BILL ANALYSIS Ó SB 785 Page 1 SENATE THIRD READING SB 785 (Wolk and Hill) As Amended August 22, 2014 Majority vote SENATE VOTE :35-0 LOCAL GOVERNMENT 7-2 APPROPRIATIONS 13-4 ----------------------------------------------------------------- |Ayes:|Achadjian, Levine, Alejo, |Ayes:|Gatto, Bocanegra, | | |Bradford, | |Bradford, | | |Gordon, Frazier, Rendon | |Ian Calderon, Campos, | | | | |Eggman, Gomez, Holden, | | | | |Linder, Pan, Quirk, | | | | |Ridley-Thomas, Weber | | | | | | |-----+--------------------------+-----+--------------------------| |Nays:|Melendez, Waldron |Nays:|Bigelow, Donnelly, Jones, | | | | |Wagner | ----------------------------------------------------------------- SUMMARY : Repeals existing law authorizing the Department of General Services (DGS), the California Department of Corrections and Rehabilitation (CDCR), and specified local agencies to use the design-build (DB) procurement process, and enacts more uniform provisions authorizing DGS, CDCR, and most 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, until January 1, 2025. 2)Maintains an existing exception to the cost threshold in 1) above, that allows transit agencies to use DB for the acquisition and installation of technology applications or surveillance equipment designed to enhance safety, disaster preparedness, and homeland security efforts, regardless of cost. SB 785 Page 2 3)Requires specified notification to the State Public Works Board before DB can be used for DGS or CDCR projects. 4)Prohibits DGS and CDCR from using DB for projects on the state highway system. 5)Requires the awarding authority to develop guidelines for a standard organizational conflict-of-interest policy in connection with DB projects. 6)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, except that documents may include operations during a training or transition period but shall not include long-term operations for any project; c) Preparation and issuance of a request for qualifications (RFQ) in order to pre-qualify bidders. The RFQ must contain specified elements, including (among other things) a standard template request for statements of qualifications that requires an acceptable safety record, which shall be deemed acceptable if: i) The proposer's 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, ii) The proposer is a party to an alternative dispute resolution system as provided for in a specified section of the Labor Code, which governs workers' compensation and insurance. 7)Prohibits a DB entity from being prequalified or shortlisted unless the entity provides an enforceable commitment to the director of DGS or CDCR or the local agency that the entity and its subcontractors at every tier will use a skilled and trained workforce to perform all work on the project or SB 785 Page 3 contract that falls within an apprenticeable occupation in the building and construction trades, as specified. 8)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. 9)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. 10)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. 11)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, unless a stipulated sum is specified; technical design and construction experience; and, life-cycle costs over 15 or more years. 12)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. 13)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. 14)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. SB 785 Page 4 15)Requires the DB contract to provide errors and omissions insurance coverage for the design elements of the project, and requires the awarding authority to develop a standard form of payment and performance bond for its DB projects. 16)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. 17)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. 18)Deletes language in existing statutes governing the use of DB that requires awarding authorities to reimburse the Department of Industrial Relations (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. 19)Deletes existing laws requiring specified DB reporting to the Legislative Analyst's Office (LAO). 20)Allows the Marin Healthcare District to use the DB method established for local agencies under this bill to assign contracts for the construction of a building or improvements directly related to construction of a hospital or health facility building at the Marin General Hospital, until January 1, 2025. 21)Continues to allow the Sonoma Valley Health Care District to use DB to assign contracts for the construction of a building or improvements directly related to construction of a hospital or health facility building at the Sonoma Valley Hospital, but requires the Sonoma Valley Health Care District to use the DB procedure this bill establishes for local agencies rather than the DB procedure that current law allows for counties, as SB 785 Page 5 specified. 22)Extends the sunset date on provisions of law governing the use of DB by transit operators, from January 1, 2015, to January 1, 2017, and provides that those provisions apply only to transit operators that begin a project solicitation before January 1, 2015. Transit operators that begin a project solicitation on or after January 1, 2015, are subject to this bill's provisions governing the use of DB by local agencies. 