BILL ANALYSIS Ó SB 1509 Page 1 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) SB 1509 Page 2 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 SB 1509 Page 3 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. SB 1509 Page 4 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: SB 1509 Page 5 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 SB 1509 Page 6 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 SB 1509 Page 7 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