BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 785
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          Date of Hearing:  June 25, 2014

                       ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
                           K.H. "Katcho" Achadjian, Chair
                      SB 785 (Wolk) - As Amended:  June 17, 2014

           SENATE VOTE  :  35-0
           
          SUBJECT  :  Design-build.

           SUMMARY  :  Repeals existing law authorizing the Department of  
          General Services (DGS), the Department of Corrections and  
          Rehabilitation (CDCR), and local agencies to use the  
          design-build (DB) procurement process, and enacts uniform  
          provisions authorizing DGS, CDCR, and local agencies to utilize  
          the DB procurement process for specified public works projects.   
          Specifically,  this bill  :   

          1)Repeals statutes governing the use of DB by DGS, CDCR, and a  
            number of local agencies, and instead, revises and recasts  
            those statutes to allow DGS, CDCR, cities, counties, and  
            specified special districts and transit agencies (awarding  
            authorities) to use DB for their public works contracts in  
            excess of $1 million using either a low bid or best value  
            process.

          2)Requires specified notification to the State Public Works  
            Board before DB can be used for DGS or CDCR projects.

          3)Prohibits DGS and CDCR from using DB for projects on the state  
            highway system.

          4)Requires the awarding authority to develop guidelines for a  
            standard organizational conflict-of-interest policy in  
            connection with DB projects. 

          5)Specifies the procurement process that DB projects must  
            follow, including:

             a)   Preparation of documents setting forth scope and  
               estimated price, as specified;

             b)   A prohibition against design-build-operate contracts;

             c)   Preparation and issuance of a request for qualifications  








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               (RFQ) in order to pre-qualify bidders.  The RFQ must  
               contain specified elements, including:

               i)     Skilled labor force availability that shall be  
                 deemed satisfied by the existence of an agreement with a  
                 registered apprenticeship program, approved by the  
                 California Apprenticeship Council, that has graduated at  
                 least one apprentice in each of the preceding five years.  
                  This graduation requirement shall not apply to programs  
                 providing apprenticeship training for any craft that was  
                 first deemed by the federal Department of Labor and the  
                 State Department of Industrial Relations (DIR) to be an  
                 apprenticeable craft within the five years prior to the  
                 effective date of this bill; and,

               ii)    A standard template request for statements of  
                 qualifications that requires an acceptable safety record  
                 that shall be deemed acceptable if:
                  (1)       Its experience modification rate for the most  
                    recent three-year period is an average of 1.00 or  
                    less, and its average total recordable injury or  
                    illness rate and average lost work rate for the most  
                    recent three-year period does not exceed the  
                    applicable statistical standards for its business  
                    category; or,

                  (2)       The proposer is a party to an alternative  
                    dispute resolution system as provided for in a  
                    specified section of the Labor Code.

          6)Requires the awarding authority to 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.

          7)Requires the RFP to include certain elements, as specified,  
            including project scope, cost, evaluation and awarding  
            methods, relative weight of selection factors, and procedures  
            for negotiations on best value selections.  

          8)Requires, for projects utilizing low bid as the selection  
            method, the competitive bidding process to result in lump-sum  
            bids by the prequalified or short-listed DB entities, and  
            awards to be made to the DB entity that is the lowest  
            responsible bidder.








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          9)Requires projects utilizing best value as a selection method  
            to follow a specified process that requires proposals to be  
            evaluated by using only the criteria and selection procedures  
            specifically identified in the RFP, with the following minimum  
            factors that must be weighted as deemed appropriate by the  
            awarding entity:  price; technical design and construction  
            experience; and, life-cycle costs over 15 or more years.

          10)Allows the awarding authority to hold discussions or  
            negotiations with responsive proposers, and requires proposers  
            to be ranked based on a determination of value provided, with  
            a limit of three proposers required to be ranked, as  
            specified. 

          11)Requires the award of the contract to be made to the  
            responsible DB entity whose proposal is determined to have  
            offered the best value to the public, and requires the  
            awarding authority to publicly announce its award, as  
            specified.

          12)Requires the DB entity to provide payment and performance  
            bonds for the project in the form and in the amount required  
            by the awarding authority, and issued by a California admitted  
            surety.  The amount of the payment bond shall not be less than  
            the amount of the performance bond.

          13)Requires the DB contract to provide errors and omissions  
            insurance coverage for the design elements of the project.

          14)Requires the awarding authority to develop a standard form of  
            payment and performance bond for its DB projects.