23)Allows the San Diego Unified Port District to procure DB contracts in excess of $1 million for the construction of buildings and improvements directly related to the construction of buildings, as specified. 24)Finds and declares that, due to the unique circumstances of, and the potential costs faced by, the San Diego Unified Port District, a general statute cannot be made applicable within the meaning of California Constitution Article IV, Section 16 and that the special legislation contained in 23) above, is applicable only to the San Diego Unified Port District. 25)Repeals an uncodified section of law that does the following: a) Requires a specified peer review committee (committee) established by the California Transportation Commission (Commission) to operate until it has fulfilled its reporting requirements, as outlined below; b) Requires the committee to evaluate all transportation projects using DB as authorized pursuant to SB 4 X2 (Cogdill), Chapter 2, Statutes of 2009-10 Second Extraordinary Session, which allowed local transportation entities to use DB on up to five projects and the Department of Transportation (Caltrans) to use DB on up to 10 projects, as specified; c) Requires the committee's evaluation to examine the procurement method, comparing low bid and best value, and to consider whether the projects were on time and on budget. The evaluation must also compare the DB projects to similar transportation projects that used design-bid-build procurement; and, d) Requires the Commission to submit to the Legislature a SB 785 Page 6 mid-term report of its findings by June 30, 2012, and a final report by June 30, 2015. 26)Defines "best value" to mean a value determined by evaluation of objective criteria that may include, but not be limited to, price, features, functions, life cycle costs, experience, and past performance. A best value determination may involve the selection of the lowest cost proposal meeting the interests of DGS, CDCR, or the local agency and meeting the objectives of the project, selection of the best proposal for a stipulated sum established by the procuring agency, or a tradeoff between price and other specified factors. 27)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. 28)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. 29)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 contracting, architectural, and engineering services as needed pursuant to a DB contract. 30)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. 31)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 SB 785 Page 7 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. 32)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 and 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. 33)Defines, for special districts, "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. 34)Defines, for transit agencies, "project" to mean a transit capital project that begins project solicitation on or after January 1, 2015. A project that begins the solicitation process before January 1, 2015, is subject to current law governing the use of DB by transit operators. "Project" does not include state highway construction or local street and road projects. 35)Makes findings and declarations regarding the DB method of project delivery. 36)Makes additional technical and conforming changes. EXISTING LAW : SB 785 Page 8 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; 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; SB 785 Page 9 d) Allows specified special districts to construct projects using the DB method; and, e) Allows transit agencies to use DB and requires them to establish a procedure for final selection of the DB entity, subject to the following conditions: i) In no case shall the transit operator award a contract to a DB entity for a capital maintenance or capacity-enhancing rail project unless that project exceeds $25 million in cost; ii) For non-rail transit projects that exceed $2.5 million, the transit operator may award the project to the lowest responsible bidder or by using the best value method; and, iii) For the acquisition and installation of technology applications or surveillance equipment designed to enhance safety, disaster preparedness, and homeland security efforts, there shall be no cost threshold and the transit operator may award the contract to the lowest responsible bidder or by using the best value 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 SB 785 Page 10 the Labor Code. 9)Requires, pursuant to SB 4 X2, the following: a) The Commission to establish a committee for the purposes outlined below; b) The committee to evaluate all transportation projects using DB as authorized pursuant to SB 4 X2, which allowed local transportation entities to use DB on up to five projects and Caltrans to use DB on up to 10 projects, as specified; c) The committee's evaluation to examine the procurement method, comparing low bid and best value, and to consider whether the projects were on time and on budget. The evaluation must also compare the DB projects to similar transportation projects that used design-bid-build procurement; d) The committee to operate until it has fulfilled its reporting requirements; and, e) The Commission to submit to the Legislature a mid-term report of its findings by June 30, 2012, and a final report by June 30, 2015. FISCAL EFFECT : According to the Assembly Appropriations Committee: 1)Updated information from CDCR indicates increased project costs to CDCR of approximately 10% to 25% due to the limits on subcontractor competition. This equates to a $75 million to $187.5 million increase on two current projects of $750 million had this bill been in effect. 