BILL ANALYSIS                                                                                                                                                                                                    



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          ASSEMBLY THIRD READING
          AB 797 (Gordon)
          As Amended  April 15, 2013
          Majority vote 

           TRANSPORTATION      12-4        APPROPRIATIONS      12-5        
           
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          |Ayes:|Lowenthal, Achadjian,     |Ayes:|Gatto, Bocanegra,         |
          |     |Ammiano, Blumenfield,     |     |Bradford,                 |
          |     |Bonta, Buchanan, Daly,    |     |Ian Calderon, Campos,     |
          |     |Frazier, Gatto, Holden,   |     |Eggman, Gomez, Hall,      |
          |     |Nazarian, Quirk-Silva     |     |Holden, Pan, Quirk, Weber |
          |     |                          |     |                          |
          |-----+--------------------------+-----+--------------------------|
          |Nays:|Linder, Logue, Morrell,   |Nays:|Harkey, Bigelow,          |
          |     |Patterson                 |     |Donnelly, Linder, Wagner  |
          |     |                          |     |                          |
           ----------------------------------------------------------------- 
           SUMMARY  :  Authorizes the Santa Clara Valley Transportation  
          Authority (VTA) and the San Mateo County Transit District  
          (SMCTD) to each use an alternative procurement method referred  
          to as Construction Manager/General Contractor (CMGC) for public  
          transit projects within their jurisdictions.  Specifically,  this  
          bill  :  

          1)Defines "construction manager/general contractor" and  
            "construction manager" by reference to existing law to mean,  
            the following:  

             a)   "Construction manager/general contractor" to mean a  
               project delivery method using a best value procurement  
               process in which a construction manager is procured to  
               provide preconstruction services during the design phase of  
               the project and construction services during the  
               construction phase of the project; and,  

             b)   "Construction manager" to mean a partnership,  
               corporation, or other legal entity that is able to provide  
               appropriately licensed contracting and engineering services  
               as needed pursuant to a CMGC contract.  

          2)Specifically authorizes VTA to use the CMGC project delivery  
            method for public transit projects within its jurisdictions,  








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            under the condition that after evaluating the traditional  
            design-bid-build process as well as the CMGC process in a  
            public meeting, VTA makes a written finding that use of the  
            CMGC process on a particular project will result in one or  
            more of the following objectives:  

             a)   Reduce project costs;

             b)   Expedite the project's completion; or,

             c)   Provide features not achievable through a  
               design-bid-build process.  

          3)Requires VTA to comply with prevailing wages laws on projects  
            for which CMGC is used or, alternatively, to enter into a  
            collective bargaining contract that will bind all contractors  
            on a project and that includes provisions governing the  
            resolution of disputes about wage payments.  

          4)Requires, if VTA enters into a CMGC contract that includes  
            preconstruction services by the construction manager, VTA to  
            pay a fee for preconstruction services for a mutually agreed  
            to price.  VTA may not request or obtain from the construction  
            manager a fixed price or a guaranteed maximum price for a  
            construction contract nor enter into a construction contract  
            with the construction manager until after it has entered into  
            a preconstruction services contract.  The preconstruction  
            services contract is to provide for subsequent negotiation for  
            the construction phase of the project.  

          5)Authorizes VTA to enter into a contract for construction  
            services after a project has been sufficiently developed and  
            either a fixed price or guaranteed maximum price has been  
            successfully negotiated.  Should VTA not be able to come to  
            terms for the construction services phases, then it may award  
            the contract using any other procurement method authorized by  
            law.  

          6)Requires the construction manager to perform at least 30% of  
            the work covered by the construction services contract.  

          7)Requires any work not performed by the construction manager to  
            be bid to subcontractors pursuant to the Subletting and  
            Subcontracting Fair Practices Act.  








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          8)Requires VTA to prepare a progress report to its governing  
            body, with specified elements, and to make the report  
            available on its Internet Web site.  

          9)Provides that the provisions of this bill are severable and  
            that contracts awarded pursuant to the provisions of this bill  
            are valid until the project is completed.  

