BILL ANALYSIS Ó
AB 1581
Page 1
Date of Hearing: April 23, 2014
ASSEMBLY COMMITTEE ON EDUCATION
Joan Buchanan, Chair
AB 1581 (Buchanan) - As Amended: April 10, 2014
SUBJECT : School facilities: construction contracts
SUMMARY : Requires school districts entering into specified
school building lease contracts to comply with the requirements
to prequalify and rate prospective bidders, if the project is
funded with state bond funds, the expenditure of the project is
$1 million or more, and the average daily attendance (ADA) of
the school district is more than 2,500. Specifically, this
bill :
1)Specifies that if a lease-leaseback project or a lease-to-own
project is funded by state school facilities bond funds and
the project is $1 million or more, the person, firm or
corporation that constructs the building, including, but not
limited to, the prime contractor and if used, the electrical,
mechanical, and plumbing subcontractor, shall be required to
comply with the prequalification requirements, including the
requirement to complete and submit a standardized
prequalification questionnaire and financial statement that is
verified under oath and is not a public record.
2) Specifies that the requirement for a governing board of a
school district to adopt and apply a uniform system of rating
bidders on the basis of the completed questionnaires and
financial statements applies to a person, firm, or corporation
that constructs a building specified in the lease-leaseback
and lease-to-own sections of the law.
3)Authorizes a school district to require the completed
questionnaire and financial statement for prequalification to
be submitted more than 10 business days prior to the fixed
date for the public opening of sealed bids. Authorizes a
school district to require a bidder to be prequalified more
than five business days prior to the fixed date.
4)Specifies that "bidders" include a prime contractor that is
either a general engineering contractor or a general building
contractor as defined in Section 7056 and 7057, respectively,
of the Business and Professions Code; and if utilized, each
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electrical, mechanical and plumbing contractor, whether as a
prime contractor or as a subcontractor.
5)Authorizes a school district to require the list of
prequalified general contractors and electrical, mechanical,
and plumbing subcontractors to be made available more than
five business days prior to the fixed dates for the public
opening of sealed bids.
6)Specifies that the provisions of this bill apply only to
contracts awarded on or after January 1, 2015.
EXISTING LAW :
1)Requires the governing board of a school district to
competitively bid and award to the lowest bidder contracts
involving the following:
a) An expenditure of $50,000 or more for the purchase of
equipment, materials, or supplies, services (except for
construction services), and repairs.
b) An expenditure of $15,000 or more for a public contract
project defined as construction, reconstruction, erection,
alteration, renovation, improvement, demolition, repair,
painting or repainting of any publicly owned, leased, or
operated facility. (Public Contract Code (PCC) Sections
20111 and 22002)
2)Requires, until January 1, 2019, a school district with an ADA
of more than 2,500 using state school facility bond funds for
a public project with an expenditure of $1 million or more to
require prospective bidders, and if utilized, all electrical,
mechanical, and plumbing subcontractors, to complete and
submit a standardized prequalification questionnaire and
financial statement. (PCC Section 20111.6(a)(i)(l))
3)Requires a school district to adopt and apply a uniform system
of rating bidders on the basis of the completed questionnaires
and financial statements that cover, at a minimum, the issues
covered by the standardized questionnaire and model guidelines
for rating bidders developed by the Department of Industrial
Relations (DIR). (PCC Section 20111.6(c)(d))
4)Prohibits a proposal form from being accepted from any person
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or other entity, including a specified subcontractor, that is
required to submit a completed questionnaire and financial
statement for prequalification but has not done so at least 10
business days prior to the date fixed for the pubic opening of
sealed bids or has not been prequalified for at least five
business days prior to that date. (PCC Section 20111.6(f))
5)Authorizes the governing board of a school district to
establish a process for prequalifying prospective bidders on a
quarterly or annual basis and specifies that the
prequalification shall be valid for one calendar year
following the date of initial prequalification. (PCC Section
20111.6(g))
6)Requires the Director of Industrial Relations to submit a
report to the Legislature, on or before January 1, 2018,
evaluating whether, during the years prequalification applied
to contracts, violations of the Labor Code on school district
projects have decreased as compared to the same number of
years immediately preceding prequalification, and any
recommended improvements on the prequalification system. (PCC
Section 20111.6(n))
7)Authorizes the governing board of a school district, without
advertising for bids, to let, for a minimum rental of $1 a
year, to any person, firm, or corporation any real property
that belongs to the school district if the instrument by which
such property is let requires the lessee therein to construct
on the demised premises, or provide for the construction
thereon of, a building or buildings for the use of the school
district during the term thereof, and provides that the title
to that building shall vest in the school district at the
expiration of that term. (Education Code (EC) Section 17406)
8)Authorizes the governing board of a school district to enter
into an agreement with any person, firm, or corporation under
which that person, firm, or corporation shall construct, or
provide for the construction of, a building to be used by the
district upon a designated site and lease the building and
site to the district. Requires the instrument to provide that
the title to the building and site to vest in the district at
the expiration of the lease. Requires the agreement to be
entered with the lowest responsible bidder who shall give the
security that any board requires. (EC Section 17407)
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FISCAL EFFECT : Unknown
COMMENTS : Under current law, school districts are required to
competitively bid any public works contract over $15,000 and
award the contract to the lowest responsible bidder. AB 1565
(Fuentes), Chapter 808, Statutes of 2012, requires, until
January 1, 2019, school districts using state school facilities
bond funds to establish a prequalification process whereby a
prospective bidder, and any electrical, mechanical and plumbing
subcontractors, of a public works contract with a projected
expenditure of $1 million or more, is required to complete a
standardized questionnaire provided by the district and submit a
financial statement.
