BILL ANALYSIS Ó AB 195 Page 1 Date of Hearing: May 1, 2013 ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT K.H. "Katcho" Achadjian, Chair AB 195 (Hall) - As Introduced: January 28, 2013 SUBJECT : Counties: construction projects: design-build. SUMMARY : Extends the sunset for the use of design-build by counties from July 1, 2014, to July 1, 2020. EXISTING LAW : 1)Requires local officials, under the Local Agency Public Construction Act (LAPC Act), to invite bids for construction projects and then award contracts to the lowest responsible bidder under the traditional design-bid-build project delivery system. 2)Authorizes counties, until July 1, 2014, to use the design-build method for projects costing more than $2.5 million and to award the project using either the lowest responsible bidder or by best value. 3)Allows a county, in lieu of reimbursing the Department of Industrial Relations (DIR) for its reasonable and directly related costs of performing monitoring and enforcement on public works projects, to continue operating an existing previously approved labor compliance program to monitor and enforce prevailing wage requirements on the project if: it has not contracted with a third party to conduct its labor compliance program and requests and receives approval from DIR to continue its existing program; or, it enters into a collective bargaining agreement that binds all of the contractors performing work on the project and that includes a mechanism for resolving disputes about the payment of wages. 4)Defines "design-build" as a procurement process in which both the design and construction of a project are procured from a single entity. 5)Defines "best-value" as a value determined by objective criteria related to price, features, functions, and life cycle costs. AB 195 Page 2 6)Defines "project" as the construction of a building and improvements directly related to the construction of a building, and county sanitation wastewater treatment facilities, but does not include the construction of other infrastructure, including, but not limited to, streets and highways, public rail transit, or water resources facilities and infrastructure. 7)Requires counties to prepare documents describing the project and its specifications; prepare a detailed request for proposals that invites competitive bids; establish a detailed procedure to pre-qualify design-build entities; and, establish the procedures to select the design-build entity. 8)Requires counties to establish and enforce labor compliance programs, as specified. 9)Requires counties that use design-build contracting to submit a report to the Legislative Analyst's Office (LAO) by September 1, 2013, containing specified information and requires the LAO to report to the Legislature by January 1, 2014, on counties' use of design-build, as specified. FISCAL EFFECT : Unknown COMMENTS : 1)This bill extends the sunset date on the authority of counties to use the design-build method of contracting for projects costing more than $2.5 million. This authority is limited to the construction of a building and improvements directly related to the construction of a building, and to county sanitation wastewater treatment facilities. This bill is jointly sponsored by the California State Association of Counties, the Counties of Los Angeles, San Bernardino, San Diego, and Solano, and the Urban Counties Caucus. 2)According to the author's office, "In 2010, the (LAO) investigated five design-build projects and found that four of those projects were completed under budget. Further, their findings cited that the counties that have used design-build generally expressed favorable opinions of the process. Almost all reported that compared to the traditional design-bid-build process, it took less staff time to construct a project and resulted in fewer claims and less litigation. Unless this AB 195 Page 3 authorization is extended, counties will no longer be able to use this successful, cost effective project delivery system in the state." 3)The LAPC Act generally requires local officials to invite bids for construction projects and then award contracts to the lowest responsible bidder. This design-bid-build method is the traditional approach to public works construction. Under the design-build method, a single contract covers the design and construction of a project with a single company or consortium that acts as both the project designer and builder. The design-build entity arranges all architectural, engineering, and construction services, and is responsible for delivering the project at a guaranteed price and schedule based upon performance criteria set by the public agency. The design-build method can be set by the public agency. The design-build method can be faster and, therefore, cheaper, than the design-bid-build method, but it requires a higher level of management sophistication since design and construction may occur simultaneously. Advocates for the design-build method of contracting for public works contend that project schedule savings can be realized because only a single request for proposals is needed to select the project's designer and builder. The more traditional design-bid-build project approach requires the separate selection of the design consultant or contractor, completion of design, and then advertising for bids and selection of the construction contractor. Proponents add that design-build allows the overlap of design and construction activities, resulting in additional time savings and lower project costs. By avoiding the delays and change orders that result from the traditional design-bid-build method of contracting, proponents argue that design-build can deliver public works faster and cheaper. Detractors of design-build contend that it eliminates competitive bidding, allows the private contractor or consortium to inspect and sign off on their own work, and increases project delivery costs. 