BILL ANALYSIS Ó AB 2498 Page 1 Date of Hearing: April 23, 2012 ASSEMBLY COMMITTEE ON TRANSPORTATION Bonnie Lowenthal, Chair AB 2498 (Gordon) - As Introduced: February 24, 2012 SUBJECT : Department of Transportation: Construction Manager/General Contractor SUMMARY : Authorizes the California Department of Transportation (Caltrans) to use an alternative procurement method referred to as Construction Manager/General Contractor (CM/GC). Specifically, this bill : 1)Declares the intent of the Legislature to authorize the use of CM/GC as a cost-effective option for constructing transportation projects. 2)Authorizes Caltrans to use CM/GC, including, for example, when it anticipates that doing so will result in reduced project costs or expedite project completion. 3)Defines key terms, namely: a) "Construction manager/general contractor" to mean a partnership, corporation, or other entity that is able to provide licensed contracting and engineering services; b) "Construction manager/general contractor method" to mean a project delivery method in which a construction manager is procured to provide preconstruction services during the design phase of the project and construction services during the construction phase of the of the project. Contracts for preconstruction services and construction services can be, but need not be, entered into at the same time and the design and construction phases of a project may be carried out sequentially or concurrently; and, c) "Project" to mean the construction of a highway, bridge, or tunnel. 4)Sets forth provisions governing the process for procuring CM/GC services, as follows: a) Caltrans will identify procedures for the evaluation and AB 2498 Page 2 selection of a construction manager, for one or more projects, through a request for qualifications (RFQ), to include, at a minimum, prescribed requirements. b) The department will then generate a final list of qualified persons or firms. c) The department will enter into negotiations with the most qualified person or firm, including consideration of compensation and other terms. d) If Caltrans is unable to negotiate a satisfactory contract with the highest qualified person or firm, it will formally terminate negotiations and enter into negotiations with the next most qualified person or firm. e) Caltrans may enter into contracts for preconstruction services separately or at the same time it enters into contracts the construction services. A preconstruction services contract will involve Caltrans paying for construction manager a fee for preconstruction services for a mutually agreed to price. Caltrans may not request or obtain from the construction manager a fixed price or a guaranteed maximum price for a construction contract nor enter into a construction contract with the construction manager until after it has entered into a preconstruction services contract. f) A contract for construction services will be awarded after the design plans have been sufficiently developed. Construction services contracts may be for a fixed price or a guaranteed maximum price. g) Caltrans is not required to award the construction services contract if, for example, mutually agreed to contract terms are not successfully negotiated. h) Construction work may not commence until the contactor and Caltrans come to written terms. The construction manager must perform at least 30% of the work covered by the fixed price or guaranteed maximum prices. i) The construction manager must possess sufficient bonding to cover the construction contract amount as well as risk and liability insurance, as required. AB 2498 Page 3 j) All work not performed by the construction manager must be performed by subcontractors. Contracts for subcontractors must be competitively bid and must comply with the Subletting and Subcontracting Fair Practices Act that, among other things, protects subcontractors and the public from the practices of bid shopping and bid peddling in connection with public works projects. 5)Explicitly authorizes Caltrans to retain the services of a design professional or construction project manager, or both, throughout the course of the project to ensure compliance with the bill's provisions. 6)Stipulates that contracts awarded pursuant to this chapter are valid for the life of the project. 7)Declares that nothing in this bill is intended to affect, expand, alter, or limit any other rights or remedies available in law. EXISTING LAW: 1)Sets forth provisions governing public works contracting. These provisions generally prohibit public agencies from contracting with the same firm for both the design and the construction phases of a project. 2)Generally requires public works construction contracts to be awarded to the lowest responsible bidder. 3)Provides for a limited number of design-build contracts for transportation; sets forth criteria and procedures governing their procurement. 4)Defines "design-build" to mean a procurement process in which both the design and construction of a project are procured from a single entity. FISCAL EFFECT : Unknown COMMENTS : For decades, the traditional process for procuring public works projects has been the design-bid-build process. This process relies on: 1) a design entity preparing complete project design specifications and estimates; 2) the project AB 2498 Page 4 owner putting the complete package out to bid for construction; and 3) awarding the construction contract to the lowest responsible bidder. The design-bid-build process was developed to protect taxpayers from extravagance, corruption, and other improper practices by public officials as well as to secure a fair and reasonable price for public works construction by injecting competition amongst bidders into the process. Although design-bid-build generally results in the lowest cost construction contract, it is not without its drawbacks, including: 1)Projects generally take longer to complete because designs must be entirely completed, permits obtained, and right-of-way acquired before the construction contract can be bid and awarded. 