Benefits of Prequalification . A prequalification process is
beneficial under a system where a school district must accept
the lowest responsible bidder for public works contracts. AB
1565 authorizes school districts to design their own
questionnaire, but requires the questionnaire to cover the
issues contained in the standardized questionnaire and model
guidelines for rating bidders developed by the DIR. The
questionnaire may require contractors to provide detailed
information regarding the company and its financial status,
including whether the company has been in bankruptcy or involved
in a civil lawsuit; licensing information; prior contracting
experience (whether the contractor has completed other public
works projects); whether the contractor has been involved or
been found to have violated any federal, state or local laws;
and whether the contractor has violated any labor and health and
safety laws, including prevailing wage.
A rating system enables a local agency to exclude bids from
companies that do not meet minimum points. While there is no
guarantee that a company that meets minimum points may not have
financial problems or provide substandard work, this process
reduces the risk when selecting a contractor with the lowest
bid. A contractor that goes bankrupt before completion of a
project or completes a project with faulty construction will
result in increased costs to complete the project or to redo the
project and potential litigation to recoup funds a contractor
had already received.
This bill clarifies that the entity constructing a building, and
if utilized, an electrical, mechanical, and plumbing
subcontractor, under a lease-leaseback and lease-to-own contract
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must comply with the prequalification process if the project
meets the requirements specified in AB 1565 (the school district
has more than 2,500 ADA, is using state bond funds, and the
project is $1 million or more). According to the sponsor, the
State Building and Construction Trades Council, who was also the
sponsor of AB 1565, some school districts have been advised that
prequalification only applies to "bidders," and as there are no
"bidders" in a lease-leaseback process, prequalification does
not apply. The sponsor states that prequalification was
intended to apply to any school facility project that uses state
bond funds. The way the contract is awarded is irrelevant.
Lease-leaseback is a process whereby a governing board of a
school district may, without advertising for bid, rent district
property for a minimum of $1 a year, to any person, firm or
corporation. The person, firm or corporation constructs the
school building and rents the facility back to the school
district. At the end of the lease, the district resumes title
to the building and site. In practice, some school districts
have used state and local bond funds to make construction
payments during construction. The lease is terminated when the
building is constructed.
In a lease-to-own agreement, the governing board of a school
district, through a bidding process, may enter into a contract
with a person, firm, or corporation with the lowest bid, under
which that entity that receives the contract will construct the
building on a designated site and lease the property to the
school district. The school district gets the title at the end
of the lease.
It is important to note that the bill intends to require the
entity constructing the building (and any of the specified
subcontractors), which may or may not be the entity that entered
into the lease agreement with the school district, to comply
with the prequalification requirements.
This bill also clarifies what "bidders" means by providing cross
references to "prime contractor," "general contractor," "general
building contractor," and "subcontractors" specified in the
Business and Professions Code and the Public Contracts Code.
The bill allows a school district to require submissions of the
questionnaire and financial statements more than the 10 days
prior to a bid opening and require a contractor to be
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prequalified more than five days before the fixed date.
Arguments in support . The State Building and Construction
Trades Council states, "In many instances, unqualified
contractors cut corners that produce defects and cost overruns,
violate prevailing wage law and create an unsafe working
condition for workers. Under these circumstances the students,
the school district, the taxpayers, and the qualified contractor
and his or her employees all lose.
"Given the state's substantial and much needed assistance for
public school facilities and the many cases of unscrupulous
contractors winning bids for these projects, the imperative to
review the current system and determine its strengths and
opportunities for improvement is crucial. We believe AB 1581
will further assist in these efforts by clarifying those
lease-leaseback projects that access state construction funds
must be built by prequalified contractors."
Prior legislation . AB 1565 (Fuentes), Chapter 808, Statutes of
2012, requires, until January 1, 2019, school districts using
state school facilities bond funds to establish a
prequalification process whereby a prospective bidder, and any
electrical, mechanical and plumbing subcontractors, of a public
works contract with a projected expenditure of $1 million or
more, is required to complete a standardized questionnaire
provided by the district and submit a financial statement.
SB 600 (Rubio), introduced in 2011, was a similar bill to AB
1565. The bill was held in the Assembly Appropriations
Committee suspense file in 2011.
REGISTERED SUPPORT / OPPOSITION :
Support
State Building and Construction Trades Council (sponsor)
Opposition
None on file
Analysis Prepared by : Sophia Kwong Kim / ED. / (916) 319-2087
AB 1581
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