2)Unknown impact on DGS and CDCR contracting costs as a result of revised thresholds for which a design-build contract may be used, and awarding of contracts on a "best value" rather than "lowest responsible bidder" basis for more projects (General Fund (GF) and various special funds). To the extent that more contracts 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 SB 785 Page 11 efficiencies are gained by using the design-build method on more projects. 3)Unknown, but likely minor costs to DGS to ensure compliance with labor requirements. 4)Minor savings (GF) to the LAO by deleting reporting requirements. 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 more uniform provisions authorizing DGS, CDCR, and local agencies to utilize the DB procurement process for specified public works projects costing more than $1 million, with a limited cost threshold exception for specified local transit agency public safety projects. This bill applies primarily to DGS, CDCR, and most local agencies. It does not authorize the use of DB for projects on the state highway system, local street and road projects, or school construction projects. This bill allows the use of DB for the Marin Health Care District and the San Diego Unified Port District, as specified. It also repeals provisions of law requiring specified reporting to the Legislature on the use of DB as authorized by SB 4 X2, which allowed local transportation entities to use DB on up to five projects and Caltrans to use DB on up to 10 projects. This bill includes a sunset date of January 1, 2025, thereby retaining a degree of legislative oversight over the use of DB by these state and local agencies. 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 SB 785 Page 12 completion to the design-build entity. "Current design build authorization is based on a compromise 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 SB 785 Page 13 DB can deliver public works faster and cheaper. Detractors of DB contend that it eliminates competitive 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. This bill raises some questions the Legislature may wish to consider: 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. It also creates a statute that SB 785 Page 14 applies to transit operators that is in addition to, and inconsistent with, the provisions of SB 1433 (Hill) of the current legislative session, which makes a number of changes to transit operators' existing authority to use DB (see "Related legislation," below). In addition, this bill provides an exception to the DB rules it mandates for local agencies by waiving the cost threshold for transit agencies when they use DB to acquire and install technology applications or surveillance equipment designed to enhance safety, disaster preparedness, and homeland security efforts. While this language exists in current law and this bill merely maintains this authority, this provision and remaining untouched statutes appear to present an inconsistency with the stated intent of this bill. The Legislature may wish to consider whether this bill achieves an objective of uniformity. b) LAO reporting. This bill also repeals statutes requiring specified DB reporting to the LAO. The Legislature may wish to consider whether continued LAO reporting is prudent, or whether it is no longer necessary. 6)Related legislation. SB 1433 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. 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 SB 785 Page 15 overall time required for project delivery, reduction in costs, enhanced quality, and dramatic reductions in litigation. "California legislation allowing design-build project delivery was first adopted in 1993 with the passage of AB 896 [(Brown), Chapter 429] and SB 772 [(Petris), Chapter 430] (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 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 [ABC] of California, in opposition, write, "SB 785, as currently written, seeks to change Public Contract Code Section 10191 (b)(2)(G) and Section 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 SB 785 Page 16 modification rate and other safety standards in the section to meet the requirements of Section 10191 (b)(2)(G) and Section 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. "(In addition,) (p)olicymakers 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? Our apprentice training programs are recognized and approved by California's Department of Industrial Relations? and the U.S. [United States] Department of Labor and cover a wide variety of skilled trades. SB 785 seeks to bar apprenticeship programs approved by the federal DOL [Department of Labor] if those programs are located within California. This provision raises the core question as to why legislators believe it is appropriate to bar skilled, trained, hardworking California-based apprentices with the same skill set as those dispatched from union programs from working on projects funded with their tax dollars." Analysis Prepared by : Angela Mapp / L. GOV. / (916) 319-3958 FN: 0005366