BILL ANALYSIS Ó
SB 1549
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Date of Hearing: July 2, 2012
ASSEMBLY COMMITTEE ON TRANSPORTATION
Bonnie Lowenthal, Chair
SB 1549 (Vargas) - As Amended: July 5, 2012
SENATE VOTE : 38-0
SUBJECT : Transportation projects: alternative project delivery
methods
SUMMARY : Authorizes San Diego Association of Governments
(SANDAG) to use specified alternative project delivery methods
for public transit projects within its jurisdiction.
Specifically, this bill :
1)Makes legislative findings and declarations regarding the
value of examining the potential benefits and challenges
associated with using alternative public works project
delivery methods.
2)Defines key terms, including:
a) "Alternative project delivery method" to mean either
construction manager/general contractor (CM/CG) method or
design-sequencing.
b) "Construction manager/general contractor method" to mean
a project delivery method using a best value procurement
process in which a construction manager is procured to
provide preconstruction services during the design phase of
a project and construction services during the construction
phase of the project.
c) "Construction manager" to mean an entity that is able to
provide licensed contracting and engineering services.
d) "Design sequencing" to mean a method of project delivery
that enables the sequencing of design activities to permit
each construction phase to commence when the design for
that phase is complete, instead of requiring design for the
entire project to be completed before commencing
construction.
3)Authorizes SANDAG to use either the CM/CG or the
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design-sequencing alternative project delivery method for
public transit projects within its jurisdiction, under certain
conditions.
4)Prior to entering into a contract to use an alternative
project delivery method, SANDAG must evaluate the use of that
method, along with the traditional design-bid-build delivery
method, in a public meeting and make a written finding that
use of the alternative project delivery method will achieve
one or more of the following objectives:
a) Reduced project costs;
b) Expedited project completion; or,
c) Benefits not achievable through the traditional
design-bid-build approach.
5)Subjects all CM/GC contracts awarded under the authority
granted by this bill to existing statutes governing SANDAG's
procurement, including provisions related to design-build
contracting by transit agencies, procurement by competitive
negotiations, and contracts for architectural and engineering
services.
6)Subjects all design-sequencing contracts awarded under the
authority granted by this bill to existing statutes related to
procuring architectural and engineering contracts; these
provisions generally provide that contracts for architectural
and engineering services are to be awarded on a best-qualified
basis, with terms to be competitively negotiated.
7)If SANDAG enters into a CM/GC contract that includes
preconstruction services by the construction manager, requires
SANDAG to pay a fee for preconstruction services for a
mutually agreed to price. SANDAG 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.
The preconstruction services contract is to provide for
subsequent negotiation for the construction phase of the
project.
8)Authorizes SANDAG to enter into a contract for construction
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services after a project has been sufficiently developed and
either a fixed price or guaranteed maximum price has been
successfully negotiated. Should SANDAG not be able to come to
terms for the construction services phases, then it may award
the contract using any other procurement method authorized by
law.
9)Requires the construction manager to perform at least 30% of
the work covered by the construction services contract.
10)Requires any work not performed by the construction manager
to be bid to subcontractors pursuant to the Subletting and
Subcontracting Fair Practices Act.
11)Provides, notwithstanding any other provision of this bill,
that for projects on state-owned right-of-way, the California
Department of Transportation (Caltrans) will be the
responsible agency for the performance of project development
services, including:
a) Performance specifications;
b) Preliminary engineering;
c) Pre-bid services;
d) Project reports;
e) Environmental documents; and,
f) Construction inspection services.
12)Further provides that, for these projects, Caltrans will be
the responsible agency for the preparation of documents
related to performance specifications, design characteristics,
material specifications, and other documents necessary to
describe adequately the needs of the project.
13)Specifically provides that Caltrans may use department
employees or consultants to perform the work required by this
bill and requires that Caltrans include the required personnel
resources in its annual capital outlay support budget.
