BILL ANALYSIS                                                                                                                                                                                                    Ó






           SENATE TRANSPORTATION & HOUSING COMMITTEE       BILL NO: ab 401
          SENATOR MARK DESAULNIER, CHAIRMAN              AUTHOR:  daly
                                                         VERSION: 5/20/13
          Analysis by:  Eric Thronson                    FISCAL:  yes
          Hearing date:  July 9, 2013



          SUBJECT:

          Design-build on Interstate 405 in Orange County

          DESCRIPTION:

          This bill authorizes the Orange County Transportation Authority  
          to use the design-build procurement method for its Interstate  
          405 Improvement Project.

          ANALYSIS:

          Existing law conveys to the California Department of  
          Transportation (Caltrans) full possession and control of all  
          state highways and requires Caltrans to perform all improvement  
          and maintenance work, unless that responsibility is otherwise  
          delegated to another entity in statute.

          Design-build (DB) refers to a procurement process in which both  
          the design and construction of a project are procured from a  
          single entity.  DB stands in contrast to the traditional  
          design-bid-build contracting method whereby work on a project is  
          divided into two separate phases:  design and construction.   
          Under design-bid-build, the government agency is responsible for  
          the design of the project, either by designing it itself or by  
          contracting with a private entity to do so.  When designs are  
          completed, the agency solicits bids from the construction  
          industry and hires the responsible low bidder to build the  
          project.  DB combines these two phases into a single,  
          comprehensive contract.  

          In 2000, voters approved Proposition 35 (Prop 35), amending the  
          California Constitution and eliminating several restrictions  
          preventing state and local governments from contracting with  
          private entities for particular services.  Prior to Prop 35,  
          existing law required state civil service employees to perform  
          certain services provided by state agencies.  Prop 35 added  
          Article XXII to the California Constitution, which states that  




          AB 401 (DALY)                                          Page 2

                                                                       


          state and local government are allowed to contract with  
          qualified private entities for architectural and engineering  
          services for all public works projects.  Prop 35 also defined in  
          statute the term "architectural and engineering service" to  
          include, among other things, construction inspection services.

          Senate Bill 4 (Cogdill), Second Extraordinary Session, Chapter  
          2, Statutes of 2009 (SB 4XX), authorized Caltrans to utilize DB  
          procurement for 10 state highway, bridge, or tunnel projects,  
          and it authorized a local transportation agency to utilize DB on  
          5 local street or road, bridge, tunnel, or public transit  
          projects within the jurisdiction of the local agency if approved  
          by the California Transportation Commission (CTC).  The DB  
          authority granted by SB 4XX sunsets January 1, 2014.
          
          In 2010, the Legislature passed and the governor signed AB 2098  
          (Miller), Chapter 250, which authorized Riverside County  
          Transportation Commission (RCTC) to utilize DB for the State  
          Route 91 Corridor Improvement Project (SR 91), thereby  
          increasing the number of DB projects authorized under SB 4XX  
          from 15 to 16.  AB 2098 included a requirement that Caltrans "be  
          the agency responsible for the performance of construction  
          inspection services" on the SR 91 project.  This requirement was  
          modeled after language in SB 4XX that made Caltrans the agency  
          responsible for the performance of project development services  
          on projects procured through another alternative method called a  
          public private partnership.

           This bill  authorizes the Orange County Transportation Authority  
          (OCTA) to use the DB method of procurement for its Interstate  
          405 Improvement Project (I-405) similar to RCTC's authority for  
          SR 91, with a few important differences.  First, this bill  
          requires Caltrans to perform construction inspection services,  
          as opposed to requiring that Caltrans be the agency responsible  
          for the performance of such services.  Second, this bill sunsets  
          OCTA's DB authority on 
          January 1, 2018.
          
