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,  





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            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  





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            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.






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            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  





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               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 





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               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.






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               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  





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          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





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