BILL ANALYSIS                                                                                                                                                                                                    Ó



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       ASSEMBLY THIRD READING


       AB  
       566 (O'Donnell)


       As Amended  March 26, 2015


       Majority vote


        ------------------------------------------------------------------- 
       |Committee       |Votes |Ayes                |Noes                  |
       |                |      |                    |                      |
       |                |      |                    |                      |
       |----------------+------+--------------------+----------------------|
       |Education       |5-2   |O'Donnell, McCarty, |Chávez, Kim           |
       |                |      |Santiago, Thurmond, |                      |
       |                |      |Weber               |                      |
       |                |      |                    |                      |
       |----------------+------+--------------------+----------------------|
       |Appropriations  |12-5  |Gomez, Bloom,       |Bigelow, Chang,       |
       |                |      |Bonta, Calderon,    |Gallagher, Jones,     |
       |                |      |Daly, Eggman,       |Wagner                |
       |                |      |Eduardo Garcia,     |                      |
       |                |      |Holden, Quirk,      |                      |
       |                |      |Rendon, Weber, Wood |                      |
       |                |      |                    |                      |
       |                |      |                    |                      |
        ------------------------------------------------------------------- 


       SUMMARY:  Requires school districts entering into specified school  
       building lease contracts to use a skilled and trained workforce and  
       to comply with the requirement to prequalify and rate prospective  
       bidders regardless of the source of funding.  Specifically, this  
       bill:  








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       1)Requires the person, firm or corporation constructing a school  
         building, including, but not limited to, the prime contractor and  
         if used, the electrical, mechanical, and plumbing subcontractor  
         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.
       2)Prohibits a school district governing board from entering into a  
         lease-leaseback or lease-to-own contract with any entity unless the  
         entity provides to the governing board of the school district 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.  


       3)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.


       4)Defines "Chief" as the Chief of the DAS of the DIR. 


       5)Defines "skilled and trained workforce" as a workforce that meets  
         all of the following conditions:


          a)   All workers are either skilled journeypersons or apprentices  
            registered in an apprenticeship program approved by the chief.


          b)   Individuals employed to perform work on the contract or  
            project are comprised of skilled journeypersons and  
            subcontractors at every tier that are graduates of an  
            apprenticeship program approved by the chief or located outside  
            California and approved for federal purposes pursuant to the  








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            apprenticeship regulations adopted by the federal Secretary of  
            Labor, meeting the specified percentages and timeline:


            i)     At least 30% by January 1, 2016.


            ii)    At least 40% by January 1, 2017.


            iii)   At least 50% by January 1, 2018.


            iv)    At least 60% by January 1, 2019.


          c)   Specifies that for an apprenticeable occupation in which no  
            apprenticeship program had been approved by the Chief of DAS  
            before January 1, 1995, up to one-half of the graduation  
            percentage requirements may be satisfied by skilled  
            journeypersons who commenced working in the apprenticeable  
            occupation prior to the chief's approval of an apprenticeship  
            program for that occupation in the county in which the project  
            is located.


       6)Defines "skilled journeyperson" as a worker who either:  1)  
         graduated from an apprenticeship program for the applicable  
         occupation that was approved by the chief or located outside  
         California and approved for federal purposes pursuant to  
         apprenticeship regulations adopted by the Secretary of Labor, or 2)  
         has at least as many hours of on-the-job experience in an  
         applicable occupation as would be required to graduate from an  
         apprenticeship program for the applicable occupation that is  
         approved by the chief. 


       7)Provides that an entity's commitment that a skilled and trained  
         workforce will be used to perform the project or contract may be  








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         established by any of the following:


          a)   The entity's agreement with the governing board of the school  
            district that the entity and its subcontractors at every tier  
            will comply with the requirements specified in this bill and  
            that the entity will provide to the governing board of the  
            school district, on a monthly basis while the project or  
            contract is being performed, a report demonstrating that the  
            entity and its subcontractors are complying with the  
            requirements of this bill.


            i)     If the entity fails to provide to the governing board of  
              the school district the monthly report, the governing board of  
              the school district shall immediately cease making payments to  
              the entity.


            ii)    The monthly report provided to the governing board of the  
              school district shall be a public record under the California  
              Public Records Act and shall be open to public inspection.


          b)   If the school district has entered into a project labor  
            agreement that will bind all contractors and subcontractors  
            performing work on the project or contract and that includes the  
            requirements of this bill, the entity's agreement that it will  
            become a party to that project labor agreement.


          c)   Evidence that the entity has entered into a project labor  
            agreement that includes the requirements of this bill and that  
            will bind the entity and all its subcontractors at every tier  
            performing the project or contract.


       8)Expands the requirement for school districts to prequalify and rate  
         potential bidders to all public works projects over $1 million,  








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         regardless of the source of funding. 


