BILL ANALYSIS Ó
SENATE COMMITTEE ON EDUCATION
Carol Liu, Chair
2013-2014 Regular Session
BILL NO: AB 1581
AUTHOR: Buchanan
AMENDED: April 10, 2014
FISCAL COMM: Yes HEARING DATE: June 18, 2014
URGENCY: No CONSULTANT: Kathleen Chavira
SUBJECT : School facility construction contracts.
SUMMARY
This bill, until January 1, 2019, requires that school
districts entering into
lease/ leaseback or lease-to-own contracts comply with
specified pre-qualification requirements, 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.
BACKGROUND
Leasing provisions
Current law authorizes the governing board of a school
district to enter into a lease/leaseback contract, without
advertising for bids. Current law prescribes that real
property may be let by the district for a minimum rental of
$1 per year if the lessee is required to construct, or
provide for the construction of a building/buildings for the
use of the school district during the term of the lease, and
requires that title of the building vests in the school
district at the expiration of that term.
(Education Code § 17406)
Current law authorizes the governing board of a school
district to enter into a lease to own agreement in which a
person, firm, or corporation is required to construct or
provide for the construction of a building to be used, and
leased by the district. Current law requires that title of
the building vests in the school district at the expiration
of that term is and authorizes the vesting of title to the
property prior to the expiration of the lease. Current law
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requires that the agreement be entered into with the lowest
responsible bidder as specified. (Education Code § 17407)
Competitive bidding
Current law requires the governing board of a school
district, to competitively bid, and award to the lowest
responsible bidder, any contract for a public project (as
defined) involving an expenditure of $15,000 or more.
(Public Contract Code § 20111)
Prequalification
Current law authorizes the governing board of a school
district to require prequalification of prospective bidders
for a contract for a public project. A prospective bidder
may be required to complete and submit to the district a
standardized questionnaire and financial statement in a form
specified by the district, including a complete statement of
the prospective bidder's financial ability and experience in
performing public works. A school district that establishes
a prequalification process is required to adopt and apply a
uniform system of rating bidders on the basis of the
completed questionnaires and financial statements. School
districts are authorized to establish a process for
prequalifying prospective bidders on a quarterly basis and to
consider a prequalification to be valid for up to one
calendar year following the date of initial prequalification.
(Public Contract Code § 20111.5)
Current law 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. (Public Contract Code § 20111.6)
ANALYSIS
This bill :
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1) Extends the pre-qualification requirements established
under AB 1565 (Fuentes, Chapter 808, Statutes of 2012)
to a lease-leaseback project or a lease-to-own project.
More specifically requires that lease/leaseback projects
and lease-to-own projects are subject to these
pre-qualification requirements if:
a) The project is funded by state school
facilities bond funds.
b) The project is for $1 million or more.
c) The ADA of the school district is 2,500 or
more.
2) Extends the prequalification requirements for
lease-leaseback and lease-to-own projects to include the
entity that constructs the building, including but not
limited to the prime contractor and, if used,
electrical, mechanical and plumbing subcontractors, and
specifically requires that they comply with the
requirement to complete and submit a standardized
prequalification questionnaire and financial statement
that is verified under oath and is not a public record.
3) Sunsets the prequalification requirements imposed on
lease/leaseback and lease-to-own projects on January 1,
2019.
4) Modifies existing prequalification requirements under
the Public Contract code. More specifically it:
a) Extends the requirement that a
governing board of a school district adopt and
apply a uniform system of rating bidders on the
basis of the completed questionnaires and financial
statements to include a person, firm, or
corporation that constructs a building pursuant to
provisions that establish the lease-leaseback and
lease-to-own authority.
b) Authorizes a school district to:
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i) Require the completed
questionnaire and financial statement for
prequalification to be submitted more than the
10 business days prior to the fixed date for
the public opening of sealed bids required
under current law.
ii) Require a bidder to be prequalified
more than the five business days prior to the
fixed date required under current law.
c) Requires the local governing board
to establish a process to prequalify specified
entities constructing a building under the
lease/leaseback and lease-to-own provisions of law.
d) Clarifies 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 electrical, mechanical and
plumbing contractor, whether as a prime contractor
or as a subcontractor.
e) 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.
f) Applies the new requirements and
authorities established by the bill to be
applicable only to contracts awarded on or after
January 1, 2015.
