BILL ANALYSIS Ó AB 401 Page 1 Date of Hearing: April 29, 2013 ASSEMBLY COMMITTEE ON TRANSPORTATION Bonnie Lowenthal, Chair AB 401 (Daly) - As Amended: May 2, 2013 SUBJECT : Interstate 405 Improvement Project: design-build SUMMARY : Authorizes the Orange County Transportation Authority (OCTA) to use design-build for the Interstate 405 (I-405) Improvement Project. Specifically, this bill : 1)Defines key terms. 2)Authorizes OCTA to use design-build procurement for the I-405 Improvement Project, based on either best value or lowest responsible bidder. 3)Provides that the California Department of Transportation (Caltrans) is to perform construction inspection services on the project, including specific tasks, such as material source testing, surveying, independent quality control testing and inspection, and quality assurance audits. 4)Prescribes a direct reporting relationship between project inspectors and senior Caltrans engineers responsible for all inspectors and construction inspection services. 5)Explicitly states that the senior Caltrans engineer responsible for construction inspection services is responsible for acceptance or rejection of work on the project. 6)Provides, notwithstanding any other provision of law, that Caltrans will retain the authority to stop the contractor's operations on the project in the event public safety is jeopardized. 7)Directs Caltrans to ensure that public safety and convenience is maintained for work performed under an encroachment permit within state highway rights of way. 8)Prescribes the process by which Caltrans is to document project deficiencies and to direct remedies. AB 401 Page 2 9)Provides that Caltrans may use employees or consultants it contracts with to perform prescribed services, consistent with Article 22 of the State Constitution; requires that resources necessary to perform the services are reflected in the Caltrans capital outlay support program budget. 10)Requires OCTA to report to the Legislature on the project's progress and compliance with the provisions of this bill. 11)Directs the California Transportation Commission (CTC) to develop conflict-of-interest guidelines for transportation entities entering into design-build contracts. 12)Requires transportation entities that are authorized to use design-build to establish and enforce a labor compliance program or contract with a third party to operate a labor compliance program; alternatively, allows the transportation entities to enter into a collective bargaining agreement. 13)Imposes other requirements related to the Department of Industrial Relations, apprenticeship programs, and skilled labor force availability. 14) Sets forth processes and procedures to govern the design-build procurement process. 15)Includes a January 1, 2018, sunset date. 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)Generally requires public works construction contracts to be awarded to the lowest responsible bidder. 3)Establishes the Design-Build Demonstration Program that provides for a limited use of design-build contracts for transportation; sets forth criteria and procedures governing the program, including: a) Defines "design-build" to mean a procurement process in which both the design and construction of a project are AB 401 Page 3 procured from a single entity; b) Authorizes local transportation entities, if authorized by the CTC, to use design-build for up to 5 projects that may be for local street or road, bridge tunnel, or public transit projects within the jurisdiction of the entity; c) Authorizes Caltrans, if authorized by the CTC, to use design-build on up to 10 state highway, bridge, or tunnel projects; d) Limits the total number of projects authorized in the demonstration program to 15; and, e) Sunsets the demonstration program on January 1, 2014. 4)Authorizes transit agencies, until January 1, 2015, to use design-build for their projects. 5)Provides, within the State Constitution, that all government agencies must be allowed to contract with qualified private entities for architectural and engineering services for all public works of improvement; specifically provides that the choice and authority to contract extends to all phases of project development, including permitting and environmental studies, rights-of-way services, design phase services and construction phase services. FISCAL EFFECT : Unknown 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: AB 401 Page 4 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 project costs. 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 AB 401 Page 5 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. Existing law allows selected state agencies and local governments to use design-build but does not generally allow agencies to use design-build for highways. In 2009, however, the Legislature passed and the Governor signed SB 2X 4 (Cogdill), Chapter 2, Statutes of 2009, that authorizes, among other things, the Design-Build Demonstration Program. This program provides for limited use of design-build for transportation-10 for projects on the state highway system and 5 for projects on local streets. SB 2X 4 sets forth processes and procedures by which design-build projects are approved under the demonstration project, which sunsets January 1, 2014. To date, CTC has authorized 10 state highway projects. No approvals to use design-build on local streets have been