BILL ANALYSIS Ó
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 785 HEARING: 5/1/13
AUTHOR: Wolk FISCAL: Yes
VERSION: 4/23/13 TAX LEVY: No
CONSULTANT: Weinberger
DESIGN-BUILD CONTRACTING
Repeals state laws authorizing state and local government
agencies to use design-build contracting and enacts new,
uniform statutes governing agencies' design-build
contracts.
Background and Existing Law
The Local Agency Public Construction Act requires local
officials to invite bids for construction projects and then
award contracts to the lowest responsible bid-der. This
design-bid-build method is the traditional, and most
widely-used, approach to public works construction. This
approach splits construction projects into two distinct
phases: design and construction. During the design phase,
the local agency prepares detailed project plans and
specifications using its own employees or by hiring outside
architects and engineers. Once project designs are
complete, local officials invite bids from the construction
community and award the contract to the lowest responsible
bidder.
By contrast, state law also allows state and local
officials to use the design-build method to procure both
design and construction services from a single company
before the development of complete plans and
specifications. Under design-build, the owner contracts
with a single entity - which can be a single firm, a
consortium, or a joint venture - to design and construct a
project. Before inviting bids, the owner prepares
documents that describe the basic concept of the project,
as opposed to a complete set of drawings and specifications
of the final product. In the bidding phase, the owner
typically evaluates bids on a best-value basis,
incorporating technical factors, such as qualifications and
design quality, in addition to price.
SB 785 -- 4/23/13 -- Page 2
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 (SB 416,
Ashburn, 2007). Similarly, all cities can use the
design-build method to construct buildings and related
improvements worth more than $1 million (AB 642, Wolk,
2008). 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
(AB 642, Wolk 2008).
The Legislature has also passed a number of bills
authorizing some special districts to construct projects
using the design-build method, including: the Santa Clara
Valley Transportation Authority (AB 904, Alquist, 1999),
specified transit operators (AB 958, Scott, 2000), the
Santa Clara Valley Water District (AB 674, Dutra, 2001),
the Orange County Sanitation District (SB 645, Correa,
2007), and the Sonoma Valley Health Care District (SB 1699,
Wiggins, 2008).
State law allows the California Department of General
Services (DGS) and the California Department of Corrections
and Rehabilitation (CDCR) to use the design-build method to
construct specified structures, including office facilities
and prison facilities (SBX2 4, Cogdill, 2009).
To make the state laws authorizing design-build contracting
more uniform and easier to use, some practitioners want the
Legislature to consolidate the numerous design-build
statutes into statutes that generally apply to state
agencies and local governments.
Proposed Law
Senate Bill 785 repeals statutes 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 new statutes
authorizing DGS, CDCR and local agencies to utilize the
design-build procurement process for specified public works
projects. Specifically:
SB 785 -- 4/23/13 -- Page 3
SB 785 defines "design-build" as a project delivery process
in which both the design and construction of a project are
procured from a single entity.
The bill authorizes DGS, CDCR, cities and counties, transit
districts, and 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.
State highway system construction projects are excluded
from the types of projects that may be constructed using
the design-build method. The bill defines the specific
types of projects that cities, counties, and special
districts can build using the design-build method.
SB 785 defines "best value" as the value determined by
evaluation of proposals according to objective criteria
related to price, features, functions, life cycle costs,
experience, and past performance. A best value
determination may entail any of the following:
Selection of the lowest priced technically
acceptable proposals;
Selection of the best proposal for a fixed price
established by the procuring agency; or
A tradeoff between price and other specified
factors.
SB 785 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.
The bill requires the awarding authority to develop
guidelines for a standard organizational
conflict-of-interest policy in connection with design-build
projects.
SB 785 requires 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, the awarding
authority may continue operating an existing previously
SB 785 -- 4/23/13 -- Page 4
approved labor compliance program to monitor and enforce
prevailing wage requirements on the project under specified
circumstances.
SB 785 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. 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
authority.
For projects utilizing low bid as the selection method, SB
785 requires that the competitive bidding process must
involve lump-sum bids by the prequalified or short-listed
design-build entities. Awards must be made to the
design-build entity that is the lowest responsible bidder.
For those projects utilizing best value as a selection
method, SB 785 requires that proposals must be evaluated
using only the criteria and selection procedures
specifically identified in the RFP. 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. The authority may hold
discussions or negotiations with responsive proposers using
the process specified in the RFP. Responsive proposers are
ranked based on value provided. The contract must be
awarded to the responsible design-build entity whose
proposal is determined by the authority to have offered the
best value to the public. 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.
SB 785 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 the payment bond shall not be less than the amount of
the performance bond.
SB 785 provides that the retention proceeds withheld by the
SB 785 -- 4/23/13 -- Page 5
agency from the design-build entity shall not exceed 5
percent if a performance and payment bond, issued by an
admitted surety insurer, is required in the solicitation of
bids. The bill also applies the 5% limit to contracts with
subcontractors and specifies conditions under which the 5%
limit can be exceeded.
