BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 1509
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          Date of Hearing:   June 27, 2012

                           ASSEMBLY COMMITTEE ON EDUCATION
                                Julia Brownley, Chair
                   SB 1509 (Simitian) - As Amended:  April 18, 2012

           SENATE VOTE  :   32-4
           
          SUBJECT  :   School facilities:  design-build contracts

           SUMMARY  :  Repeals the sunsets authorizing kindergarten through 
          grade 12 (K-12) and California Community Colleges (CCC) 
          districts to utilize design-build contracts for the design and 
          construction of education facilities.  

           EXISTING LAW  :

          1)Establishes a process, until January 1, 2014, for school 
            district and CCC district governing boards to enter into a 
            design-build contract for both the design and construction of 
            education facility projects over $2.5 million.  (Education 
            Code (EC) Section 17250.20)  

          2)Specifies the elements required to be included in a 
            design-build request for proposal (including significant 
            factors, subfactors, methodology, rating and weighting schemes 
            for evaluating proposals) and establishes, among others, 
            prequalification, bonding and labor compliance program 
            requirements (EC Sections 17250.10 - 17250.50 and 81700-81708)

          3)Requires the governing board of a school district to 
            competitively bid and award to the lowest bidder contracts 
            involving the following:

             a)   An expenditure of $50,000 or more for the purchase of 
               equipment, materials, or supplies, services (except for 
               construction services), and repairs.

             b)   An expenditure of $15,000 or more for a public contract 
               project defined as construction, reconstruction, erection, 
               alteration, renovation, improvement, demolition, repair, 
               painting or repainting of any publicly owned, leased, or 
               operated facility.  (Public Contract Code (PCC) Sections 
               20111 and 22002)









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          4)Authorizes the governing board of a school district to require 
            each prospective bidder for a contract to participate in a 
            prequalification process that includes the submission of a 
            standardized questionnaire and financial statement in a form 
            established by the district, including a complete statement of 
            the prospective bidder's financial ability and experience in 
            performing public works.  (PCC 20111)

           FISCAL EFFECT  :  According to the Senate Appropriations 
          Committee, there is no direct state cost.  

           COMMENTS  :   Background  .  Under current law, K-12 school districts 
          are required to competitively bid any public works contract over 
          $15,000 and award the contract to the lowest responsible bidder. 
           Current law also allows contracts for architectural services to 
          be awarded on the basis of demonstrated competence and 
          professional qualifications to be performed at a fair and 
          reasonable price (not necessarily the lowest bidder).  Under 
          this process, a school district would first hire an architect to 
          design a school facility and then issue a bid for the 
          construction phase, awarding the contract to the lowest bidder.  
          This process is commonly called "design-bid-build".   AB 1402 
          (Simitian), Chapter 421, Statutes of 2001 established a process 
          called "design-build" that enables a school district to issue a 
          bid for both the design and construction of projects over $10 
          million and authorizes school districts to consider factors 
          other than cost.  AB 1402 had an initial sunset of January 1, 
          2007 and required the Legislative Analyst's Office (LAO) to 
          submit a report with information on the experiences of districts 
          that used the design-build process and make recommendations to 
          the Legislature.  The sunset was extended to January 1, 2010 in 
          2006 (AB 127 (Nunez), Chapter 35, Statutes of 2006).  

          The author introduced another bill in 2002, AB 1000 (Simitian), 
          Chapter 637, Statutes of 2002, authorizing three CCC districts 
          to utilize design-build contracts for projects over $10 million 
          with a sunset of January 1, 2008.  SB 614 (Simitian), Chapter 
          471, Statutes of 2007, reduced the threshold for eligible K-12 
          and CCC projects from $10 million to $2.5 million, extended the 
          authority to all CCC districts, and extended the sunset dates 
          for both K-12 and CCCs to January 1, 2014.  SB 1509 repeals both 
          sunsets and makes the authority to use design-build contracts 
          permanent for both K-12 and CCC districts.   

