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 SB 328 Page 2 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. SB 328 Page 3 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 SB 328 Page 4 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 SB 328 Page 5 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