          10)Duplicates all of these provisions to apply to SMCTD as well.  
             

           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)Requires, generally, public works construction contracts to be  
            awarded to the lowest responsible bidder.  

          3)Establishes VTA as congestion management agency in Santa Clara  
            County and vests it with responsibility for countywide  
            transportation planning, congestion management, and design and  
            construction of specific highway, pedestrian, and bicycle  
            improvement projects.  It is governed by a 12-member board,  
            including:  two members of the board of supervisors, five San  
            Jose city council members, and five city council members from  
            other cities within the county.  

          4)Establishes SMCTD to be responsible for providing public  
            transit and transportation programs in San Mateo County.  It  
            is governed by a nine-member board of directors, including:   
            three members of the board of supervisors, three city council  
            members; and three appointed members.  

           FISCAL EFFECT  :  According to the Assembly Appropriations  
          Committee, costs for VTA and SMCTD to administer and report on  
          the CMGC contracting, including prevailing wage monitoring and  
          enforcement, will be absorbable and are not state reimbursable.   
          To the extent the use of these alternative methods is  
          successful, there should be significant savings on those  
          projects selected by VTA and SMCTD.  








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           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:  

          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  








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          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  
            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.  

          This bill authorizes VTA and SMCTD each to use CMGC, an emerging  
          project delivery method that potentially combines the best of  
          both design-bid-build and design-build.  

          Using CMGC, each agency each will be able to engage a design and  
          construction management consultant (construction manager) to act  








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          as its consultant during the pre-construction phase and as the  
          general contractor during construction.  During the design  
          phase, the construction manager acts in an advisory role,  
          providing constructability reviews, value engineering  
          suggestions, construction estimates, and other  
          construction-related recommendations.  Later, each agency and  
          the construction manager can agree that the project design has  
          progressed to a sufficient enough point that construction may  
          begin.  The two parties then work out mutually agreeable terms  
          and conditions for the construction contract, and, if all goes  
          well, the construction manager becomes the general contractor  
          and construction on the project commences, well before design is  
          entirely complete.  

          The CMGC process is meant to provide continuity and  
          collaboration between the design and construction phases of the  
          project.  Construction managers have an incentive to provide  
          input during the design phase that will enhance constructability  
          of the project later because they know that they will have the  
          opportunity to become the general contractor for the project.   
          Furthermore, CMGC promises to save project delivery time,  
          provide earlier cost certainty, transfer risks from VTA to the  
          contractor, and ensure project constructability.  Additionally,  
          CMGC allows each agency to have greater control of design  
          decisions.  It also allows each agency to design the project to  
          compliment the CMGC's strengths and capabilities, thereby  
          avoiding the need to over-design the project to provide maximum  
          competitiveness in a low-bid procurement.  

          CMGC authority was authorized in legislation just last year to  
          Caltrans for up to six projects and to the San Diego Association  
          of Governments for public transit projects.  

          The author has introduced this bill to provide VTA and SMCTD  
          each with "critical flexibility" to deliver ambitious new  
          transit projects in a manner that makes the most efficient use  
          of limited transit funding.  

          Writing in support of the bill, VTA cites numerous benefits it  
          hopes to realize using CMGC, including continuity and  
          collaboration between the design and construction phases of the  
          project, greater project constructability, and earlier cost  
          certainty.  Moreover, VTA asserts that "under CMGS, the public  
          agency does not sacrifice control over the design of the project  








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          and, during the construction phase, the general contractor is  
          very familiar with the project design resulting in fewer  
          disputes over design issues."

          Previous legislation:  AB 2498 (Gordon), Chapter 752, Statutes  
          of 2012, authorizes the California Department of Transportation  
          to use CMGC on a pilot project basis.  

          SB 1549 (Vargas), Chapter 767, Statutes of 2012, authorizes the  
          San Diego Association of Governments to utilize CMGC for public  
          transit projects within its jurisdiction.  

           
          Analysis Prepared by  :   Janet Dawson / TRANS. / (916) 319-2093 


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