BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
AB 401 (Daly) - Transportation projects: design-build
procurement.
Amended: August 22, 2013 Policy Vote: T&H 10-1
Urgency: No Mandate: Yes
Hearing Date: August 26, 2013
Consultant: Mark McKenzie
This bill meets the criteria for referral to the Suspense File.
Bill Summary: AB 401 would authorize the Department of
Transportation (Caltrans) to use design-build procurement for up
to ten projects, and provide regional transportation agencies
(RTPAs) with unlimited authority to use design-build for
projects, until January 1, 1024, as specified. The bill would
also require Caltrans to perform construction inspection
services for projects that interface with the state highway
system.
Fiscal Impact:
Unknown fiscal impacts, but potentially overall project
cost savings, related to the use of design-build on
transportation projects (State Highway Account, local funds,
federal funds). See staff comments.
Caltrans could incur costs to hire, train, and transfer
construction inspection staff among its twelve districts, to
the extent that design-build projects occur in a district
that has a shortage of available staff (State Highway
Account). In addition, if a district is overstaffed when a
project concludes, these positions would either be reduced
or shifted to other districts. Staff notes, however, that
shortages could be addressed by increased contracting for
inspection services.
Unknown costs to Caltrans to the extent that resources
identified in the annual Budget Act are lower than actual
costs related to inspection services on RTPA projects (State
Highway Account). See staff comments.
Unknown costs to the Department of Industrial Relations
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(DIR) to monitor and enforce prevailing wage requirements
for DB projects (State Public Works Enforcement Fund).
These costs would be reimbursed in arrears by the
transportation entity.
Background: Existing law generally requires public works
contracts to be awarded to the lowest responsible bidder. The
traditional project delivery process is the design-bid-build
method, whereby complete plans and specifications are prepared
prior to the advertising, bidding, and awarding of any
construction contracts. Although this method is structured to
ensure a project is built for the lowest cost, oftentimes
project costs escalate dramatically as change orders are
necessary to address unforeseen problems encountered during the
construction phase. In addition, the bulk of project risk
remains with the sponsoring agency.
In recent years, public agencies have adopted alternative
project delivery methods, primarily as an effort to shift
construction risk from the agency/owner to the project
contractor and to expedite project completion. The most widely
used alternative project delivery technique is design-build
(DB). This method requires the public agency to prepare plans
to 30 percent completion before advertising for bids. The bids
are submitted with a fixed cost for both design and construction
services, and they are typically evaluated using the best value
methodology, which includes factors such as the design-build
firm's qualifications, proposed approach to design, experience,
and other factors in addition to price. The winning bidder
completes the design work and commences construction. Because
the team finishes the design work, it carries most of the risk
associated with the adequacy of plans. Construction generally
commences on a phase of the project before the entire design is
complete, which reduces overall project delivery time.
SB X2 4 (Cogdill), Chap 2/2009 of the Second Extraordinary
Session, among other things, authorized Caltrans to utilize DB
procurement for ten state highway, bridge, or tunnel projects,
and authorized local transportation agencies to utilize DB on
five local street or road, bridge, tunnel, or public transit
projects within the jurisdiction of the local agency, with the
approval of the California Transportation Commission (CTC). The
DB authority granted by SB X2 4 sunsets on January 1, 2014. The
CTC is required to submit a final report evaluating the
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effectiveness of DB by June 30, 2015.
In addition to the DB demonstration program authorized by SB X2
4, existing law, enacted by AB 2098 (Miller), Chap 250/2010,
authorizes Riverside County Transportation Commission (RCTC) to
utilize DB for the State Route 91 Corridor Improvement Project
(SR 91). AB 2098 included a requirement that Caltrans "be the
agency responsible for the performance of construction
inspection services" on the SR 91 project.
The California Constitution, Article XXII (Proposition 35 of
2000), authorizes all government agencies to contract with
qualified private entities for architectural and engineering
services for all public works of improvement. This specifically
includes services for all phases of project development, such as
permitting and environmental studies, rights-of-way services,
design phase services, and construction phase services.
