BILL ANALYSIS                                                                                                                                                                                                    



                                                                     AB 566


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          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  








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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