          15)Specifies that awarding authorities may identify specific  
            types of subcontractors that must be included in the DB entity  
            statement of qualifications and proposal, as specified, and  
            outlines procedures for awarding subcontracts with a value  
            exceeding 0.5% of the contract price allocable to construction  
            work.
          16)Prohibits retention proceeds withheld by an agency from a DB  
            entity from exceeding 5% 
          if a performance and payment bond, issued by an admitted surety  
            insurer, is required in the solicitation of bids, and  
            specifies the retention proceeds for subcontracts.









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          17)Deletes language in existing statutes governing the use of DB  
            that requires awarding authorities to reimburse DIR for its  
            costs of performing prevailing wage monitoring and enforcement  
            on public works projects, and that 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. 

          18)Deletes existing laws requiring specified DB reporting to the  
            Legislative Analyst's Office (LAO). 

          19)Adds the Marin Healthcare District to the statute authorizing  
            Sonoma Valley Health Care District to use DB, thereby allowing  
            the Marin Healthcare District to use the DB method to assign  
            construction contracts directly related to the construction of  
            a hospital or health facility building at the Marin General  
            Hospital.  

          20)Defines "best value" to mean the value determined by  
            evaluation of objective criteria related to price, features,  
            functions, life cycle costs, experience, and past performance.  
             A best value determination may entail selection of the lowest  
            priced technically acceptable proposals or selection of the  
            best proposal for a fixed price established by the procuring  
            agency, or a tradeoff between price and other specified  
            factors.

          21)Defines "construction subcontract" to mean each subcontract  
            awarded by the DB entity to a subcontractor that will perform  
            work or labor or render service to the DB entity in or about  
            the construction of the work or improvement, or a  
            subcontractor licensed by the State of California that, under  
            subcontract to the DB entity, specially fabricates and  
            installs a portion of the work or improvement according to  
            detailed drawings contained in the plans and specifications  
            produced by the DB team.

          22)Defines "design-build" to mean a project delivery process in  
            which both the design and construction of a project are  
            procured from a single entity.

          23)Defines "design-build entity" to mean a corporation, limited  
            liability company, partnership, joint venture, or other legal  
            entity that is able to provide appropriately licensed  








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            contracting, architectural, and engineering services as needed  
            pursuant to a DB contract.

          24)Defines "design-build team" to mean the DB entity itself and  
            the individuals and other entities identified by the DB entity  
            as members of its team.  Members shall include the general  
            contractor and, if utilized in the design of the project, all  
            electrical, mechanical, and plumbing contractors.

          25)Defines "local agency" to mean the following:

             a)   A city, county, or city and county;

             b)   A special district that operates wastewater facilities,  
               solid waste management facilities, water recycling  
               facilities, or fire protection facilities; and,
             c)   Any transit district, included transit district,  
               municipal operator, included municipal operator, any  
               consolidated agency, as specified, any joint powers  
               authority formed to provide transit service, any county  
               transportation commission, as specified, or any other local  
               or regional agency, responsible for the construction of  
               transit projects.

          26)Defines, for cities or counties, "project" to mean the  
            construction of a building or buildings and improvements  
            directly related to the construction of a building or  
            buildings, county sanitation wastewater treatment facilities,  
            and park recreational facilities, but does not include the  
            construction of other infrastructure, including, but not  
            limited to, streets and highways, public rail transit, or  
            water resources facilities and infrastructure.  For cities or  
            counties that operate wastewater facilities, solid waste  
            management facilities, or water recycling facilities,  
            "project" also means the construction of regional and local  
            wastewater treatment facilities, regional and local solid  
            waste facilities, or regional and local water recycling  
            facilities.

          27)Defines, for special districts as defined in 25) b), above,  
            "project" to mean the construction 
          of regional and local wastewater treatment facilities, regional  
            and local solid waste facilities, regional and local water  
            recycling facilities, or fire protection facilities.









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          28)Defines, for transit agencies as defined in 25) c), above,  
            "project" to mean a transit capital project, but does not  
            include state highway construction or local street and road  
            projects.

          29)Makes findings and declarations regarding the DB method of  
            project delivery.

          30)Makes additional technical and conforming changes.

           EXISTING LAW  :

          1)Requires public entities to comply with certain procedures in  
            soliciting and evaluating bids and awarding contracts for the  
            construction of public works, and generally requires agencies  
            to invite bids based on a completed set of engineering plans  
            and then award the bid to the lowest bidder, also called  
            design-bid-build.  

          2)Allows limited use of DB, which allows public agencies to  
            procure both design and construction services from a single  
            entity before the development of complete plans and  
            specifications.  DB contracts may be awarded on the basis of  
            best value or lowest responsible bidder, as specified in  
            existing law.

