BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Kevin de León, Chair AB 797 (Gordon) - Transit districts: alternative project delivery methods. Amended: April 15, 2013 Policy Vote: T&H 11-0 Urgency: No Mandate: No Hearing Date: June 24, 2013 Consultant: Mark McKenzie This bill does not meet the criteria for referral to the Suspense File. Bill Summary: AB 797 would authorize the Santa Clara County Valley Transportation Authority (VTA) and the San Mateo County Transit District (SamTrans) to utilize the construction manager/general contractor (CMGC) project delivery method for transit projects. Fiscal Impact: Unknown transit project costs or savings (State Transit Assistance funds, local funds, federal funds). Before using the CMGC method, the transit district must make a finding that the alternative method would provide a benefit that may be deemed to have a greater value than project cost alone, such as expedited project delivery or other features not achievable through design-bid-build. The overall value of a project may be measured by criteria other than cost. This could result in a higher overall project costs than design-bid build, but use of CMGC must be justified by providing other benefits, as specified. Likely minor costs to the Department of Industrial Relations (DIR) to perform prevailing wage monitoring and enforcement, reimbursed by VTA and SamTrans (State Public Works Enforcement Fund). Background: 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. The agency awards the contract to the lowest, responsible bidder. Although this method is structured to ensure a project is built for the lowest AB 797 (Gordon) Page 1 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. Existing law also allows public agencies to use alternative project delivery methods. The most widely used alternative project delivery technique is design-build, which allows both design and construction services to be performed by a single entity before the development of completed plans and specifications. Design-build contracts may be awarded on the basis of "best value" or "lowest responsible bidder," as specified in existing law. Design-build is structured to shift risk associated with the adequacy of plans to the contractor and expedite project delivery by allowing construction to begin before design is complete. AB 985 (Scott), Chap 541/2000, authorized transit districts to use design-build for public transit projects. The construction manager/general contractor (CMGC) project delivery method allows an agency to engage a construction manager during the design process to provide assistance to the design team, including advice regarding scheduling, pricing, phasing, and other input that helps the owner design a more constructible project. The agency selects the construction manager on the basis of qualifications, past experience, or a best-value basis. According to the Federal Highway Administration, when design reaches approximately 60 to 90 percent completion, the agency and the construction manager negotiate a guaranteed maximum price for the construction of the project based on the defined scope and schedule. If this price is acceptable to both parties, a contract is executed for construction services, and the construction manager becomes the general contractor. The benefits of this procurement method is that the public agency does not sacrifice control over the design of the project and during the construction phase the contractor is very familiar with the project design resulting in fewer disputes over design issues. The Legislature has authorized the Department of Transportation to use the CMGC method on a pilot basis to construct up to four projects (AB 2498, Gordon, Chap 752/2012). In addition, the San Diego Association of Governments (SANDAG) has been provided with general authority to use CMGC for public transit projects (SB 1549, Vargas, Chap 767/2012). Before electing to use the CMGC AB 797 (Gordon) Page 2 method, existing law requires SANDAG to make a written finding declaring that use of CMGC will reduce costs, expedite completion, or provide features not achievable through the design-bid-build method. In addition, to determine the benefits of CMGC, SANDAG staff must present a report to the agency's governing body on its experience upon completion of a CMGC project and to post the report on its internet web site. Existing law creates the VTA as the congestion management agency in Santa Clara County. In addition to other specified transportation responsibilities, VTA operates bus, light rail, and paratransit services in Santa Clara County. Existing law also creates SamTrans, which is responsible for providing public transit and transportation programs in San Mateo County. Proposed Law: AB 797 would authorize VTA and SamTrans to use the CMGC project delivery method for transit projects in their jurisdictions. VTA and SamTrans would be subject to the same criteria and requirements that apply to SANDAG in existing law. Staff Comments: AB 797 would require VTA and SamTrans to adopt a finding at a public meeting prior to authorizing the use of the CMGC method for a transit project only after evaluating the traditional design-bid-build methodology and making a determination that use of the alternative methodology would provide lower costs, accelerated project schedule, or provide features that are not achievable through traditional project delivery. Staff notes that "features not achievable through the design-bid-build method" is a subjective and very broad term to describe a benefit of using an alternative delivery method. It is assumed that the transit agency would make a determination that the alternative method would provide some public benefit that may be a local priority, but could result in a higher contract cost than design-bid-build. Even if costs are higher for some projects, the bill is not expected to result in an increased allocation of State Transit Assistance funds to the specified transit agencies.