BILL ANALYSIS Ó
AB 566
Page 1
Date of Hearing: May 6, 2015
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Jimmy Gomez, Chair
AB
566 (O'Donnell) - As Amended March 26, 2015
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Urgency: No State Mandated Local Program: NoReimbursable: No
SUMMARY:
This bill requires school districts entering into
lease-leaseback or lease-to-own school building contracts to use
a skilled and trained workforce, and to comply with the
requirement to prequalify and rate prospective bidders
AB 566
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regardless of the source of funding. Specifically, this bill:
1)Prohibits a school district governing board from entering into
a lease-leaseback or lease-to-own contract with any entity
unless the entity provides an enforceable commitment that the
entity and its subcontractors at every tier will use a skilled
and trained workforce to perform all work on the project or
contract that falls within an apprenticeable occupation in the
building and construction trades.
2)Defines "apprenticeable occupation" as an occupation for which
the Chief of the Division of Apprenticeship Standards (DAS) of
the Department of Industrial Relations (DIR) had approved an
apprenticeship program before January 1, 2014.
3)Defines "skilled and trained workforce" and "skilled journey
person."
4)Sets forth specific terms related to an entity's commitment
that a skilled and trained workforce will be used to perform
the project or contract, including monthly reporting by the
entity to demonstrate compliance. If the entity fails to
provide to the governing board of the school district the
monthly report, the governing board of the school district is
required to immediately cease making payments to the entity.
5)Expands the requirement for school districts to prequalify and
rate potential bidders to all public works projects over $1
million, regardless of the source of funding. Requires the
person, firm or corporation constructing a school building,
under a lease-leaseback or a lease-to-own project to comply
with the prequalification requirements, regardless of the
source of funding for the project.
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FISCAL EFFECT:
1)Unknown, likely minor costs to school districts to establish
or modify a prequalification process. Most districts have an
established prequalification process pursuant to existing law
governing public works contracts utilizing state facility bond
funds. Additionally, some districts, such as Los Angeles
Unified School District, already require a prequalification
process for lease-leaseback and lease-to-own contracts.
2)Unknown fiscal impact related to overall construction contract
costs as a result of the skilled workforce requirements of the
bill. The skilled workforce requirements in the bill could
narrow the field of competition, which could lead to higher
overall project costs. However, prequalification and skilled
labor requirements may also result in overall savings to the
extent that some less qualified contractors are disqualified
or discouraged from bidding, resulting in fewer change orders
or possible replacement work.
COMMENTS:
1)Purpose. This bill prohibits a governing board from entering
into a lease-leaseback or lease-to-own contract unless the
entity commits that the entity and its subcontractors at every
tier will use a skilled and trained workforce. This bill also
extends the requirement for school districts to prequalify and
rate potential bidders to all public works projects over $1
million, regardless of the source of funding.
The State Building and Construction Trades Council are
sponsoring this bill to address issues such as the sole
sourcing of projects to less than qualified contractors and
violations of labor laws for public works projects by
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"significantly raising the standards for contractors,
increasing the quality of construction, and protecting
taxpayers and workers on lease-leaseback construction
projects."
2)Lease-Leaseback and Lease-to-own projects. Under current law,
K-12 school districts are required to competitively bid any
public works contract over $15,000 and award the contract to
the lowest responsible bidder. Under this process, a school
district would first hire an architect to design a school
facility and then issue a bid for the construction phase,
awarding the contract to the lowest bidder. This process is
commonly called "design-bid-build".
Another process available to school districts is the
"lease-leaseback" process. School districts, without
advertising for bid, may rent district property for a minimum
of $1 a year, to any person, firm or corporation. The entity
constructs the school building and rents the facility back to
the school district. At the end of the lease, the district
resumes title to the building and site. In practice, some
school districts have used state and local bond funds to make
construction payments during construction. The lease is
terminated when the building is constructed.
In a "lease-to-own" agreement, a school district may enter
into a contract with a person, firm, or corporation with the
lowest bid for construction of a building on a designated
site. The entity leases the property to the school district
and the school district gets the title at the end of the
lease.
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This bill prohibits a governing board from entering into a
lease-leaseback or lease-to-own contract unless the entity
commits that the entity and its subcontractors at every tier
will use a skilled and trained workforce as defined. This
requirement is very similar to provisions adopted in the
Public Contract Code authorizing state and local agencies to
use a design-build method for awarding public works contracts,
and provisions governing petroleum refineries.
3)Prequalification. Existing law, authorized under AB 1565
(Fuentes), Chapter 808, Statutes of 2012, requires, until
January 1, 2019, school districts under 2,500 ADA using state
school facilities bond funds to establish a prequalification
process whereby a prospective bidder, and any electrical,
mechanical and plumbing subcontractors, of a public works
contract with a projected expenditure of $1 million or more,
is required to complete a standardized questionnaire provided
by the district and submit a financial statement. In a system
where a school district is required to use the lowest
responsible bidder, this process can ensure contractor
integrity, for example, confirming whether the contractor has
violated any labor and health and safety laws, including
prevailing wage.
This bill requires prequalification for any public works
project over $1 million, regardless of the source of funding.
This includes projects awarded through lease-leaseback and
lease-to-own methods. The author states, "Prequalification
was only authorized for five years for projects using state
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bond funds. Since the enactment of AB 1565, state bond funds
have virtually been depleted for new construction and
modernization projects. In order to appropriately gauge the
benefits or impact of prequalification, prequalification
should apply to any school public works project.
4)Opposition. The Associated Builders and Contractors of
California oppose this bill unless amended to allow all
approved apprenticeship programs to supply workers on school
construction projects. They also request an amendment to
delay implementation of the bill until January 1, 2018, to
allow for pending litigation around similar existing law
skilled and trained workforce requirements to be resolved.
Analysis Prepared by:Misty Feusahrens / APPR. / (916) 319-2081