STAFF COMMENTS
1) Need for the bill . 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
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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 to submit a financial
statement. Since the enactment of AB 1565 questions
have been raised whether these requirements apply to
contracts issued under lease/leaseback or lease-purchase
agreements. This bill clarifies that a school district
entering into a lease-leaseback and lease to own
agreement must prequalify the contractor and any
electrical, mechanical and plumbing subcontractors
constructing the school facility, consistent with the
requirements established by AB 1565.
2) Leasing provisions . Lease/leaseback is a process whereby
a governing board of a school district may, without
advertising for a 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 the entity that receives the
contract will construct the building on a designated
site and lease the property to the school district. The
school district secures title to the property at the end
of the lease.
3) Further clarification of bill's provisions . If current
law were amended to simply cross reference the
pre-qualification requirements and apply them to
projects using the leasing delivery methods to construct
school facilities, these provisions could be interpreted
to apply only to the entity entering the lease
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agreement. This bill is drafted to ensure that it
requires the entity constructing the building (and any
of the specified subcontractors) to comply with
pre-qualification requirements.
4) Additional authorities and clarifications . This bill
modifies existing Public Contract Code provisions to
conform to the new requirements established for
contracts entered into under Education Code leasing
provisions. The bill also grants school districts the
authority to establish stricter criteria for
prequalification timelines and clarifies "bidders" by
providing cross referencing definition of contractors
and subcontractors as specified in the Business and
Professions and Public Contracts Codes.
5) Concerns about lease/leaseback . In January 2004, the
State Allocation Board was presented with a report to
discuss the use of lease/lease-back agreements for
project delivery of facilities funded through the School
Facility Program. According to that report, the use of
this project delivery method was growing. Increasingly,
districts were interpreting existing law to allow the
use of these provisions to award a public works project
without a competitive bid. The report noted that some
districts do institute a competitive selection process
voluntarily, but many do not, and expressed concern that
an interpretation that would potentially allow billions
of state bond dollars to be contracted through a
"sole-source" mechanism should be closely examined.
The report concluded that the SAB might wish to consider
whether new construction and modernization projects
interpreting the authority as an exemption from
competitive bidding requirements should continue to be
presented for state funding, and whether legislation
clarifying the appropriate use of this authority was
necessary. The SAB did not accept the report, some
members expressed interest in pursuing proposed
legislation to address this issue, and staff were
directed to provide written notification to school
districts to proceed with caution when using
lease/lease-back and interpreting the law.
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This bill does not propose changes or clarifications to
the broader issues and concerns surrounding
lease/leaseback agreements and competitive bidding.
However, it does provide clarification that when these
types of projects go before the State Allocation Board
to secure state general obligation bonds to fund these
agreements, these projects are subject to the
pre-qualification requirements statutorily required for
competitively bid projects.
SUPPORT
California Association of School Business Officials (CASBO)
California Labor Federation
California Legislative Conference of the Plumbing, Heating,
and Piping Industry (CLC)
California State Association of Electrical Workers
California State Pipe Trades Council
National Electrical Contractors Association (NECA) -
California Chapter
State Building and Construction Trades Council (AFL-CIO)
Western States Council of Sheet Metal Workers
OPPOSITION
Air Conditioning Trade Association (ACTA)
Associated Builders and Contractors of California
Associated Builders and Contractors of San Diego
Association of California Construction Managers
Coalition for Adequate School Housing
Plumbing-Heating-Cooling Contractors Association of
California (CAPHCC)
Western Electrical Contractors Association (WECA)