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