The bill requires the design-build contract to provide
errors and omissions insurance coverage for the design
elements of the project.
SB 785 requires the awarding authority to develop a
standard form of payment and performance bond for its
design-build projects.
SB 785 specifies that agencies may identify specific types
of subcontractors that must be included in the design-build
entity statement of qualifications and proposal.
The bill deletes existing laws requiring design-build
reporting to the Legislative Analyst.
SB 785 provides that the provisions of the bill do not
affect, expand, alter or limit any rights or remedies
otherwise available at law.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . In 2005, the Legislative
Analyst's Office published a review of state and local
design-build practices and recommended that the Legislature
should adopt an inclusive, uniform design-build statute
that applies to all public entities. The report noted that
the 17 statutes that authorized design-build contracts
contained different sunset dates, definitions, and project
cost thresholds. The LAO suggested that a uniform statute
would provide contractors and public officials with a
consistent business environment within which to operate
throughout the state. Since 2005, more than a dozen bills
have made additional changes to the various design-build
SB 785 -- 4/23/13 -- Page 6
statutes. As suggested by the LAO, SB 785 rewrites
design-build statutes to eliminate inconsistencies in
existing law and consolidate state and local agencies'
statutory authority to develop projects using design-build.
By consolidating statutes and creating more uniform
requirements, SB 785 makes the state laws governing the
design-build method clearer, more flexible, and easier to
use.
2. One more clarification . Although SB 785's revisions
clarify some confusing design-build provisions in state
law, a public employees' union notes that the bill fails to
clarify a statute that was meant to require the Department
of Transportation (Caltrans) to perform construction
inspection and related services on state highway projects.
The ambiguous statute was part of a negotiated agreement
that was enacted by SBX2 4 (Cogdill, 2009), which
authorized Caltrans to use design-build for up to ten state
highway, bridge, or tunnel projects. A recent court
decision suggests that current law makes Caltrans
responsible for the performance of specified work but
doesn't require Caltrans to actually perform the work.
Some of SB 785's opponents suggest that any effort to make
current design-build statutes clearer should include
language clarifying the original legislative intent behind
the Cogdill bill's guarantee that Caltrans would perform
construction inspection services on state highway projects.
The Committee may wish to consider amending SB 785 to
clarify that state law doesn't allow Caltrans to outsource
the performance of construction inspection and related
services and requires that Caltrans employees must perform
those services.
3. Cross-reference correction . State law allows the
Sonoma Valley Health Care District, a local government
formed under provisions of the Local Health Care District
Law, to construct a hospital or health facility building
using the design-build method (SB 1699, Wiggins, 2008).
The Wiggins bill allowed the District to follow the
counties' design-build statute. SB 785 amends current law
to allow the District, instead, to use the design-build
statutes that the bill enacts for state agencies. Because
the District is a local government, not a state agency, the
Committee may wish to consider amending SB 785 to allow the
Sonoma Valley Health Care District to use the new uniform
design-build statutes for local governments.
SB 785 -- 4/23/13 -- Page 7
4. Substantive changes . While SB 785 largely replicates
the state laws that already govern how state and local
projects can be constructed using the design-build method,
it makes some changes to current law. The bill makes three
particularly substantive changes:
Lowering, from $2.5 million to $1 million, the
value of projects that counties can construct using
design-build; and,
Eliminating the sunset dates that would have
automatically repealed some statutes authorizing the
use of the design-build method.
Eliminates the cap on the number of projects that
the state can construct using the design-build method
for specified types of projects.
5. Mandate . SB 785 requires that specified information
provided by bidders in response to a request for
qualifications must be certified under penalty of perjury.
By creating a new crime, SB 785 also creates a new
state-mandated program. But the bill disclaims the state's
responsibility for reimbursing local governments for
enforcing these new crimes. That's consistent with the
California Constitution, which says that the state does not
have to reimburse local governments for the costs of new
crimes (Article XIIIB, 6[a][2]).
6. Similar legislation . Legislation enacted last year
extended, from 2014 to 2020, the sunset date on statutes
authorizing K-12 and California Community College districts
to utilize design-build contracts for the design and
construction of education facilities (SB 1509, Simitian,
2012). Earlier this year, the Senate Governance & Finance
Committee approved legislation authorizing counties to use
the "construction manager at-risk" procurement methodology
for building projects worth more than $1 million (SB 328,
Knight, 2013).
7. Double-referral . Because some of SB 785's provisions
fall within the jurisdictions of the Senate Governmental
Organization Committee and the Senate Governance & Finance
Committee, the Senate Rules Committee ordered a
double-referral. The Senate Governmental Organization
Committee passed the bill at its April 9 hearing by a 10-0
vote.
SB 785 -- 4/23/13 -- Page 8
Support and Opposition (4/25/13)
Support : Associated General Contractors of California;
California Special Districts Association; California State
Association of Counties; California State Council of
Laborers; County of San Bernardino; Design-Build Institute
of America, Western Pacific Region; Infrastructure Delivery
Council; Los Angeles County Board of Supervisors.
Opposition : 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.