          3)Allows DGS and CDCR to utilize DB to construct specified  
            structures, including state office buildings and prison  
            facilities, for projects with a budget of at least $10 million  
            on a best value basis, using criteria such as proposed design  
            approach, life-cycle costs, project features and functions,  
            while contracts for projects with a budget of at least  
            $250,000 may be awarded to the lowest responsible bidder.

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

          5)Allows local agencies to use DB as follows:
             a)   Allows counties to use DB to construct buildings and  
               related improvements and wastewater treatment facilities  
               that cost more than $2.5 million, until July 1, 2016;









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             b)   Allows cities to use DB to construct buildings and  
               related improvements worth more than $1 million, until  
               January 1, 2016; 

             c)   Allows cities, counties, and special districts to use DB  
               to construct a statewide total maximum of 20 local  
               wastewater facilities, solid waste management facilities,  
               or water recycling facilities that cost more than $2.5  
               million each; and,

             d)   Allows specified special districts to construct projects  
               using the DB method.

          6)Generally requires awarding authorities to reimburse the DIR  
            for its costs of performing prevailing wage monitoring and  
            enforcement on public works projects, and that 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.

          7)Requires reporting to the LAO under specified DB statutes.

          8)Requires, pursuant to a county's authority to use DB, a  
            bidder's safety record to be deemed acceptable if:

             a)   Its experience modification rate for the most recent  
               three-year period is an average of 1.00 or less, and its  
               average total recordable injury/illness rate and average  
               lost work rate for the most recent three-year period does  
               not exceed the applicable statistical standards for its  
               business category; or,

             b)   The bidder is a party to an alternative dispute  
               resolution system as provided for in a specified section of  
               the Labor Code.

           FISCAL EFFECT  :   According to the Senate Appropriations analysis  
          of the May 2, 2013, version of this bill:

          1)Unknown impact on DGS and CDCR contacting costs as a result of  
            revising the thresholds for which a DB contract may be used,  
            and authorizing the awarding of contracts on a "best value"  
            rather than "lowest responsible bidder" basis for more  
            projects (General Fund).  To the extent that more contracts  








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            are awarded on a "best value" basis and contracts are awarded  
            to bidders who may not have the lowest bid price, overall  
            contracting costs may increase.  On the other hand, overall  
            contracting costs may be lower to the extent that efficiencies  
            are gained by using the DB method on more projects.

          2)Unknown, likely neutral fiscal impacts on DIR related to the  
            department's monitoring and enforcement of prevailing wage  
            requirements (State Public Works Enforcement Fund).  All DIR  
            costs are reimbursed by DGS and CDCR, as applicable.

          3)Minor savings to LAO by deleting reporting requirements  
            (General Fund).*

          *Note: This bill has since been amended to remove language  
          pertaining to DIR's monitoring and enforcement of prevailing  
          wage requirements, which will likely change this bill's fiscal  
          impact.
           
          COMMENTS  :

           1)Purpose of this bill  .  This bill repeals existing law  
            authorizing DGS, CDCR, and local agencies to use the DB  
            procurement process, and enacts uniform provisions authorizing  
            DGS, CDCR, and local agencies to utilize the DB procurement  
            process for specified public works projects costing more than  
            $1 million.  This bill pertains only to DGS, CDCR, and most  
            local agencies.  It does not include projects on the state  
            highway system or school construction projects.  This bill is  
            sponsored by the Associated General Contractors and the  
            Design-Build Institute of America.

           2)Author's statement  .  According to the author, "Under the  
            traditional design-bid-build method of delivery the design and  
            construction work is assigned to two separate entities.  On  
            the other hand, under the design-build project delivery method  
            the general contractor is responsible for both the design and  
            construction of the project.  The benefits of a design-build  
            contract project delivery system include an accelerated  
            project completion, cost containment, reduction of  
            construction complexity, and reduced risk exposure by shifting  
            the liability and risk for cost containment and project  
            completion to the design-build entity. 

            "Current design build authorization is based on a compromise  








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            struck in 2000 among local officials, labor groups, and  
            contractors.  Further changes to the language, consistent with  
            the principles of the 2000 compromise, were made by: SB 287  
            (Cox), Chapter 376, Statutes of 2005; SB 416 (Ashburn),  
            Chapter 585, Statutes 2007, which extended this authority to  
            use design-build contracting for the construction of buildings  
            and directly related improvements to all 58 counties in the  
            state; and, AB 642 (Wolk), Chapter 314, Statues 2008, which  
            extended this authority to use design-build contracting for  
            the construction of buildings and directly related  
            improvements to all cities in the state."

           3)Background  .  State law generally requires public agencies 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.  

