BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 328
                                                                  Page  1

          Date of Hearing:   June 19, 2013

           ASSEMBLY COMMITTEE ON ACCOUNTABILITY AND ADMINISTRATIVE REVIEW
                                 Jim Frazier, Chair
                     SB 328 (Knight) - As Amended:  April 9, 2013

           SENATE VOTE  :   37-0
           
          SUBJECT  :   Counties: public works contracts.

           SUMMARY  :   Allows counties, until January 1, 2021, to use  
          construction manager at-risk (CMR) construction contracts for  
          county-owned or leased building projects in excess of $1  
          million.  Specifically,  this bill  :   

          1)Authorizes a county, with approval of the board of  
            supervisors, to use CMR construction contracts to erect,  
            construct, alter, repair, or improve any building owned or  
            leased by the county.  

          2)Specifies that the CMR construction contract may only be used  
            for projects in excess of $1 million and may be awarded using  
            either the lowest responsible bidder or best value method.

          3)Requires subcontractors that were not listed by a CMR  
            contractor as partners, general partners, or association  
            members in a partnership, limited partnership, or association  
            in the contractor's CMR bid submission to be awarded by the  
            CMR entity in accordance with the process established by the  
            county.  

          4)Requires all subcontractors bidding on contracts pursuant to  
            this bill to be afforded the protections contained in existing  
            law that establishes the Subletting and Subcontracting Fair  
            Practices Act.

          5)Requires the CMR contractor to do both of the following:

             a)   Provide public notice of the availability of work to be  
               subcontracted in accordance with the publication  
               requirements applicable to the competitive bidding process  
               of the county; and,

             b)   Provide a fixed date and time on which the subcontracted  
               work will be awarded in accordance with the procedure  








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               established pursuant to this bill.

          6)Requires a county that elects to proceed under this bill and  
            uses a CMR contract for a building project to submit a copy of  
            the contract, in electronic format, to the office of the State  
            Controller.

          7)Requires the State Controller to make copies of contracts it  
            receives pursuant to this bill available for public inspection  
            on its website.

          8)Repeals the provisions of this bill on January 1, 2021, unless  
            a later enacted statute deletes or extends that date.

          9)Defines the following terms for purposes of this bill:

             a)   "Best value" means a value determined by objective  
               criteria related to the experience 
             of the entity and project personnel, project plan, financial  
               strength of the entity, safety record of the entity, and  
               price; and,

             b)   "CMR contract" means a competitively procured contract  
               by a county with an individual, partnership, joint venture,  
               corporation, or other recognized legal entity, that is  
               appropriately licensed in this state and that guarantees  
               the cost of a project and furnishes construction management  
               services, including, but not limited to, preparation and  
               coordination of bid packages, scheduling, cost control,  
               value engineering, evaluation, preconstruction services,  
               and construction administration.

           EXISTING LAW  : 

          1)Establishes the Local Agency Public Construction Act, which  
            requires local officials to invite bids for construction  
            projects and then award contracts to the lowest responsible  
            bidder under the traditional design-bid-build (DBB) project  
            delivery system.  

          2)Permits counties, until July 1, 2014, to use the design-build  
            (DB) method (in which one party is responsible for both design  
            and construction) for projects costing more than $2.5 million  
            and to award the project using either the lowest responsible  
            bidder or by best value.








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          3)Requires counties that use DB contracting to submit a report  
            with specified information to the Legislative Analyst's Office  
            (LAO) by September 1, 2013, and requires the LAO to report to  
            the Legislature by January 1, 2014, on counties' use of DB, as  
            specified.

          4)Allows state and local agencies and the University of  
            California (UC) to contract for construction project  
            management services on state or university construction  
            projects, as specified.

          5)Authorizes the California Department of Transportation  
            (Caltrans) to use CMR, also known as the Construction  
            Manager/General Contractor method, for at least five projects  
            that have construction costs greater than $10 million each.

           FISCAL EFFECT  :  According to the Senate Appropriations  
          Committee, pursuant to Senate Rule 28.8, negligible state costs.

