BILL ANALYSIS                                                                                                                                                                                                    



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          Date of Hearing:  April 22, 2015


                           ASSEMBLY COMMITTEE ON EDUCATION


                              Patrick O'Donnell, Chair


          AB 566  
          (O'Donnell) - As Amended March 26, 2015


          SUBJECT:  School facilities:  leasing property:  construction  
          contracts


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


          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.  








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          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 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.










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               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  
               apprenticable 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 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.










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               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, regardless of the source of funding. 


          EXISTING LAW:  


          1)Requires the governing board of a school district to  
            competitively bid and award to the lowest bidder contracts  
            involving the following:

             a)   An expenditure of $50,000 or more for the purchase of  








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               equipment, materials, or supplies, services (except for  
               construction services), and repairs.
             b)   An expenditure of $15,000 or more for a public contract  
               project defined as construction, reconstruction, erection,  
               alteration, renovation, improvement, demolition, repair,  
               painting or repainting of any publicly owned, leased, or  
               operated facility.  (Public Contract Code (PCC) Sections  
               20111 and 22002)

          2)Requires, until January 1, 2019, a school district with an  
            average daily attendance (ADA) of more than 2,500 using state  
            school facility bond funds for a public project with an  
            expenditure of $1 million or more to require prospective  
            bidders, and if utilized, all electrical, mechanical, and  
            plumbing subcontractors, to complete and submit a standardized  
            prequalification questionnaire and financial statement.  (PCC  
            Section 20111.6(a)(i)(l))

          3)Requires a school district to adopt and apply a uniform system  
            of rating bidders on the basis of the completed questionnaires  
            and financial statements that cover, at a minimum, the issues  
            covered by the standardized questionnaire and model guidelines  
            for rating bidders developed by the DIR.  (PCC Section  
            20111.6(c)(d))

          4)Authorizes the governing board of a school district to  
            establish a process for prequalifying prospective bidders on a  
            quarterly or annual basis and specifies that the  
            prequalification shall be valid for one calendar year  
            following the date of initial prequalification.  (PCC Section  
            20111.6(g))

          5)Requires the Director of Industrial Relations to submit a  
            report to the Legislature, on or before January 1, 2018,  
            evaluating whether, during the years prequalification applied  
            to contracts, violations of the Labor Code on school district  
            projects have decreased as compared to the same number of  
            years immediately preceding prequalification, and any  
            recommended improvements on the prequalification system.  (PCC  








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            Section 20111.6(n))

          6)Authorizes the governing board of a school district, without  
            advertising for bids, to let, for a minimum rental of $1 a  
            year, to any person, firm, or corporation any real property  
            that belongs to the school district if the instrument by which  
            such property is let requires the lessee therein to construct  
            on the demised premises, or provide for the construction  
            thereon of, a building or buildings for the use of the school  
            district during the term thereof, and provides that the title  
            to that building shall vest in the school district at the  
            expiration of that term.  (Education Code (EC) Section 17406)

          7)Authorizes the governing board of a school district to enter  
            into an agreement with any person, firm, or corporation under  
            which that person, firm, or corporation shall construct, or  
            provide for the construction of, a building to be used by the  
            district upon a designated site and lease the building and  
            site to the district.  Requires the instrument to provide that  
            the title to the building and site to vest in the district at  
            the expiration of the lease.  Requires the agreement to be  
            entered with the lowest responsible bidder who shall give the  
            security that any board requires.  (EC Section 17407)



          FISCAL EFFECT:  Unknown


          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  








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          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, 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 Division of Apprenticeship Standards under the  
          Division of Industrial Relations.  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  








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          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 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 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 2/3 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 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.  








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          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 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."








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          Arguments in support.  The State Building and Construction  
          Trades Council, the sponsor of the bill, states that the 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, Associated Builders and Contractors - San Diego,  
          Plumbing-Heating-Cooling Contractors Association of California,  
          and


          Western Electrical Contractors Association have an oppose 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.  





          Prior related legislation.  AB 1581 (Buchanan), Chapter 408,  
          Statutes of 2014, requires school districts entering into  
          lease-leaseback and lease-to-own contracts to comply with the  
          requirements to prequalify and rate prospective bidders, if the  
          project is funded with state bond funds, the expenditure of the  
          project is $1 million or more, and the average daily attendance  
          of the school district is more than 2,500.  













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          AB 1565 (Fuentes), Chapter 808, Statutes of 2012, requires,  
          until January 1, 2019, school districts 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.


          SB 600 (Rubio), introduced in 2011, was a similar bill to AB  
          1565.  The bill was held in the Assembly Appropriations  
          Committee suspense file in 2011.  


          REGISTERED SUPPORT / OPPOSITION:




          Support


          State Building and Construction Trades Council (sponsor)


          Air-Conditioning & Refrigeration Contractors Association 


          Air Conditioning Sheet Metal Association


          California Labor Federation


          California Legislative Conference of the Plumbing, Heating and  
          Piping Industry 










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          California State Association of Electrical Workers


          California State Pipe Trades Council


          Finishing Contractors Association of Southern California


          National Electrical Contractors Association


          United Contractors


          Western States Council of Sheet Metal Workers







          Opposition


          Air Conditioning Trade Association (unless amended)


          Associated Builders and Contractors - San Diego (unless amended)


          Plumbing-Heating-Cooling Contractors Association of California  
          (unless amended)


          Western Electrical Contractors Association (unless amended)










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