BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 1581
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          ASSEMBLY THIRD READING
          AB 1581 (Buchanan)
          As Amended  April 10, 2014
          Majority vote 

           EDUCATION           7-0         APPROPRIATIONS      12-5        
           
           ----------------------------------------------------------------- 
          |Ayes:|Buchanan, Olsen, Chávez,  |Ayes:|Gatto, Bocanegra,         |
          |     |Gonzalez, Nazarian,       |     |Bradford,                 |
          |     |Weber, Williams           |     |Ian Calderon, Campos,     |
          |     |                          |     |Eggman, Gomez, Holden,    |
          |     |                          |     |Pan, Quirk,               |
          |     |                          |     |Ridley-Thomas, Weber      |
          |     |                          |     |                          |
          |-----+--------------------------+-----+--------------------------|
          |     |                          |Nays:|Bigelow, Donnelly, Jones, |
          |     |                          |     |Linder, Wagner            |
          |     |                          |     |                          |
           ----------------------------------------------------------------- 
           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  








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            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 Business and Professions Code Section  
            7056 and 7057, respectively, and if utilized, each 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.
           FISCAL EFFECT  :  According to the Assembly Appropriations  
          Committee:

          1)Unknown, likely minor, state-reimbursable General Fund and  
            Proposition 98 (1988) costs to school districts to establish  
            or modify a prequalification process. 

          2)Minor and absorbable costs to the Office of Public School  
            Construction as the bill clarifies existing law and practice  
            related to lease-leaseback agreements. 

           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  








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          standardized questionnaire provided by the district and submit a  
          financial statement.  

          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  
          Department of Industrial Relations.  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  
          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  
          the prequalification process 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  








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          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  
          prequalified more than five days before the fixed date.  

           
          Analysis Prepared by  :    Sophia Kwong Kim / ED. / (916) 319-2087  



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