4)The LAO issued a report to the Legislature on February 3, 2005, titled "Design-Build: An Alternative Construction System." After analyzing the claims of proponents and AB 195 Page 4 opponents and reviewing the experience of counties that were authorized to use design-build at the time, the LAO recommended "the Legislature grant design-build authority only to buildings and directly related infrastructure. There are more complex issues associated with other public works projects such as transportation, public transit, and water resources facilities. Evaluation of design-build as a construction delivery option for these other infrastructure facilities is beyond the scope of this report." In January of 2010 the LAO issued a second report, this time updating the Legislature on the use of design-build by counties in California, based on data received from counties that utilized this methodology. In the report, LAO states that "although it was difficult to draw conclusions from the reports received about the effectiveness of design-build compared to other project delivery methods, we do not think that the reports provide any evidence that would discourage the Legislature from granting design-build authority to local agencies on an ongoing basis. In doing so, however, we recommend the Legislature consider some changes such as creating a uniform design-build statute, eliminating cost limitations, and requiring project cost to be a larger factor in awarding the design-build contract." 5)Current law requires counties that use design-build contracting to submit a report to the LAO by September 1, 2013, containing specified information such as project costs, completion times, change orders, any written protests, an assessment of the pre-qualification process and the labor force compliance program, and other elements. The law also requires the LAO to report to the Legislature by January 1, 2014, on counties' use of design-build. The LAO must also complete a fact-based analysis of the use of design-build by counties and compile the analyzed information into a report for the Legislature. This analysis must include conclusions describing the actual cost of design-build projects, whether project schedules were met, and whether projects needed or used change orders. These reports have yet to be completed. The Committee may wish to consider whether an extension on counties' use of design-build should be granted before these reports are reviewed, and whether similar reporting should be required in the future. 6)According to the California State Association of Counties, AB 195 Page 5 "The design-build method is an approach to delivering public works projects which counties find beneficial?There are a number of advantages to design-build, when compared to the traditional design-bid-build method: a) Projects can be completed faster, as construction can commence during the design phase; b) Contractors are provided with more flexibility over project design, materials and construction methods. This promotes project design and construction innovation, which can ultimately result in higher quality, as well as cost savings; and, c) Time-consuming and costly disputes between designer and contractor are reduced, because both parties are affiliated with the same entity." 7)The Professional Engineers in State Government argue that "there is ample evidence that design-build has been a failure for California taxpayers?Historically, on state highways and other public works projects, public inspectors have ensured that construction and seismic standards are met, that projects meet safety requirements and that the materials used will stand the test of time?This crucial function should not be performed by a private inspector whose primary obligation is to the success and profitability of his company or business partners? "Additionally, in 2009, legislative leaders negotiated an agreement (SB X2 4 - Cogdill)?to provide broad design-build authority for transportation projects," which include a requirement that the Department of Transportation perform inspection services on state highway projects. The courts have determined that this provision is no longer required. "PECG does not believe it is appropriate to clarify existing design-build authority for other government entities unless and until we restore the original intent of SB X2 4." 8)The Air Conditioning Trade Association, the Plumbing-Heating-Cooling Contractors Association of California, and the Western Electrical Contractors Association take issue with current law that exempts counties from reimbursing DIR "for its reasonable and directly related costs of performing monitoring and enforcement" if "it enters into a collective bargaining agreement that binds all of the AB 195 Page 6 contractors performing work on the project and that includes a mechanism for resolving disputes about the payment of wages." They argue that this exemption "denies DIR of vitally needed funds to enforce State law and puts at risk the workers on these construction jobs who will be potentially denied the protection of the State Labor Commissioner." 9)Support arguments : Supporters argue that design-build authority for counties is an effective method of completing construction projects on time and within or under budget, and that it has been a useful tool that counties should be able to continue using in the future. Opposition arguments : Opponents contend that design-build does not guarantee cost savings, reduces competitive bidding, and lacks impartial inspection procedures, which can put the public at risk for failed construction projects. REGISTERED SUPPORT / OPPOSITION : Support California State Association of Counties [CO-SPONSOR] County of Los Angeles [CO-SPONSOR] County of San Bernardino [CO-SPONSOR] County of San Diego [CO-SPONSOR] County of Solano [CO-SPONSOR] Urban Counties Caucus [CO-SPONSOR] Associated General Contractors AB 195 Page 7 California State Sheriffs' Association Counties of Kern, Merced, Napa, Orange, Sacramento, Santa Clara, Sonoma, and Stanislaus Design-Build Institute of America Rural County Representatives of California San Francisco Unified School District Opposition Air Conditioning Trade Association Plumbing-Heating-Cooling Contractors Association of California Professional Engineers in California Government Western Electrical Contractors Association Analysis Prepared by : Angela Mapp / L. GOV. / (916) 319-3958