BILL ANALYSIS Ó SB 268 Page 1 Date of Hearing: May 7, 2014 ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT K.H. "Katcho" Achadjian, Chair SB 268 (Gaines) - As Amended: January 27, 2014 SENATE VOTE : 35-0 SUBJECT : Health care districts: public contracts: design-build. SUMMARY : Allows the Last Frontier Health Care District to use the design-build process when contracting for the construction of a building and improvements directly related to a hospital or health facility building at the Modoc Medical Center. Specifically, this bill : 1)Allows, upon approval by the board of directors of the Last Frontier Health Care District (District), the design-build procedure authorized for counties in existing law to be used to assign contracts for the construction of a building or improvements directly related to construction of a hospital or health facility building at the Modoc Medical Center. 2)Provides that statutory references to a "county" and a "board of supervisors" in existing law authorizing counties to use design-build also mean the Last Frontier Health Care District and its board of directors. 3)Requires that a hospital building project using the design-build process authorized by the bill must be reviewed and inspected in accordance with the standards and requirements of the Alfred E. Alquist Hospital Facilities Seismic Safety Act of 1983 (Act). 4)Finds and declares the Legislature's intent that health care districts use the design-build process solely for buildings associated with hospitals and health care and not for other infrastructure, including, but not limited to, streets, highways, public rail transit, roads, bridges, water resources, and related infrastructure. 5)Contains an urgency clause and provides that the facts constituting the necessity are: in order to comply with health regulations and meet increasing demand for health care SB 268 Page 2 services, it is necessary that this act take effect immediately 6)Contains chaptering language to resolve conflicts with SB 785 (Wolk) of 2013. EXISTING LAW : 1)Requires local officials, under the Local Agency Public Construction Act (LAPC Act), to invite bids for construction projects and then award contracts to the lowest responsible bidder under the traditional design-bid-build project delivery system. 2)Authorizes counties, until July 1, 2016, to use the design-build method for projects costing more than $2.5 million and to award the project using either the lowest responsible bidder or by best value. 3)Authorizes cities to use the design-build method for projects costing more than $1 million. 4)Authorizes the Sonoma Valley Health Care District to use design-build contracting for the construction of buildings and improvements in excess of $2.5 million directly related to a hospital or health facility building at the Sonoma Valley Hospital, which is required to be reviewed and inspected according to the standards of the Act. 5)Provides for local health care districts, which govern certain health care facilities. Each health care district has specific duties and powers respecting the creation, administration, and maintenance of the districts, including the authority to purchase, receive, take, hold, lease, use, and enjoy property of every kind and description of property within and without the limits of the district. 6)Establishes, pursuant to the Act, timelines for hospital compliance with seismic safety standards. FISCAL EFFECT : None COMMENTS : 1)Purpose of this bill . This bill allows the Last Frontier Health Care District to use the design-build process when SB 268 Page 3 contracting for the construction of a building and improvements directly related to a hospital or health facility building at the Modoc Medical Center. This bill is author-sponsored. 2)Author's statement . According to the author, "Modoc Medical Center is currently working on a USDA loan package and is contemplating the Preliminary Architectural Report (PAR). The new facility will be a single-story, 8- or 10-bed, +/- 35,000 sq. ft. (pending feasibility analysis) facility. "The Health Resources and Services Administration (HRSA) identifies Modoc County as a Medically Underserved and Health Professional Shortage Area with 20 percent of persons below poverty and 18 percent of residents enrolled in Medi-Care. With the increase in new patients under the Affordable Care Act and healthcare costs going up while reimbursement rates continue to decline, savings on construction are critical. The Design-Build method of project delivery can provide significant cost savings that will benefit the entire community." 3)Background . The LAPC Act generally requires local officials to invite bids for construction projects and then award contracts to the lowest responsible bidder. This design-bid-build method is the traditional approach to public works construction. Under the design-build method, a single contract covers the design and construction of a project with a single company or consortium that acts as both the project designer and builder. The design-build entity arranges all architectural, engineering, and construction services, and is responsible for delivering the project at a guaranteed price and schedule based upon performance criteria set by the public agency. The design-build method can be set by the public agency. The design-build method can be faster and, therefore, cheaper, than the design-bid-build method, but it requires a higher level of management sophistication since design and construction may occur simultaneously. Advocates for the