BILL ANALYSIS Ó Bill No: SB 785 SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION Senator Roderick D. Wright, Chair 2013-2014 Regular Session Staff Analysis SB 785 Author: Wolk As Amended: April 1, 2013 Hearing Date: April 9, 2013 Consultant: Paul Donahue SUBJECT Design-Build construction project delivery DESCRIPTION This bill would repeal 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 would enact uniform provisions authorizing DGS, CDCR and local agencies to utilize the design-build procurement process for specified public works projects. Specifically, this bill : 1)Defines "design-build" as a project delivery process in which both the design and construction of a project are procured from a single entity. 2)Authorizes DGS, CDCR, cities and counties, special districts operating wastewater, water recycling, or solid waste management facilities to procure design-build public works contracts, in excess of $1 million, using either a low bid or best value process. 3)Specifically excludes state highway system and school construction projects. 4)Defines "best value" as the value determined by evaluation of proposals according to specific criteria, SB 785 (Wolk) continued PageB including: price, quality of technical proposals, qualifications of key personnel, and other criteria the awarding authority deems appropriate. A best value determination may entail any of the following: a) Selection of the lowest priced technically acceptable proposals; b) Selection of the best proposal for a fixed price established by the procuring agency; or c) A tradeoff between price and other specified factors. 5)Defines "construction subcontract" as a subcontract awarded by the design-build entity to a subcontractor that will perform work or labor or render service to the design-build entity in connection with the project, or a subcontractor that specially fabricates and installs a portion of the work or improvement according to detailed drawings contained in the plans and specifications produced by the design-build team. 6)Directs the awarding authority to develop guidelines for a standard organizational conflict-of-interest policy in connection with design-build projects. 7)Directs the awarding authority to reimburse the Department of Industrial Relations for its costs of performing prevailing wage monitoring and enforcement on public works projects. Alternatively, allows the agency to continue operating an existing previously approved labor compliance program to monitor and enforce prevailing wage requirements on the project under specified circumstances. 8)Outlines a standardized design-build procurement process in which the awarding authority may prepare a list of qualified or short-listed entities, based on specified criteria. 9)Once a list of qualified or short-listed entities is complete, the awarding authority may prepare a request for proposals (RFP) that invites prequalified or short-listed entities to submit competitive sealed proposals in the manner prescribed by the awarding SB 785 (Wolk) continued PageC authority. a) Low bid : On projects utilizing low bid as the selection method, the competitive bidding process involves in lump-sum bids by the prequalified or short-listed design-build entities. Awards are made to the design-build entity that is the lowest responsible bidder. b) Best value : For those projects utilizing best value as a selection method, proposals are to be evaluated using only the criteria and selection procedures specifically identified in the RFP. i) The awarding authority may reserve the right to request revisions and conduct negotiations with responsive proposers, if the authority specifies in the RFP how it will ensure that negotiations are conducted in good faith. ii) The authority may hold discussions or negotiations with responsive proposers using the process specified in the RFP. iii) Responsive proposers are ranked based on value provided. iv) The contract award is made to the responsible design-build entity whose proposal is determined by the authority to have offered the best value to the public. v) Upon issuance of a contract award, the awarding authority shall publicly announce its award, identifying the design-build entity to which the award is made, along with a written decision supporting its contract award and stating the basis of the award.<1> 10)Requires the design-build entity to provide payment and performance bonds for the project in the form and in the amount required by the awarding authority. The amount of ------------------------- <1> The written decision supporting the contract award and the contract file shall provide sufficient information to satisfy an external audit. SB 785 (Wolk) continued PageD the payment bond shall not be less than the amount of the performance bond. 11)Requires the design-build contract to provide errors and omissions insurance coverage for the design elements of the project. 12)Requires the awarding authority to develop a standard form of payment and performance bond for its design-build projects. 13)Specifies that agencies may identify specific types of subcontractors that must be included in the design-build entity statement of qualifications and proposal. 14)Provides that the retention proceeds withheld by the agency from the design-build entity shall not exceed 5 percent, except as otherwise specified. 15)Deletes existing laws requiring design-build reporting to the Legislative Analyst. 16)Provides that the provisions of the bill do not affect, expand, alter or limit any rights or remedies otherwise available at law. BACKGROUND For most of the last century state and local officials have been required 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. The state used this approach almost exclusively to build its roads and freeways, public buildings, prisons, universities, hospitals, and water infrastructure. By contrast, the design-build method allows agency officials to procure both design and construction services from a single company before the development of complete plans and specifications. 1) Purpose of bill : According to the author, SB 785 is intended to consolidate existing local and state design-build statutes and eliminate inconsistencies in statutory language by adopting authority of general SB 785 (Wolk) continued PageE application to identified agencies and repeal superseded sections. The author notes that the Legislative Analyst has recommended enactment of a uniform design-build contracting statute. 