           COMMENTS  :  The author states that this bill is intended to  
          "equip counties with an additional construction delivery method  
          in furtherance of good stewardship of public funds." The  
          sponsor, San Bernardino County, adds that the provisions in this  
          bill that impose a sunset and require copies of contracts  
          involving CMR to be posted on the State Controller's website  
          will provide additional layers of transparency to ensure  
          counties operate in a fiscally responsible and ethical manner.  

          According to an April 2008 Alternative Procurement Guide  
          developed for Caltrans, CMR is a project delivery method through  
          which a project owner (i.e. a department, agency, or, as  
          permitted under this bill, a county) selects a Construction  
          Manager (CM) to perform both pre-construction and construction  
          management services.  During the design phase, the CM acts in an  
          advisory role, providing constructability reviews, value  
          engineering suggestions, construction estimates, and other  
          construction-related recommendations.  At a point when the  
          design is somewhere between 50% and 100% complete, the CM and  
          the project owner negotiate a guaranteed maximum price (GMP),  
          which is typically based on a partially completed design and  
          includes the CM's estimate of the cost for the remaining design  
          features.  

          The GMP is a negotiated amount that includes the contractor's  








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          fee, pre-construction phase fee, construction phase fee, and a  
          contingency.  After the GMP is established, the CM begins  
          construction and assumes the role of CMR Contractor for the  
          duration of the construction phase.  The CMR Contractor holds  
          the construction contract and the risk for any construction  
          costs that exceed the GMP. 

          The GMP is the key element that distinguishes the CMR project  
          delivery approach from the more traditional DBB method.  Under  
          DBB, the project owner designs the project, solicits bids, and  
          awards the construction contract to the lowest responsible  
          bidder.  Under CMR, the CMR Contractor promises, subject to the  
          conditions of the contract, to complete the contract work for an  
          amount that does not exceed the agreed-upon GMP.  

          CMR projects allow the project owner to maintain full control of  
          the design while obtaining early involvement of the construction  
          contractor through its pre-construction services contract.  CMR  
          is a delivery method that lends itself well to both phased and  
          fast-track projects because there is only one construction  
          procurement cycle.  As a result, it relieves the project owner  
          of legal and functional responsibility to coordinate the  
          activities of multiple prime contractors on a given project.   
          The pre-construction services often allow the CMR Contractor to  
          award supply work packages and subcontractor work packages  
          before design is 100% complete.  This locks in critical  
          construction costs at the earliest opportunity and enhances  
          construction cost certainty.  Additionally, the formal  
          contingencies established for both the project owner and the CMR  
          Contractor provide more flexibility in dealing with unexpected  
          changes to the scope of work without the need to initiate change  
          orders.  

          According to Every Day Counts (EDC), a state-based initiative of  
          the Federal Highway Administration, projects that are best  
          suited for the CMR method include those where the project owner  
          needs contractor feedback during the design phase.  EDC notes  
          that while CMR is widely accepted in the building construction  
          industry, its use in the transportation sector is just beginning  
          to be realized. 

          CMR has been used by the California Administrative Office of the  
          Courts, the UC, the California State University system, school  
          districts, and some cities.  This bill would permit counties to  
          utilize CMR for public works projects that exceed $1 million and  








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          allow the county to award the CMR construction contract using  
          either the lowest responsible bidder or best value method.

           PRIOR LEGISLATION  :  AB 2498 (Gordon), Chapter 752, Statutes of  
          2012, permits Caltrans to utilize the CMR method for at least  
          five projects having a construction value greater than $10  
          million each in order to expedite project delivery.

           DOUBLE REFERRAL  :  This bill is double-referred.  It passed out  
          of the Assembly Local Government Committee on June 12, 2013,  
          with a vote of 9-0.    


           REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          San Bernardino County Board of Supervisors (sponsor)
          California State Association of Counties
          Rural Counties Representatives of California
          Sacramento County Board of Supervisors
          Stanislaus County Board of Supervisors
          Urban Counties Caucus
           
            Opposition 
           
          None on file

           Analysis Prepared by  :    Cassie Royce / A. & A.R. / (916)  
          319-3600