design-build method of contracting for public works contend that project schedule savings can be realized because only a single request for proposals is needed to select the project's designer and builder. The more SB 268 Page 4 traditional design-bid-build project approach requires the separate selection of the design consultant or contractor, completion of design, and then advertising for bids and selection of the construction contractor. Proponents add that design-build allows the overlap of design and construction activities, resulting in additional time savings and lower project costs. By avoiding the delays and change orders that result from the traditional design-bid-build method of contracting, proponents argue that design-build can deliver public works faster and cheaper. Detractors of design-build contend that it eliminates competitive bidding, allows the private contractor or consortium to inspect and sign off on their own work, and increases project delivery costs. All counties can use the design-build method to construct buildings and related improvements and wastewater treatment facilities that cost more than $2.5 million. Similarly, all cities can use the design-build method to construct buildings and related improvements worth more than $1 million. A pilot program also permits cities, counties, and special districts to use the design-build method to construct 20 local wastewater treatment facilities, local solid waste facilities, or local water recycling facilities. The Legislature also has passed a number of bills authorizing some special districts to construct projects using the design-build method. 4)Design-Build and Healthcare Districts . California currently has 80 health care districts. Health care districts were known as hospital districts prior to 1994. Health care districts are formed to "establish, maintain, and operate health care facilities," including, but not limited to, hospitals. Health care districts are governed by elected boards of directors. Health care districts throughout the state need to retrofit existing buildings or build new facilities in order to comply with the Act. These districts are faced with escalating construction costs and are looking for the most cost-efficient ways to meet seismic standards and provide well-designed and built state-of-the-art facilities to provide health care to the people of the state. One of these is design-build contracting. SB 1699 (Wiggins), Chapter 415, Statutes of 2008, authorized the use of design-build for the Sonoma Valley Health Care SB 268 Page 5 District (SVHCD). Following SB 1699's enactment, the SVHCD's voters approved a $35 million bond to finance earthquake safety improvements to bring the hospital's emergency room into compliance with the state's seismic safety standards for hospitals. The SVHCD's upgraded facility, which was constructed using design-build contracts, opened last year. The District operates the Modoc Medical Center in Alturas, in Modoc County. The medical center is comprised of a critical access hospital, a skilled nursing facility, and a rural health clinic providing health services to a sparsely populated rural community. State law requires the District to move its hospital into a building that meets the state's seismic safety standards. District officials are in the early stages of planning the construction of a new building that is expected to be a single-story, 10 bed, 40,000 square foot facility. 5)Related legislation . SB 785 (Wolk) of 2013 repeals existing law authorizing the Department of General Services (DGS), the Department of Corrections and Rehabilitation (CDCR), and local agencies to use the design-build procurement process, and enacts uniform provisions authorizing DGS, CDCR, and local agencies to utilize the design-build procurement process for specified public works projects. This bill contains language to avoid chaptering out problems with SB 785. 6)Previous legislation . SB 1005 (Cox) of 2010 would have authorized the Tahoe Forest Health Care District and a health care district authorized by the Office of Statewide Health Planning and Development to use a design-build procedure when assigning contracts for the construction of a hospital or health facility building. SB 1005 was held in the Assembly Appropriations Committee. SB 1699 (Wiggins), Chapter 415, Statutes of 2008, authorized the use of design-build for the SVHCD. 7)Arguments in support . The Modoc Medical Center, in support, writes, "SB 268 would allow the Last Frontier Healthcare District to use the design-build process to construct a replacement facility for Modoc Medical Center, a Critical Access Hospital (CAH). The new facility is crucial to complying with the State's Seismic Mandate deadline. This SB 268 Page 6 mandate was enacted to make sure that California hospitals are safe in the likely event of an earthquake?This (bill) would create cost saving benefits by shifting the liability and risk for cost containment and project completion to the design-build entity." 8)Arguments in opposition . None on file. 9)Urgency clause . This bill contains an urgency clause and requires a two-thirds vote on the Assembly Floor. REGISTERED SUPPORT / OPPOSITION : Support Association of California Healthcare Districts California Association of Rural Health Clinics California Special Districts Association Design-Build Institute of America, Western Pacific Region Modoc County Board of Supervisors Modoc Medical Center Opposition None on file Analysis Prepared by : Angela Mapp / L. GOV. / (916) 319-3958