requested. This bill authorizes an additional design-build project on I-405, beyond the 10 state highway projects authorized in the demonstration program. I-405 was built in the 1960s and is the primary freeway serving coastal communities in northwest Orange County. It carries approximately 300,000 vehicles per day and traffic along the corridor is expected to grow by about 35-40% by 2040. Currently, both general purpose and high occupancy vehicle lane traffic demand exceeds available capacity during AB 401 Page 6 peak periods. Additional lanes are being proposed to reduce congestion, enhance operations, increase mobility, improve trip reliability, maximize throughput, and optimize operations while minimizing environmental impacts and right-of-way acquisitions. The I-405 Project Improvement Project will provide one additional general purpose lane in each direction of the 12-mile stretch of I-405, from Euclid Street, at the border of Los Angeles County, and I-605. The primary source of funding for the $1.3 billion project comes from Orange County's sale tax measure for transportation. According to the author, the project is estimated to generate over 22,000 jobs. This bill borrows heavily from provisions of the existing Design-Build Demonstration Program and particularly from provisions that were amended into the demonstration program to provide design-build authority unique for Riverside County Transportation Commission's State Route 91 Corridor Improvements Project. Provisions related to that project specifically delineate the construction inspection functions required to be within Caltrans purview on the project. The I-405 Improvement Project is not eligible under the demonstration program authorized under SB 2X 4 for two reasons: 1) all of the ten authorized projects on state highways have been granted design-build authority already; and, 2) the I-405 Improvement Project is not advanced enough to go out to bid prior to the January 1, 2014, sunset date of the demonstration program. In theory, it would behoove the Legislature to evaluate the results of the Design-Build Demonstration Program prior to granting additional authorization to use design-build for transportation. However, experiences to date for those limited transportation projects authorized to use design-build here in California, as well as others from around the nation, suggest that design-build has the potential to expedite project delivery. In the case of the I-405 Improvement Project, the author asserts that using design-build on this project could deliver the project two or three years earlier, meaning that jobs can be created that much earlier as well. All things considered, the prospect of creating new jobs probably outweighs the risk of proceeding with this design-build AB 401 Page 7 authority prior to knowing the final results of the original Design-Build Demonstration Program. Writing in opposition to this bill, the American Council of Engineering Companies of California (ACEC CA) contends that AB 401 violates the State Constitution, specifically Proposition 35 (2000). ACEC CA argues that under Proposition 35, the Legislature cannot compel OCTA to use Caltrans services. Other opponents of the bill argue that, among other things, the bill's labor provisions impede the awarding of construction contracts on a fair and open basis and discriminate against some construction apprentices, journey workers, and their employers. Related legislation: AB 195 (Hall) extends, until 2020, design-build authority for counties for infrastructure projects, excluding street, highway, and public rail transit projects. The bill is in Assembly Appropriations Committee. AB 603 (Cooley) authorizes the Capital Southeast Connector Joint Powers Authority to use design-build for transportation projects, under certain conditions. The bill is in Assembly Transportation Committee and the author has indicated it will be a two-year bill. SB 785 (Wolk) repeals existing law authorizing the Department of General Services (DGS), the Department of Corrections and Rehabilitation (CDCR), and local agencies to use the design-build procurement process, and would enact uniform provisions authorizing DGS, CDCR and local agencies to utilize the design-build procurement process for specified public works projects (specifically excluding work on state highways.) SB 785 is in Senate Appropriations Committee. Previous legislation: SB 2X 4 (Cogdill), Chapter 2, Statutes of 2009, Second Extraordinary Session, authorizes, among other things, limited use of design-build for transportation-10 for projects on the state highway system and 5 for projects on local streets. SB 2X 4 sets forth processes and procedures by which design-build projects would be approved under the demonstration project, which sunsets January 1, 2014. REGISTERED SUPPORT / OPPOSITION : Support AB 401 Page 8 Orange County Transportation Authority (co-sponsor) Professional Engineers in California Government (co-sponsor) American Society of Civil Engineers-Region 9 Automobile Club of Southern California Orange County Business Council Opposition Air Conditioning Trade Association American Council of Engineering Companies of California Associated Builders and Contractors of California Plumbing-Heating-Cooling Contractors Association of California Western Electrical Contractors Association Analysis Prepared by : Janet Dawson / TRANS. / (916) 319-2093