BILL ANALYSIS Ó
AB 566
Page 1
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:
AB 566
Page 2
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
AB 566
Page 3
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
AB 566
Page 4
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,
AB 566
Page 5
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.
AB 566
Page 6
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
AB 566
Page 7
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
AB 566
Page 8
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,
AB 566
Page 9
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