14)Provides that nothing in this bill affects, expands, alters,
or limits any rights or remedies otherwise available.
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15)Requires SANDAG to prepare a progress report to its governing
body, with specified elements, and to make the report
available on its Internet web site.
16)Provides that the provisions of the bill are severable and
that contracts awarded pursuant to the provisions of the bill
are valid until the project is completed.
17)Justifies the need for a special 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)Provides for a limited number of design-build contracts for
transportation, not including public transit; sets forth
criteria and procedures governing their procurement.
3)Grants transit districts authority to enter into design-build
contracts for both the design and construction of public
transit projects using prescribed processes and procedures for
entering into the contracts.
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.
5)Does not authorize the use of design-sequencing contracts.
6)Requires, generally, public works construction contracts to be
awarded based on a process referred to as "design-bid-build."
This process requires the public entity, before entering into
any contract for construction of a project, to prepare or
cause to be prepared full, complete, and accurate plans,
specifications, and estimates of cost, "giving such directions
as will enable any competent mechanic or other builder to
carry them out."
7)Until January 1, 2010:
a) Defined "design-sequencing" as a method of contracting
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that enabled the sequencing of design activities to permit
each construction phase to commence when design for that
phase is complete, instead of requiring the design for the
entire project to be completed before commencing
construction; and,
b) Authorized Caltrans to use the design-sequencing
contract method on a pilot basis-up to 12 projects in each
of Phase I and Phase II of the pilot program; and, required
Caltrans to prepare an annual status report on the progress
of design-sequencing contracts; also, required a final
report of the pilot program, detailing the positive and
negative aspects of design-sequencing.
8)Consolidates the roles and responsibilities of SANDAG with
many of the transit functions of the Metropolitan Transit
Development Board and the North San Diego County Transit
Development Board. (The consolidation allowed SANDAG to assume
transit planning, funding allocation, project development, and
eventually construction in the San Diego region, in addition
to its ongoing transportation responsibilities and other
regional roles.)
9)Prescribes SANDAG's membership and responsibilities and grants
SANDAG broad powers and authorities with regard to
transportation planning and construction.
10) Generally requires that contracts for architectural
and engineering services must be awarded based on bidders'
qualifications (rather than price).
11) The Subletting and Subcontracting Fair Practices
Act, sets forth provisions that must be followed in public
works contracting to thwart the occurrence of bid peddling in
connection with the construction, alteration, and repair of
public improvements "that may result in poor quality material
and workmanship to the detriment of the public, deprive the
public of the full benefits of fair competition among prime
contractors and subcontractors, and lead to insolvencies, loss
of wages to employees, and other evils."
FISCAL EFFECT : According to Senate Appropriations Committee,
potential for increased transit project costs to the extent that
the alternative project delivery method chosen by SANDAG results
in a higher overall project cost than the traditional
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design-bid-build method. If an alternative delivery method is
chosen, SANDAG must make a written finding in a public meeting
that the alternative method would provide a benefit that may be
deemed to have a greater value than project cost alone, such as
expedited project delivery or other features not achievable
through design-bid-build. The overall value of a project may be
measured by criteria other than cost.
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
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
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project costs.
Design-build:
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,
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.
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Design-sequencing:
Design-sequencing was first authorized in 1999 by AB 405 (Knox)
Chapter 378, Statutes of 1999, which established the original
design-sequencing pilot program within Caltrans for up to six
projects. The intent of AB 405 (Knox) was to offer an
alternative means to accelerate project delivery over
traditional means of contracting for highway improvements.
Under the traditional means, construction of any portion of the
project cannot commence until Caltrans has developed complete
plans and specifications for the project, placed the contract
out for bid, and awarded the contract. AB 405 (Knox) sought to
test a form of contracting referred to as "design-sequencing"
that would speed completion of a project by allowing
construction on one phase of the project to be started while
other phases of the project were still under design. As part of
the pilot program, Caltrans was to report to the Legislature on
the effectiveness of the program.