Proposed Law: AB 401 would authorize Caltrans to use DB
procurement for up to ten projects on the state highway system,
and provide specified RTPAs with unlimited authority to use DB
procurement for projects on streets, roads, and the state
highway system. In addition, this bill would:
Require a RTPA and Caltrans to enter into a cooperative
agreement governing the roles and responsibilities of each
entity and a conflict resolution process, for projects on
or interfacing with the state highway system.
Require a transportation entity to submit an annual
progress report to the Legislature on each DB project,
commencing on July 1 two years after the contract is
awarded until four years after the first report.
Require a transportation entity to either establish a
labor compliance program or contract with DIR for
monitoring and enforcing prevailing wages on DB projects,
as specified. All DIR costs would be reimbursed by the
transportation entity.
Prescribe the process for awarding a contract using DB,
which generally follows existing procedures for the DB
demonstration program and AB 2098 (Miller, 2010), including
authorization to award contracts using either best value or
lowest responsible bid.
Require Caltrans to perform construction inspection
services for projects that are on or interface with the
state highway system, using department employees or
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consultants. Inspection services include material source
testing, certification testing, surveying, monitoring of
environmental compliance, quality control testing and
inspection, and quality assurance audits.
Require construction inspection services to include a
direct reporting relationship between the inspectors and
senior department engineers, as specified.
Require Caltrans employee and consultant resources for
conducting construction inspection services to be included
in Caltrans' capital outlay support program in the annual
Budget Act.
Sunset the DB procurement authority on January 1, 2024,
or one year after provisions requiring Caltrans to conduct
all construction inspection services is deemed invalid by a
court of competent jurisdiction.
Staff Comments: The potential for expedited project delivery and
associated cost savings are generally recognized as the greatest
benefits related to the use of design-build. In addition, some
project risks are shifted to the contractor since the
design-build entity is responsible for the design, which
generally shifts costs related to change orders to the
contractor. On the other hand, DB contracts are typically
awarded on a best value basis, and are evaluated on objective
criteria in addition to price. To the extent this results in a
contract being awarded to a DB entity who did not submit the
lowest bid price, there could be higher contracting costs. In
addition, DB contracts require a substantially higher level of
project management than design-bid-build. On balance, the
benefits of reduced risk, fewer change orders, and accelerated
project delivery are likely to outweigh any potential for
increased costs as a result of contracts being awarded on the
basis of best value rather than low bid. Staff notes, however,
that there has not been an evaluation of DB on state
transportation projects to date.
The DB authority provided under SB X2 4 was intended to be a
demonstration program to evaluate "whether the potential exists
for reduced project costs, expedited project completion, or
design features that are not achievable through the traditional
design-bid-build method." That bill requires CTC to conduct an
evaluation of projects that were authorized to use DB to compare
projects that used low bid and best value, consider whether
projects were on time and on budget, and compare the DB projects
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to similar transportation projects that used design-bid-build.
A midterm report of its findings was due to the Legislature on
June 30, 2012, and a final report is due June 30, 2015. SB X2 4
specified that "a demonstration program will allow for a careful
examination of the benefits and challenges of design-build
contracting on a limited number of projects." Before expanding
DB authorization for ten additional Caltrans projects and an
unlimited number of projects for regional transportation
entities for ten years, the Committee may wish to consider the
pending results of the CTC's evaluation of the DB demonstration
program.
This bill would require Caltrans staff or those under contract
with the department to perform all construction inspection
services, as specified, as well as ensuring that all safety and
convenience is maintained in the state rights-of-way. All
Caltrans costs related to inspection services on DB projects are
to be included in the annual Caltrans capital outlay program in
the Budget Act. These costs are unknown, but likely
significant. For example, Caltrans anticipates costs for
inspection services on the SR 91 project will be around $33.1
million over seven years, with an average of 60 PY per year over
the life of the project. The bill does not provide for
reimbursement of Caltrans costs from project revenues available
to regional transportation agencies. A project's costs, as
approved by the CTC, generally include funds to reimburse
Caltrans, and these reimbursements would likely be included in
the cooperative agreement between Caltrans and the
transportation agency. Caltrans indicates that funds programmed
for reimbursement or included in the Budget Act on the front end
may not fully cover Caltrans' actual costs.