BILL ANALYSIS Ó SB 785 Page 1 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 SB 785 Page 2 (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. SB 785 Page 3 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. SB 785 Page 4 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 SB 785 Page 5 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. SB 785 Page 6 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; SB 785 Page 7 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 SB 785 Page 8 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 SB 785 Page 9 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 SB 785 Page 10 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 SB 785 Page 11 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. SB 785 Page 12 "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. SB 785 Page 13 "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 SB 785 Page 14 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