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