BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 401
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          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.  









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          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  








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               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:








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          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  








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            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  








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          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  








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          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 








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          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