2) "Types" of subcontractors : Under this bill, agencies may identify the types of subcontractors that must be included in proposal, and are not required to list specific trades. Some existing statutes require mechanical, electrical and plumbing subcontractors to be part of each initial design-build team. The supporters and the author note that this requirement is generally not relevant in civil works projects, and may not be relevant for certain types of building projects. They contend that it is appropriate to allow the agency to determine which trades and types of subcontractors are significant to the selection. i) April 1, 2013 amendments to SB 785 : Recent amendments to this bill attempt to strike a balance on this issue by specifying that members of the design-build team "shall include the general contractor, and if utilized in the design of the project, all electrical, mechanical and plumbing contractors."<2> 3) Exclusions : This bill pertains only to DGS, CDCR, and most local agencies. It specifically excludes projects on the state highway system and school construction projects from its scope and applicability. In 2009, SB 2X4 (Cogdill) was enacted as part of a budget agreement, which authorized design-build contracting for up to 15 transportation projects. The California Transportation Commission recently approved the final CalTrans project authorized in the pilot program. Reportedly, CalTrans will allow the authority to sunset before seeking additional authorization from the Legislature. With regard to school construction projects, SB 1509 (Simitian), enacted in 2012, extends the sunsets authorizing K-12 California Community College districts to utilize design-build contracts for the design and construction of education facilities, from ---------------------- <2> See AB 785, as Amended in Senate April 1, 2013: Page 4, lines 9-13; Page 12, lines 6-10 SB 785 (Wolk) continued PageF January 1, 2014, to January 1, 2020. 4) Staff notes : This bill redefines "best value" by incorporating existing practices of local agencies. The term "construction subcontract" is defined to conform to the Subcontractor listing statutes. Under the bill, agencies can select a shortlist of the most qualified firms. The author and supporters note that this is considered an industry best practice because it ensures that the agency will receive quality proposals and it avoids unnecessary expense by firms who are not likely to be selected. The bill adds LLCs to design-build entities because LLCs can now obtain contractors licenses. Agencies are required to adopt a standard organizational conflict of interest policy, replacing previous statutes applicable only to architects and engineers. 5) Support : Supporters note that this bill would rewrite design-build statutes to eliminate inconsistencies in existing law and provide agencies with a general authorization to develop projects using design-build. They support the bill because it consolidates the various statutes into a single "boilerplate" for use by state agencies, counties, cities, water municipalities, transit operators and others. 6) Opposition : Although generally supportive of statutory streamlining, opponents object to the perpetuation of provisions that "favor a special interest group" and serve no valid public policy. Specifically, they object to re-enactment in the bill of so-called safety language. According to opponents, there is no evidence that the existence of a workers' compensation alternative dispute resolution system equates to the existence of a safe workplace. Additionally, opponents disfavor provisions in the bill requiring that apprentices be affiliated with programs that have graduated apprentices for the preceding 5 years. Also, they object to provisions in the bill that give deference to project labor agreements. SB 785 (Wolk) continued PageG It should be noted that the above provisions are included in many existing design-build statutes. Other opponents object to design-build contracting on principle, suggesting that the design-build process eliminates competitive bidding, allows the private contractor or consortium to inspect and sign off on their own work, and has greatly increased project delivery costs on some projects. PRIOR/RELATED LEGISLATION SB 1509 (Simitian) Chapter 736, Statutes of 2012. Extended the sunsets authorizing kindergarten through grade 12 (K-12) and California Community Colleges (CCC) districts to utilize design-build contracts for the design and construction of education facilities, from January 1, 2014, to January 1, 2020 SB 879 (Cox) Chapter 629, Statutes of 2010. Extended the sunset for the use of design-build by counties from January 1, 2011, to July 1, 2014, and aligns the design-build statutes for cities and counties. SB 2X4 (Cogdill) Chapter 2, Statutes of 2009. Allowed (1) design-build contracting for up to five state office facilities, prison facilities, or court facilities; (2) design-build contracting for up to 15 transportation projects (five local projects; 10 state projects); (3) design-build contracting for up to 10 redevelopment public works projects; (4) an unlimited number of public-private partnerships for transportation projects, deleting then-existing statutory limits. AB 642 (Wolk) Chapter 314, Statutes of 2008. Authorized any city to enter into design-build contracts according to specified provisions until January 1, 2016. SB 416 (Ashburn) Chapter 585, Statutes of 2007. Authorized all counties to use the design-build method until January 1, 2011. SB 614 (Simitian) Chapter 471, Statutes of 2007. Authorized school districts and all community colleges to utilize design-build construction contracts for projects exceeding $2.5 million, rather than the $10 million floor SB 785 (Wolk) continued PageH previously authorized. AB 1329 (Wolk) Chapter 228, Statutes of 2005. Permitted cities in the Counties of Solano and Yolo to enter into design-build contracts. AB 958 (Scott) Chapter 541, Statutes of 2000. Authorized transit districts to enter into design-build contracts AB 896 (W. Brown) Chapter 429, Statutes of 1993. Authorized DGS to enter into design-build contracts in connection with renovation of specified office buildings in Los Angeles. SUPPORT: Associated General Contractors of California California State Association of Counties Design-Build Institute of America, Western Pacific Region Los Angeles County Board of Supervisors OPPOSE: Air Conditioning Trade Association Associated Builders and Contractors of California Plumbing-Heating-Cooling Contractors Association of California Professional Engineers in California Government Western Electrical Contractors Association DUAL REFERRAL: Senate Governance and Finance Committee FISCAL COMMITTEE: Senate Appropriations Committee ********** SB 785 (Wolk) continued PageI