           Design-build  .  Under a design-build process, a K-12, CCC 








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          district, or other public or private agency issues a bid for 
          both design and construction of a facility.  A general 
          contractor may collaborate with an architect/engineer to submit 
          a proposal, or a general contractor may submit the proposal and 
          subcontract with an architect/engineer.  Prior to using a 
          design-build process for a project, a school district must make 
          written findings that using the design-build method for the 
          project will meet at least one of the following objectives:  
          reduce comparable project costs, expedite the project's 
          completions, or provide features not achievable through the 
          traditional design-bid-build process.  The school district must 
          also establish a process to prequalify design-build entities 
          using a standard questionnaire developed by the Department of 
          Industrial Relations.  The questionnaire requires contractors to 
          provide detailed information regarding the company and its 
          financial status, including whether the company has been in 
          bankruptcy or involved in a civil lawsuit, licensing 
          information, prior contracting experience (whether the 
          contractor has completed other public works projects), whether 
          the contractor has been involved or has been found to have 
          violated any federal, state or local laws, and whether the 
          contractor has violated any labor and health and safety laws, 
          including prevailing wage.  

          Rather than selecting the contractor based solely on the lowest 
          offer, the K-12 or CCC district may use criteria in addition to 
          cost, which may include qualification, experience, proposed 
          design approach, life cycle costs, project features and project 
          functions.  Based on the criteria selected by a governing board, 
          the proposals are scored and awarded to the bidder whose 
          proposal is considered to be the best value to the school 
          district.  Design build contracting can expedite the 
          construction of a project, avoid conflicts between 
          architects/engineers and contractors, and according to 
          experiences from school and CCC districts, reduce costs by 
          reducing change orders once construction begins.  Under a 
          design-bid-build process, the architect works independently on 
          the design of the facility.  Once construction begins, any 
          problems identified by the contractor must be resolved, 
          frequently with the school district acting as the mediator.  
          Under design-build, the architect and contractor are working 
          together from the beginning of the project, thereby reducing 
          conflicts, delays, and additional costs during the construction 
          phase.









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          The design-build method does not exempt a school district from 
          complying with all requirements for receipt of state bond funds, 
          including compliance with the labor compliance program and the 
          requirement to retain an independent inspector.  According to 
          data provided by the Office of Public School Construction, which 
          administers K-12 state education bond funds, 17 school districts 
          have employed the design-build method, submitting applications 
          for 29 projects.  Of these projects, two were completed in 2008, 
          two completed in 2009, and four completed in 2011. Nineteen 
          projects are either going through the funding process or have 
          already started construction but are not finished.  Two 
          applications were returned to the districts; one application was 
          for a duplicate project and the other contained insufficient 
          documentation. 
           
          Other design-build authorizations  .  In addition to K-12 school 
          and CCC districts, a number of design-build authorizations have 
          been given to various cities and counties, state building 
          projects, and transit districts.  It is unclear whether all 
          design-build authorizations contain the same requirements and 
          process.  

          Opposition has expressed concerns that design-build contracting 
          in other types of projects include an operation component.  For 
          example, in a toll road contract, a contractor funds the design 
          and construction of the road and as part of the agreement, the 
          contractor also operates the toll for an agreed upon number of 
          years.  This type of contracting is unlikely to apply to school 
          facilities; however, to provide clarity, staff recommends 
          clarifying that school and CCC district authorizations for 
          design-build contracting does not include design-build-operate 
          contracts.  

           LAO Report  .  In February 2005, the LAO issued a report titled 
          Design-Build: An Alternative Construction System in which it 
          reported its consolidated findings on design-build across 
          several public works sectors.  The LAO report was based on 
          reports provided by entities authorized to use design-build 
          contracting and had difficulty finding conclusive evidence as to 
          the benefits of the design-build method.  However, the LAO 
          reported that the entities that experimented with design-build 
          were generally pleased with the process and outcomes.  The LAO 
          concluded that design-build is a useful alternative delivery 
          method, but made the following recommendations:









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          1)The state should adopt a single statute applying to all public 
            entities (state and local governments and education 
            institutions);
          2)Design-build should be available as an option and not a 
            replacement for design-bid-build;
          3)Contracts for most of the project costs should be objectively 
            awarded based on competitive bidding;
          4)No cost threshold should be imposed on the authority to use 
            design-build;
          5)Access for small and newly established contractors should be 
            assured by requiring that design build contracts be awarded to 
            contractors with experience and qualifications that are 
            consistent with the needs of the project, rather than limited 
            to the biggest and longest-established firms.  (The LAO made 
            this recommendation due to considerations of qualification and 
            experience in awarding design-build contracts, which may 
            disadvantage small, newly established contractors, who do not 
            have the range of experience of more established firms); and, 
          6)The authority should only be granted to construct buildings 
            and directly related infrastructure given the more complex 
            issues associated with transportation, public transit, and 
            water resources facilities. 
          The author and the Committee may wish to consider the LAO's 
          recommendations. 
           