       FISCAL EFFECT:  According to the Assembly Appropriations Committee:


       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 this  
         bill.  The skilled workforce requirements in this 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:  Lease-leaseback.  Under current law, school districts are  
       required to competitively bid any public works contract over $15,000  
       and award the contract to the lowest responsible bidder.   
       Lease-leaseback is a process whereby a governing board of a school  
       district may, without advertising for bid, rent district property for  
       a minimum of $1 a year, to any person, firm or corporation.  The  
       person, firm or corporation 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.  









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       In a lease-to-own agreement, the governing board of a school  
       district, through a bidding process, may enter into a contract with a  
       person, firm, or corporation with the lowest bid, under which that  
       entity that receives the contract will construct the building on a  
       designated site and lease the property to the school district.  The  
       school district gets the title at the end of the lease.  While this  
       method helps expedite the construction of a project, it allows school  
       districts to bypass the bidding process.  


       What does this bill do?  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.  Skilled and trained  
       workforce means a workforce where all of the workers working on the  
       project are either skilled journeypersons or apprentices registered  
       in an apprenticeship program approved by the Chief of the DAS under  
       the DIR.  Skilled journeyperson is defined as either someone who has  
       graduated from a state approved apprenticeship program or a program  
       approved for federal purposes, or someone who has as many hours of  
       on-the-job experience in the applicable occupation as would be  
       required to graduate from an apprenticeship program.  


       The entity and its subcontractors must also agree to employ skilled  
       journeypersons who are graduates of a state approved apprenticeship  
       program for the applicable occupation according to a specified  
       composition and timeline.  This requirement is very similar to  
       provisions adopted in the provisions under 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.  


       Registered apprenticeship programs.  Registered apprenticeship  
       programs are recognized by the DAS under the DIR that provide  
       education and work training in a certain occupational trade under the  
       guidance of skilled journeypersons.  The programs can be between one  








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       to six years depending on the trade, but are generally around three  
       to four years.  The apprentice receives approximately 144 hours of  
       education per year, which may be provided by a K-12 adult school or a  
       community college, while receiving paid, on-the-job training.  When  
       completed, the individual is certified as a skilled journeyperson.   
       There are over 800 apprenticeable occupations in a variety of  
       industry sectors, including building and construction trade, auto  
       mechanics, barbers, cosmetologists, public safety officers, etc.   
       According to the Legislative Analyst's Office, as of February 2015,  
       there are 53,000 apprentices enrolled in registered apprenticeship  
       programs; approximately two-thirds of which are in building and  
       construction trades.  The state budget currently provides $23 million  
       for the education component of apprenticeship programs.  The Governor  
       has proposed a $29 million increase in the Fiscal Year 2015-16  
       budget.     


       The author states that requiring the use of registered apprentices  
       and graduates of registered apprenticeship programs ensure the  
       quality of a project, especially when the contract is not awarded  
       based on a public bidding process.    


       Prequalification.  AB 1565 (Fuentes), Chapter 808, Statutes of 2012,  
       requires, until January 1, 2019, school districts over 2,500 average  
       daily attendance 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.  


       A prequalification process is beneficial under a system where a  
       school district must accept the lowest responsible bidder for public  
       works contracts.  The questionnaire may require contractors to  
       provide detailed information regarding the company and its financial  
       status, including whether the company has been in bankruptcy or  
       involved in a civil lawsuit; licensing information; prior contracting  








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       experience (whether the contractor has completed other public works  
       projects); whether the contractor has been involved or been found to  
       have violated any federal, state or local laws; and whether the  
       contractor has violated any labor and health and safety laws,  
       including prevailing wage.  


       The questionnaire is rated and a local agency can exclude bids from  
       companies that do not meet minimum points.  While there is no  
       guarantee that a company that meets minimum points may not have  
       financial problems or provide substandard work, this process reduces  
       the risk when selecting a contractor with the lowest bid.  A  
       contractor that goes bankrupt before completion of a project or  
       completes a project with faulty construction will result in increased  
       costs to complete the project or to redo the project and potential  
       litigation to recoup funds a contractor had already received.


       What does this bill do?  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 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."


       Arguments in support.  The State Building and Construction Trades  
       Council, the sponsor of this bill, states that this bill addresses  
       problematic issues such as the sole sourcing of projects to less than  
       qualified contractors and violations of labor laws for public works  
       projects by "significantly raising the standards for contractors,  
       increasing the quality of construction, and protecting taxpayers and  
       workers on lease-leaseback construction projects."


       Arguments in opposition.  The Air Conditioning Trade Association,  








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       Associated Builders and Contractors - San Diego,  
       Plumbing-Heating-Cooling Contractors Association of California, and


       Western Electrical Contractors Association have opposition unless  
       amended position.  These organizations oppose the provision allowing  
       an entity to show its commitment to hiring a skilled and trained  
       workforce through a project labor agreement.  




       Analysis Prepared by:                                               
       Sophia Kwong Kim / ED. / (916) 319-2087  FN: 0000339