond funding. Requiring school districts to 
          pre-qualify bidders in one of two ways specified in the bill 
          will create upfront costs to schools seeking construction 
          funding for both the expanded process and to process potential 
          appeals from contractors denied pre-qualification. These 
          activities create new cost pressure on existing and future 
          school bonds that would be expended on these activities. 
          Additionally, to the extent that the universe of bidders is 
          narrowed by the process, schools may end up paying more (in 
          state bond funding) for construction projects.



          Legislative counsel has indicated that this bill may impose a 
          new reimbursable mandate on school districts. Since school 
          districts elect to utilize state construction bonds or 
          facilities funding, it is unlikely that requiring a 
          pre-qualification process would be deemed reimbursable. The 
          potential costs to a school district, however, still remain and 
          this bill creates a practical mandate on schools in need of new 
          construction funding.


















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