BILL ANALYSIS Ó AB 164 Page 1 ASSEMBLY THIRD READING AB 164 (Wieckowski) As Introduced January 23, 2013 Majority vote LOCAL GOVERNMENT 9-0 ----------------------------------------------------------------- |Ayes:|Achadjian, Levine, Alejo, | | | | |Bradford, Gordon, | | | | |Melendez, Mullin, | | | | |Waldron, Frazier | | | ----------------------------------------------------------------- SUMMARY : Requires the use of performance bonds and payment bonds in local government infrastructure projects that are financed through public-private partnerships. Specifically, this bill : 1)Requires public-private partnership (P3) agreements between local government agencies and private entities for the construction of specified infrastructure projects to include the following: a) Performance bonds as security to ensure completion of the construction of the facility; and, b) Payment bonds to secure the payment of claims of laborers, mechanics, and materialmen employed on the work under the contract. 2)Requires payment bonds to conform to the requirements of current law governing payment bonds in public works projects. EXISTING LAW : 1)Authorizes local government agencies to use P3s for specified types of infrastructure projects, and requires P3 agreements to contain a number of elements, including security for the construction of the facility to ensure its completion. 2)Requires a direct contractor that is awarded a public works contract involving an expenditure in excess of $25,000 to, before commencement of work, give a payment bond to and AB 164 Page 2 approved by the officer or public entity by whom the contract was awarded, as specified. FISCAL EFFECT : None COMMENTS : This bill requires local agency P3 agreements to include performance bonds to ensure completion of the project and payment bonds to secure the payment of claims of laborers, mechanics, and materialmen employed on the project. This bill is sponsored by the American Subcontractors Association of California. A performance bond is a surety bond issued by an insurance company or a bank to guarantee satisfactory completion of a project by a contractor. A payment bond is a surety bond posted by a contractor to guarantee that sub-contractors and material suppliers on the project will be paid. According to the author's office, P3s "can make public construction possible, especially in times of bare public coffers. However, unlike traditional public projects, these P3s have no bond protections to ensure contractors and suppliers will be paid for their work. The private entity could run out of money midway through a project and walk away, leaving the municipality with an only partially completed structure and subcontractors and laborers without a paycheck." California's statutes governing the use of P3s by local agencies were enacted in 1996 when the Legislature passed AB 2660 (Aguiar), Chapter 1040, Statutes of 1996. The law allows local government agencies to solicit proposals and enter into agreements with private entities for the design, construction or reconstruction by private entities for specific types of fee-producing infrastructure projects that could provide for private entities to lease or operate these fee-producing infrastructure facilities for a period of up to 35 years. These provisions have been essentially unchanged since their enactment. Current law requires P3 agreements to include security for the construction of the facility to ensure its completion, but does not specify what that security is. This bill specifies that a performance bond is required to secure the completion of the project. AB 164 Page 3 Current law requires public works contractors to provide a payment bond on projects costing more than $25,000. This bill imposes the same requirement on local agency P3 projects. Recent attempts to alter the state's P3 statutes include: 1)AB 878 (Caballero, 2009) was nearly identical to AB 1261 (see below). AB 878 was referred to the Assembly Local Government Committee, but was never heard. 2)AB 1261 (Caballero, 2007) would have made a number of changes to local government P3 statutes, such as: extending the allowable lease period from 35 years to 50 years; altering the criteria local governments must use to select a contractor; and, allowing sanitary sewer systems, power transmission facilities, and power distribution facilities to be constructed under P3 agreements. AB 1261 passed the Assembly Local Government Committee on a 7-0 vote on April 18, 2007, but subsequently died on the Senate Floor. 3)AB 345 (La Malfa, 2005) and AB 1520 (Niello, 2005) would have allowed state agencies to use P3 agreements. Both bills failed passage on April 26, 2005, in the Assembly Business and Professions Committee. This bill contains an incorrect code reference, which the author's office has indicated will be corrected as the bill moves forward. Support arguments: Supporters argue that this bill will protect the public and subcontractors when they invest in, or provide materials and labor for, local agency P3 infrastructure projects. Opposition arguments: None Analysis Prepared by : Angela Mapp / L. GOV. / (916) 319-3958 FN: 0000346 AB 164 Page 4