Of the 12 design-sequencing projects authorized as Phase I of
the pilot program, Caltrans initiated 10 projects before the end
of that phase. SB 1210 (Torlakson), Chapter 795, Statutes of
2004, created Phase II of the pilot program and authorized an
additional 12 design-sequencing projects between January 2005
and January 2010. Of those, Caltrans initiated 11 projects.
In discussions with Caltrans, staff acknowledges that not all
design-sequencing projects have met with success. In fact,
Caltrans suggests that lessons learned from some of the early
failures caused the department to take a more conservative
approach in its use of design-sequencing contracts. This in
turn resulted in some of the authorized design-sequencing
projects going unused.
Caltrans asserts that design-sequencing has the potential to
accelerate project delivery (or avoid project delays) with
minimal risks. Caltrans has argued that more needs to be
learned regarding design-sequence contracts to develop the
appropriate procedures, engineering mind set, and agency culture
needed to effectively implement this approach and to determine
the types of projects that would most benefit from use of this
approach.
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In interim reports of the design-sequencing pilot program,
Caltrans reports mixed results in the initial design-sequencing
projects when compared to projects in the control group.
However, according to Caltrans staff, findings from some of the
more recent projects are more positive, due largely to the
refined criteria Caltrans is using to select appropriate
design-sequencing projects. In fact, in its 2010 status of the
previous design-sequencing program, Caltrans states, "The
Department envisions design-sequencing as a valuable project
delivery tool that can reduce project completion time when
properly used on appropriately selected projects."
Alternative Project Delivery Methods:
This bill authorizes SANDAG 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, SANDAG will be
able to engage a design and construction management consultant
(construction manager) to act as its 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, SANDAG 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 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 SANDAG to
the contractor, and ensure project constructability.
Additionally, CM/CG will allow SANDAG to have greater control of
design decisions. It also allows SANDAG to design the project
to compliment the CM/CG's strengths and capabilities, thereby
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avoiding the need to over-design the project to provide maximum
competitiveness in a low-bid procurement.
This bill also allows SANDAG to use design-sequencing.
Caltrans' efforts to date indicate that this project delivery
tool offers the potential to minimize risks, increase
efficiencies, reduce costs, and speed project delivery.
Writing in support of this bill, SANDAG explains that it has an
ambitious capital improvement program comprising more than $850
million in Fiscal Year 2012 alone. It anticipates using the
alternative project delivery method authority provided for in SB
1549 to accelerate infrastructure projects during a
low-construction-cost environment.
Professional Engineers in California Government (PECG) opposes
SB 1549 because it believes that if design-sequencing
authorization is provided for the State Highway System it should
be done on a statewide basis and not limited to SANDAG. PECG
also suggests that the use of CM/CG, an "untested procurement
methodology," should be limited to a trial of no more than four
projects.
Also in opposition, the American Council of Engineering
Companies (ACEC) objects to provisions that name Caltrans the
responsible agency for performing project development services
and construction inspection services for projects on the State
Highway System.
Related legislation: AB 294 (Portantino) authorizes Caltrans to
use the design-sequencing method procurement for up to five
transportation projects until January 1, 2015. That bill is
currently on the inactive file in the Senate.
AB 2498 (Gordon) authorizes Caltrans to use CM/GC for up to four
projects, using a substantially similar process as prescribed in
SB 1549. That bill is currently pending in Senate
Appropriations Committee.
Double referred : This bill was also heard in the Assembly
Committee on Local Government and passed out on June 27, 2012
with a vote of 9-0.
REGISTERED SUPPORT / OPPOSITION :
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Support
San Diego Association of Governments (sponsor)
Automobile Club of Southern California
Metropolitan Transit System
Opposition
American Council of Engineering Companies
Professional Engineers in California Government
Analysis Prepared by : Janet Dawson / TRANS. / (916) 319-2093