            Under the DB method, a single contract covers the design and  
            construction of a project with a single company or consortium  
            that acts as both the project designer and builder.  The DB  
            entity arranges all architectural, engineering, and  
            construction services, and is responsible for delivering the  
            project at a guaranteed price and schedule based upon  
            performance criteria set by the public agency.  The DB method  
            can be set by the public agency.  The DB method can be faster  
            and, therefore, cheaper, than the design-bid-build method, but  
            it requires a higher level of management sophistication since  
            design and construction may occur simultaneously.

            Advocates for the DB method of contracting for public works  
            contend that project schedule savings can be realized because  
            only a single request for proposals is needed to select the  
            project's designer and builder.  The more traditional  
            design-bid-build project approach requires the separate  
            selection of the design consultant or contractor, completion  
            of design, and then advertising for bids and selection of the  
            construction contractor.  Proponents add that DB allows the  
            overlap of design and construction activities, resulting in  
            additional time savings and lower project costs.  By avoiding  
            the delays and change orders that result from the traditional  
            design-bid-build method of contracting, proponents argue that  
            DB can deliver public works faster and cheaper.

            Detractors of DB contend that it eliminates competitive  








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            bidding, allows the private contractor or consortium to  
            inspect and sign off on their own work, and increases project  
            delivery costs.

           4)LAO reports and recommendations  .  The LAO issued a report to  
            the Legislature on 
          February 3, 2005, titled "Design-Build: An Alternative  
            Construction System," which reported on all DB authorities  
            granted to various types of government entities.  After  
            analyzing the claims of proponents and opponents and reviewing  
            the experience of local agencies that were authorized to use  
            DB at the time, the LAO recommended that "the Legislature  
            grant design-build authority only to buildings and directly  
            related infrastructure.  There are more complex issues  
            associated with other public works projects such as  
            transportation, public transit, and water resources  
            facilities.  Evaluation of design-build as a construction  
            delivery option for these other infrastructure facilities is  
            beyond the scope of this report." 

            In January of 2010 the LAO issued a second report, this time  
            updating the Legislature on the use of DB by counties in  
            California, based on data received from counties that utilized  
            this methodology.  In the report, LAO states that "although it  
            was difficult to draw conclusions from the reports received  
            about the effectiveness of design-build compared to other  
            project delivery methods, we do not think that the reports  
            provide any evidence that would discourage the Legislature  
            from granting design-build authority to local agencies on an  
            ongoing basis.  In doing so, however, we recommend the  
            Legislature consider some changes such as creating a uniform  
            design-build statute, eliminating cost limitations, and  
            requiring project cost to be a larger factor in awarding the  
            design-build contract."

           5)Policy considerations  .  

              a)   Uniformity  .  The stated intent of this bill is to  
               provide uniform statutes to govern the use of DB by state  
               and local agencies.  However, it does not repeal and recast  
               all existing DB statutes.  For example, current statutes  
               governing transit operators' use of DB are not repealed by  
               this bill.  In addition, this bill creates a statute that  
               applies to transit operators that is in addition to, and  
                                           inconsistent with, the provisions of SB 1433, (Hill) of  








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               2014, which makes a number of changes to transit operators'  
               existing authority to use DB (see "Related legislation,"  
               below).  There are additional DB statutes that remain  
               untouched by this bill.  The Committee may wish to ask the  
               author to clarify the intent of this bill and whether  
               additional changes for the sake of uniformity will be made  
               in the future.

              b)   Legislative oversight  .  This bill also repeals statutes  
               requiring specified DB reporting to the LAO, and repeals a  
               number of sunset dates in existing statutes without  
               including a sunset date in the new statutes this bill  
               creates.  The Committee may wish to consider whether  
               continued Legislative oversight over the use of DB via  
               these mechanisms is prudent, or whether it is no longer  
               necessary.

           6)Related legislation  .  SB 1433 (Hill) of 2014 repeals the  
            sunset date on transit operators' authority to use DB for  
            transit projects, expands the number of entities eligible to  
            exercise this authority, eliminates minimum cost thresholds,  
            and deletes reporting requirements.  AB 1433 is pending in the  
            Assembly Transportation Committee.

           7)Arguments in support  .  The Design-Build Institute of America,  
            co-sponsor of this bill, states, "SB 785 which will help  
            streamline, consolidate and simplify design-build in  
            California.  Over the years far too many design-build statutes  
            have become law causing confusion, inconsistency, inefficiency  
            and wasted costs.  SB 785 will bring these various statutes  
            into a single 'boiler plate' for use by state agencies,  
            counties, cities, water municipalities, transit operators and  
            others.

