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 AB 1565 (Fuentes) Page 1 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 AB 1565 (Fuentes) Page 2 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. AB 1565 (Fuentes) Page 3