BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Kevin de León, Chair
AB 1581 (Buchanan) - School Facility Construction Contracts
Amended: April 10, 2014 Policy Vote: Education 5-1
Urgency: No Mandate: Yes
Hearing Date: June 30, 2014
Consultant: Jacqueline Wong-Hernandez
This bill meets the criteria for referral to the Suspense File.
Bill Summary: AB 1581 requires, until January 1, 2019, 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.
Fiscal Impact:
Bonds: Significant ongoing cost pressure on remaining
Proposition 1D funding and all future K-12 construction
bonds, to the extent that school districts would have
otherwise interpreted certain contracts to result in
exemption from statutory pre-qualification (and competitive
bidding) requirements, and opted not to pre-qualify
contractors.
Background: Existing law authorizes the governing board of a
school district to enter into a lease/leaseback contract,
without advertising for bids. 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)
Existing law also 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. The title of the building must vest in the school
district by the expiration of the lease, and may vest prior to
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the expiration of the lease. Current law requires that the
agreement be entered into with the lowest responsible bidder as
specified. (Education Code § 17407)
Existing 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)
Existing 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. (Public Contract Code § 20111.5)
Existing 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, as
specified. (Public Contract Code § 20111.6)
Proposed Law: This bill extends the pre-qualification
requirements established under AB 1565 (Fuentes, Ch.808/2012) to
a lease-leaseback project or a lease-to-own project. More
specifically, this bill 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;
and c) the ADA of the school district is 2,500 or more.
This bill 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
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statement that is verified under oath and is not a public
record. It also 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.
This bill 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, as
specified, and 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.
This bill applies the new requirements and authorities
established by the bill to be applicable only to contracts
awarded on or after January 1, 2015, and sunsets the
prequalification requirements on January 1, 2019.
Related Legislation: AB 1565 (Fuentes, Ch.808/2012) required,
beginning with contracts awarded on or after January 1, 2014 and
until January 1, 2019, a school district to prequalify a prime
contractor who provides a bid and all electrical, mechanical and
plumbing subcontractors utilized, if it meets all the following
conditions: 1) Has an ADA of 2,500 or greater; 2) receives funds
for any school facility construction project from the state
School Facility Program or from a future state school bond; and,
3) involves a projected expenditure of $1,000,000 or more.
Staff Comments: Under existing law, enacted by AB 1565, the
governing board of a school district with ADA of 2,500 or
greater must pre-qualify bidders for any project with a
projected expenditure of $1 million or more for which they use
state bond funding.
This bill specifies that those pre-qualification requirements
also apply 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
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Page 3
financial statement that is verified under oath and is not a
public record.
Requiring school districts to pre-qualify bidders in one of two
ways specified in statute creates upfront costs to schools
seeking construction funding, for both the expanded process and
to process potential appeals from contractors denied
pre-qualification. These activities create new cost pressure on
existing and future school bonds that would be expended on these
activities. Additionally, to the extent that the universe of
bidders is narrowed by the process, schools may end up paying
more (in state bond funding) for construction projects. To the
extent that it prevents single-source contracts and/or
discourages unqualified bidders, there could be savings.
Legislative counsel has indicated that this bill may impose a
new reimbursable mandate on school districts. Since school
districts elect to utilize state construction bonds or
facilities funding, it is unlikely that requiring a
pre-qualification process when state funds are used would be
deemed reimbursable. The potential costs to a school district,
however, still remain and this bill creates a practical mandate
on schools in need of new construction funding.