BILL ANALYSIS Ó
AB 566
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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