          Arguments in support .  The Los Angeles Unified School District 
          states, "In our experience we have found there are a number of 
          inherent flaws with the design-bid-build process.  The biggest 
          flaw is the lack of communication, coordination and planning 
          between the design professional and contractor at the onset of 
          the project.  This creates contract disputes, increased change 
          order requests, and exposes the owner to unnecessary liability 
          and litigation.  The design-build method addresses this flaw by 
          partnering with contractor and design professional at the 
          beginning of the project.  Each provides input and perspective 
          which ensures the project is built in the most efficient manner. 
           The design-build method has proven to the District to save time 
          and money as a result of fewer change orders, fewer contract 
          disputes, provides the owner with a single point of 
          accountability, and ultimately provides a better quality 
          product."  

           Arguments in opposition  .  The American Federation of State, 
          County and Municipal Employees (AFSCME) states, "AFSCME believes 
          there is ample evidence that design-build has been a failure for 








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          California taxpayers.  Design-build contracting eliminates 
          competitive bidding, allows the private contractor or consortium 
          to inspect and sign off on their own work, and in every instance 
          in California has greatly increased project delivery costs.  To 
          date, for example, four design-build highway projects in 
          California have wasted a combined $2.2 billion in transportation 
          funds without expediting delivery.

          "While design-build is a useful method of construction delivery 
          in cases of emergency or where urgent development is necessary, 
          this bill lacks any sense of urgency in requiring the usage of 
          design-build.  Without any external circumstances such as an 
          emergency, it should be necessary to utilize the competitive 
          bidding process for construction delivery.  Design-build can 
          circumvent local contractors from being involved in the 
          construction delivery process, as outside contractors may be 
          able to secure construction contracts, which would prevent local 
          businesses from obtaining these jobs."

          The design-build contract statute requires competitive bidding; 
          however, to make it clear, staff recommends adding language 
          expressing the Legislature's intent that design-build 
          contracting does not replace or eliminate competitive bidding.   


          Other opponents express similar concerns and have an "oppose 
          unless amended" position.  The requested amendment would extend 
          the sunsets by two years, rather than eliminating the sunsets.  

           REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          American Council of Engineering Companies of California
          American Institute of Architects, California Council
          Associated General Contractors
          California Association of Sheet Metal and Air Conditioning 
                    Contractors' National Association
          California Building Industry Association
          California Chapters of the National Electrical Contractors 
          Association
          California Community Colleges Chancellor's Office
          California Legislative Conference of the Plumbing, Heating and 
          Piping Industry
          California-Nevada Conference of Operating Engineers








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          Clovis Unified School District
          Coalition for Adequate School Housing
          Community College Facility Coalition
          Community College League of California
          County of Los Angeles Board of Supervisors
          County School Facilities Consortium
          Design-Build Institute of America, Western Pacific Region
          Kern Community College District
          Los Angeles Community College District
          Los Rios Community College District
          Los Angeles Unified School District
          Peralta Community College District
          Rio Hondo Community College District
          San Francisco Unified School District
          South Orange County Community College District
          San Diego Community College District
          San Mateo County Community College District Chancellor
          State Building and Construction Trades Council, AFL-CIO
          West Kern Community College District
           
            Opposition 
           
          American Federation of State, County and Municipal Employees, 
          AFL-CIO
          Glendale City Employees Association (unless amended)
          Laborers' Locals 777 & 792 (unless amended)
          Organization of SMUD Employees (unless amended)
          Professional Engineers in California Government (unless amended)
          San Bernardino Public Employees Association (unless amended)
          San Luis Obispo County Employees Association (unless amended)
          Santa Rosa City Employees Association (unless amended)

           Analysis Prepared by  :    Sophia Kwong Kim / ED. / (916) 319-2087