            "The design-build project delivery process has become a  
            standard tool for public agencies in the United States over  
            the past 30 years.  The Federal Government has been utilizing  
            this method of project delivery extensively for 20 years  
            within the United States and at its locations all over the  
            world.  The vast majority of states have granted design-build  
            authority to state and local agencies in order to speed up the  
            overall time required for project delivery, reduction in  
            costs, enhanced quality, and dramatic reductions in  
            litigation.









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            "California legislation allowing design-build project delivery  
            was first adopted in 1993 with the passage of AB 896 and SB  
            772 (both applicable to the Department of General Services).   
            Since that time numerous statutes have been passed with  
            varying provisions for different public agencies. This has  
            created inconsistencies and inefficiencies for agencies and  
            industry practitioners trying to effectively utilize this  
            project delivery process.

            "SB 785 will integrate the design-build project delivery  
            process by repealing existing statutes, and replacing them  
            with two (2) new chapters in the Public Contract Code.  It  
            will create a common template for statewide use of the  
            design-build project delivery process for those agencies  
            currently authorized to use design-build.  This bill will help  
            create common administrative guidelines which will improve  
            efficiencies and reduce costs to taxpayers on projects where  
            design-build delivery is utilized."

           8)Arguments in opposition  .  The Associated Builders and  
            Contractors of California, in opposition, write, "SB 785, as  
            currently written, seeks to change Public Contract Code   
            §10191 (b)(2)(G) and §22164 (b)(2)(G):  A proposer's safety  
            record shall be deemed acceptable if its experience  
            modification rate for the most recent three-year period is an  
            average of 1.00 or less, and its average total recordable  
            injury or illness rate and average lost work rate for the most  
            recent three-year period does not exceed the applicable  
            statistical standards for its business category or if the  
            proposer is a party to an alternative dispute resolution  
            system as provided for in Section 3201.5 of the Labor Code.   
            Only union contractors are able to establish an ADR program,  
            under the referenced Labor Code section 3201.5.    

            "ABC California does not believe it is appropriate public  
            policy to provide an exception for demonstration of safety.   
            Workplace safety does not depend on whether or not you have a  
            collective bargaining agreement.  All prospective bidders  
            should have to place in the public record their experience  
            modification rate and other safety standards in the section to  
            meet the requirements of §10191 (b)(2)(G) and §22164  
            (b)(2)(G).  We believe that ensuring a company's safety record  
            is part of their bid information is the best and only way to  
            demonstrate contractor commitment to workplace safety.  There  
            shouldn't be exceptions for any bidder on safety. 








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            "All approved apprenticeship programs should be allowed to  
            supply a skilled and safe workforce:  Policymakers need to  
            ensure that all state and federally approved apprenticeship  
            training programs are able to provide trained apprentices and  
            journeymen under the skilled and trained workforce  
            requirements?

            "Today, all programs must meet the same standards of training  
            apprentices on needed skills and workplace safety.  The  
            language in SB 785 is designed to keep some state-registered  
            apprentices from being dispatched for many years after their  
            apprenticeship program has received state approval.  It begs  
            the question as to why legislators believe it is appropriate  
            to bar skilled, trained, hardworking apprentices with the same  
            skill set as those dispatched from union programs from working  
            on projects funded with their tax dollars?One of the  
            requirements of apprenticeship training is to provide a wide  
            range of employment and learning opportunities for  
            apprentices.  This current state policy is in direct conflict  
            with 
            SB 785's language in §22164 (b)(2)(B)  and§10191 (b)(2)(B)."

           9)Chaptering conflicts  .  Because provisions of this bill  
            conflict with provisions in AB 1650 (Jones-Sawyer) and SB 854  
            (Budget and Fiscal Review), the author may wish to amend the  
            bill to avoid any chaptering out issues that could occur  
            because of these conflicts.
           
          REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          Associated General Contractors [CO-SPONSOR]
          Design-Build Institute of America [CO-SPONSOR]
          California Special Districts Association
          California Transit Association
          CH2M HILL
          County of Los Angeles
          County of San Diego
          County of Santa Clara
          East Valley Water District
          Infrastructure Delivery Council
          Marin Healthcare District
          Santa Clara Valley Transportation Authority








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          Sonoma-Marin Area Rail Transit District (SMART)
           
            Opposition 
           
          Air Conditioning Trade Association
          Associated Builders and Contractors - San Diego Chapter
          Associated Builders and Contractors of California
          Plumbing-Heating-Cooling Contractors Association of California
          Western Electrical Contractors Association

           Analysis Prepared by  :    Angela Mapp / L. GOV. / (916) 319-3958