          COMMENTS:

           1.Purpose  .  The I-405 project will provide one additional  
            general purpose lane in each direction to the most congested  
            12 mile stretch of the freeway in Orange County.  According to  
            the author, this bill is necessary to move the project forward  
            quickly and increase freeway capacity, improve traffic and  
            interchange operations, and enhance road safety to meet state  




          AB 401 (DALY)                                          Page 3

                                                                       


            and federal standards.  The author contends that DB authority  
            will allow OCTA to pursue the I-405 project more quickly than  
            otherwise, and this bill is necessary for OCTA to use DB  
            procurement on this project.

           2.Background  .  In September 2009, CTC adopted guidelines to  
            implement DB under SB 4XX that allowed local agencies to  
            develop projects on the state highway system.  When RCTC  
            applied to CTC for DB authority on the SR 91 project, the  
            Professional Engineers in California Government (PECG)  
            objected on the premise that SB 4XX only authorized Caltrans  
            to use design-build on the state highway system.  In order to  
            resolve the concerns, the Legislature passed AB 2098, which  
            included the language making Caltrans responsible for certain  
            duties and allowed the parties to negotiate a "hybrid" model  
            of construction management unlike traditional DB procurement.   
            Under this model, Caltrans, rather than the local agency, is  
            responsible for performing what are referred to as  
            "boots-on-the-ground" construction inspections.  These  
            inspectors, whether Caltrans personnel or consultants under  
            contract with Caltrans, will report directly to a senior  
            Caltrans engineer and the resident engineer, who is employed  
            by or under contract with RCTC, as opposed to reporting only  
            to the local agency resident engineer.  
           
             Most who were involved in the negotiation process of AB 2098  
            agree that the SR 91 project is a unique circumstance and this  
            "hybrid" model should not necessarily be considered a model to  
            deploy on future projects.  One of the many benefits of DB  
            procurement is that by contracting with a private entity early  
            in the development of the project, the public entity can  
            transfer many of the risks to successful completion of the  
            project to the private contractor.  When statute delineates  
            what roles must belong to the public, it reduces the amount of  
            risk a public agency can transfer and therefore undermines  
            this benefit of DB.

            In 2010, PECG filed a preliminary injunction (PECG v.  
            Caltrans) seeking to prevent Caltrans from entering into  
            certain agreements for further work on the Presidio Parkway  
            Project in San Francisco.  Among other concerns, the  
            injunction alleged that Caltrans did not follow the  
            requirement in SB 4XX that Caltrans be the agency responsible  
            for a wide range of project services on state highway projects  
            because some of the work was performed by a private entity  
            through contract with the local government rather than under  




          AB 401 (DALY)                                          Page 4

                                                                       


            supervision and control of Caltrans.  Ultimately, the Superior  
            Court judge ruled that the requirement that Caltrans be the  
            "responsible agency" for the performance of certain services  
            does not require that Caltrans or Caltrans consultants  
            actually do the work.  This language only requires Caltrans to  
            ensure the work is completed and done correctly, whether by  
            Caltrans or by another entity.

            Presumably in order to avoid ambiguity, this bill does not  
            include the "responsible agency" language that was in AB 2098  
            and SB 4XX, but instead specifically authorizes  only  Caltrans  
            employees or consultants under contract with Caltrans to  
            perform construction inspection services for the I-405  
            project.

           3.Unconstitutional  .  On June 12, 2013, Legislative Counsel  
            issued a written opinion that found that the section of this  
            bill requiring Caltrans to perform construction inspection  
            services for the I-405 project violates Prop 35 and is  
            therefore unconstitutional.  The opinion states that courts  
            have previously held that statutes requiring a governmental  
            entity to use only civil service employees for particular  
            architectural and engineering services violate Prop 35.   
            Therefore, the provision of this bill which requires Caltrans  
            to perform construction inspection services violates the  
            section of Prop 35 that expressly authorizes a local agency  
            such as OCTA to contract with a private entity to perform  
            these services.  The committee may consider amending the bill  
            to include the "responsible for" language in AB 2098 in order  
            to overcome the constitutionality concerns of this bill.