2)Designs prepared for a competitive low-bid procurement are developed to allow for a broad range of construction approaches. As a result, low-bid designs do not always equate to the most efficient design possible, depending on a particular contractor's particular strengths or capabilities. 3)Because the project designer does not have the benefit of consulting with the entity that will ultimately be responsible for construction of the project, there may be significant issues that the designer does not anticipate, particularly constructability issues. This can result in change orders that ultimately drive up the price of the contract. 4)Low-bid is not always the least expensive option, once change orders and contractor claims are factored into the overall project costs. In the early 1990s, public works agencies grew frustrated with design-bid-build and began experimenting with more innovative project delivery methods, namely design-build. Design-build is an alternate method for procuring design and construction services that provides for the delivery of public works projects from a single entity. Design-build combines project design, permit, and construction schedules in order to streamline the traditional design-bid-build environment. Design-build differs from design-bid-build in some key areas, AB 2498 Page 5 including: 1)Shorter overall elapsed project delivery time because construction can begin before final design is complete. 2)Project costs and schedule risks are more heavily borne by the design-build contractor. 3)Construction claims and change orders are minimized. 4)Designs can be developed to take advantage of particular contractor's strengths and abilities, thereby reducing the need to "over-design" for generic use as in design-bid-build. 5)Project specifications are typically based on definitive performance criteria (which may or may not be well established by the project owner) rather than established specifications. 6)Contracts are awarded based on best-value analyses rather than low-bid. Design-build contracts are not without their drawbacks as well. For example, with a design-build project, the project owner must give up a good deal of control over the details of the project design. Additionally, design-build contractors are typically selected using qualifications-based selection criteria or best value analysis. These approaches are more subjective than a low-bid approach, potentially subjecting the public works owner to greater contract challenges and higher costs. This bill authorizes Caltrans to use CM/GC, an emerging project delivery method that potentially combines the best of both design-bid-build and design-build. Using CM/GC, Caltrans will be able to engage a design and construction management consultant (construction manager) to act as the department's consultant during the pre-construction phase and as the general contractor during construction. During the design phase, the construction manager acts in an advisory role, providing constructability reviews, value engineering suggestions, construction estimates, and other construction-related recommendations. Later, Caltrans and the construction manager can agree that the project design has progressed to a sufficient enough point that construction may begin. The two parties then AB 2498 Page 6 work out mutually agreeable terms and conditions for the construction contract, and, if all goes well, the construction manager becomes the general contractor and construction on the project commences, well before design is entirely complete. The CM/CG process is meant to provide continuity and collaboration between the design and construction phases of the project. Construction managers have an incentive to provide input during the design phase that will enhance constructability of the project later because they know that they will have the opportunity to become the general contractor for the project. Furthermore, CM/CG promises to save project delivery time, provide earlier cost certainty, transfer risks from Caltrans to the contractor, and ensure project constructability. Additionally, CM/CG allows Caltrans to have greater control of design decisions. It also allows Caltrans to design the project to compliment the CM/CG's strengths and capabilities, thereby avoiding the need to over-design the project to provide maximum competitiveness in a low-bid procurement. Committee concerns: Although other states have successfully used CM/CG procurements, this innovative approach should be tested, documented, and evaluated prior to the Legislature granting unbridled authority to use it. The bill should limit the number of projects for which Caltrans can initially use CM/CG to, for example, 4 or 6 projects and Caltrans should be required to evaluate this procurement method and report its findings to the Legislature. Related legislation: SB 1549 (Vargas) establishes a demonstration program that authorizes the San Diego Association of Governments to use the construction manager/general contractor (CM/GC) project delivery method and authorizes Caltrans to use the CM/GC or the design-sequencing methods of project delivery. That bill is currently in the Senate Transportation and Housing Committee. REGISTERED SUPPORT / OPPOSITION : Support AB 2498 Page 7 None on file Opposition None on file Analysis Prepared by : Janet Dawson / TRANS. / (916) 319-2093