BILL ANALYSIS Ó SB 1509 Page 1 SENATE THIRD READING SB 1509 (Simitian) As Amended August 20, 2012 Majority vote SENATE VOTE :32-4 EDUCATION 6-0 APPROPRIATIONS 17-0 ----------------------------------------------------------------- |Ayes:|Brownley, Norby, |Ayes:|Gatto, Harkey, | | |Buchanan, Grove, | |Blumenfield, Bradford, | | |Halderman, Wagner | |Charles Calderon, Campos, | | | | |Davis, Donnelly, Fuentes, | | | | |Hall, Hill, Cedillo, | | | | |Mitchell, Nielsen, Norby, | | | | |Solorio, Wagner | |-----+--------------------------+-----+--------------------------| | | | | | ----------------------------------------------------------------- SUMMARY : Extends 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, from January 1, 2014, to January 1, 2020. Expresses the intent of the Legislature that design-build procurement does not replace or eliminate competitive bidding. Specifies that the request for proposal shall not include a design-build-operate contract for educational facilities. FISCAL EFFECT : According to the Assembly Appropriations Committee, there are no direct costs, as use of the design-build process is voluntary, and should result in potential savings. COMMENTS : 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 SB 1509 Page 2 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. This bill extends both sunsets to January 1, 2020. Under a design-build process, a K-12, CCC 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 SB 1509 Page 3 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. 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 because one application was for a duplicate project and the other contained insufficient documentation. 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. SB 1509 Page 4 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: 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). 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 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 SB 1509 Page 5 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." Analysis Prepared by : Sophia Kwong Kim / ED. / (916) 319-2087 FN: 0005129