           4.Sponsors disagree with unconstitutional finding  .  Supporters  
            of the bill have provided alternative opinions from their own  
            attorneys to the question of this bill's constitutionality.   
            These opinions suggest that the question is whether Prop 35  
            makes the Legislature's allocation of responsibilities to  
            different entities unconstitutional, and includes the  
            following logic:  The Legislature is empowered to specify  
            through statute what services Caltrans and OCTA are  
            respectively authorized to perform.  This bill authorizes OCTA  
            to procure the design and construction of this project from a  
            single entity.  If OCTA utilizes DB procurement for this  
            project, then this bill authorizes only Caltrans employees or  
            consultants to perform construction inspection services.  It  
            is only after the Legislature has established what services  
            each respective entity is authorized to perform that Prop 35  




          AB 401 (DALY)                                          Page 5

                                                                       


            provisions apply.  In other words, the Legislature has  
            assigned duties to OCTA and to Caltrans, and now Prop 35  
            ensures that both OCTA and Caltrans can use either public  
            employees or contractors in the pursuit of those duties.  

           5.Opponents  .  Opponents argue that the sponsors' argument  
            considers issues farther up the decision-making tree than the  
            opinion from Legislative Counsel.  As written, this bill  
            grants OCTA authority to move a project forward through a  
            particular procurement method, and it assigns duties to  
            Caltrans.  If assigning work responsibilities was the end of  
            the process for developing projects, then this would not  
            violate the Constitution.  But once duties are assigned,  
            someone has to do the work and someone has to pay.  If OCTA  
            does not pursue this project, then Caltrans has no duties to  
            perform regardless of the authority this bill grants.  But if  
            OCTA moves forward with this project as authorized by this  
            bill, then Caltrans (or its consultants) is the only entity  
            that can perform specified duties.  In other words, the only  
            way OCTA builds this project utilizing DB is if OCTA pays  
            Caltrans for construction inspection services.  OCTA does not  
            have the authority to perform construction inspection  
            services, pursuant to this bill, but the work must be  
            accomplished on the project, Caltrans is the only entity  
            authorized to do the work, and therefore OCTA must pay  
            Caltrans for the work.  In this way, opponents argue, this  
            bill violates Prop 35 provisions that allow OCTA to contract  
            with private entities for various services, including  
            construction inspection.  

           6.Litigation  .  Notwithstanding the merits of either position on  
            the constitutionality of this bill, opponents suggest that  
            should the governor sign this bill into law. there will be  
            lawsuits filed to sort out these questions in court.
          
          Assembly Votes:
               Floor:    68-3
               Appr: 16-1
               Trans:    13-2

          POSITIONS:  (Communicated to the committee before noon on  
          Wednesday,                                             July 3,  
          2013.)

               SUPPORT:  Orange County Transportation Authority  
          (co-sponsor)




          AB 401 (DALY)                                          Page 6

                                                                       


                         Professional Engineers in California Government  
          (co-sponsor)
                         American Federation of State, County and  
          Municipal Employees
                         American Society of Civil Engineers Region 9
                         Association of California Cities - Orange County
                         Glendale City Employees Association
                         Imperial County Transportation Authority
                         Los Angeles County Metropolitan Transportation  
          Authority
                         Organization of SMUD Employees
                         Riverside County Transportation Commission
                         San Bernardino Association of Governments
                         San Bernardino Public Employees Association
                         San Luis Obispo County Employees Association
                         Santa Rosa City Employees Association
                         Southern California Association of Governments
                         Ventura County Transportation Commission

               OPPOSED:  Air Conditioning Trade Association
                         American Council of Engineering Companies of  
          California
                         Associated Builders and Contractors of California
                         Associated General Contractors
                         California Conference of Carpenters
                         California-Nevada Conference of Operating  
          Engineers
                         California State Council of Laborers
                         Plumbing-Heating-Cooling Contractors Association  
          of California
                         State Building and Construction Trades Council
                         Western Electrical Contractors Association