BILL ANALYSIS Ó AB 1581 Page 1 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 AB 1581 Page 2 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 AB 1581 Page 3 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 AB 1581 Page 4 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 FN: 0003725 AB 1581 Page 5