BILL ANALYSIS Ó
SENATE COMMITTEE ON EDUCATION
Senator Carol Liu, Chair
2015 - 2016 Regular
Bill No: AB 566
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|Author: |O'Donnell |
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|Version: |March 26, 2015 Hearing |
| |Date: June 10, 2015 |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Kathleen Chavira |
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Subject: School facilities: leasing property: construction
contracts
SUMMARY
This bill expands prequalification requirements currently
applicable to state bond funded school facility construction
projects to include all school facility construction projects,
regardless of the funding source, and requires that school
districts that enter into lease/leaseback or lease-to-own
contracts for school facility construction must use a skilled
workforce, as specified.
BACKGROUND
Prequalification
Existing law authorizes the governing board of a school district
to require prequalification of prospective bidders for a
contract for a public project. A prospective bidder may be
required to complete and submit to the district a standardized
questionnaire and financial statement in a form specified by the
district, including a complete statement of the prospective
bidder's financial ability and experience in performing public
works. A school district that establishes a prequalification
process is required to adopt and apply a uniform system of
rating bidders on the basis of the completed questionnaires and
financial statements. School districts are authorized to
establish a process for prequalifying prospective bidders on a
quarterly basis and to consider a prequalification to be valid
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for up to one calendar year following the date of initial
prequalification. (Public Contract Code § 20111.5)
Existing law requires, until January 1, 2019, school districts
with an average daily attendance (ADA) of more than 2,500 using
state school facilities bond funds for school construction
projects 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 and
submit a standardized prequalification questionnaire and a
financial statement subject to the same requirements outlined in
PCC § 20111.5. Existing law 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 required
prequalification, and any recommended improvements on the
prequalification system. (PCC § 20111.6)
Leasing
Existing law authorizes the governing board of a school district
to enter into a lease/leaseback contract without advertising for
bids. Current law prescribes that real property may be let by
the district for a minimum rental of $1 per year if the lessee
is required to construct, or provide for the construction of a
building/buildings for the use of the school district during the
term of the lease, and requires that title of the building vests
in the school district at the expiration of that term.
(Education Code § 17406)
Existing law authorizes the governing board of a school district
to enter into a lease to own agreement in which a person, firm,
or corporation is required to construct or provide for the
construction of a building to be used, and leased by the
district. Current law requires that title of the building vests
in the school district at the expiration of that term and
authorizes the vesting of title to the property prior to the
expiration of the lease. Current law requires that the
agreement be entered into with the lowest responsible bidder as
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specified. (Education Code § 17407)
Current law, until January 1, 2019, requires that school
districts entering into
lease/leaseback or lease-to-own contracts comply with specified
pre-qualification requirements, if the project is funded with
state bond funds, the expenditure of the project is $1 million
or more, and the average daily attendance (ADA) of the school
district is greater than 2,500. (EC § 17406 and § 17407)
ANALYSIS
This bill:
1)Expands prequalification requirements currently applicable to
projects funded with state school facility bond funds to be
applicable to all school facility construction projects
regardless of the funding source.
2)Prohibits a school district from entering into a lease/leaseback
or lease-to-own agreement unless the entity has provided an
enforceable commitment that it, and its subcontractors will
use a skilled and trained workforce on the project, as
specified. It:
a) Establishes the following definitions for
purposes of these requirements:
i) "Skilled journeyperson" as a worker who either
graduated from an applicable apprenticeship program which
met specified state or federal approval requirements, or
had at least as many hours of on-the-job experience in an
applicable occupation as would be required for graduation
from a state-approved apprenticeship program.
ii) "Apprenticeable occupation" as an occupation for
which the Chief of the Division of Apprenticeship
Standards of the Department of Industrial Relations had
approved an apprenticeship program before January 1,
2014.
iii) "Skilled and trained workforce" as a workforce
in which all the workers are skilled journeypersons or
apprentices registered in an apprenticeship program
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approved by the Chief of the Division of Apprenticeship
Standards of the Department of Industrial Relations.
b) Establishes the following phased-in
implementation of the proportion of skilled journeypersons
and subcontractors at every tier, employed that must be
approved apprenticeship program graduates to meet the
condition of having a "skilled and trained workforce" :
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) Provides that, for an apprenticable occupation
with no approved program prior to January 1, 1995, up to
one-half of the apprenticeship program graduate percentage
requirements may be met by skilled journeypersons who
commenced work in the occupation prior to the approval of
an applicable apprentice program in the county of the
project's location.
d) Authorizes three methods by which an entity may
establish that it has committed to the use of a skilled and
trained workforce on a project/contract. These include:
i) An agreement between the entity and the school
district governing board to comply with these
requirements and the provision of a monthly report
demonstrating such compliance during the performance of
the project/contract.
ii) A project labor agreement (PLA), entered into
by the school district governing board, that includes
these requirements and that binds all
contractors/subcontractors working on the
project/contract and agreement by the entity to become a
party to the PLA.
iii) Evidence that the entity has entered into a PLA
that includes these requirements and that binds the
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entity and all its subcontractors at every tier
performing the project/contract.
3)Requires that a monthly report provided in compliance with
2(D)(i) be:
a) Subject to the California Public Records Act and
open to public inspection.
b) Cause for cessation of payments to the entity in
the event of a failure to provide the report to the school
district governing board.
4)Makes a number of technical changes.
STAFF COMMENTS
1)Need for the bill. According to the author, requiring the use of
registered apprentices and graduates of registered
apprenticeship programs ensures the quality of a project,
especially when the contract is not awarded based on a public
bidding process. The provisions of this bill relative to a
skilled workforce are very similar to recently adopted
provisions regarding the use of a design-build method for
awarding public works contracts by state and local agencies
(SB 785, Chapter 931, Statutes of 2014), as well as contracts
for the construction, alteration, demolition, installation,
repair, or maintenance work at petroleum refineries (SB 54,
Chapter 795, Statutes of 2013).
2)Leasing provisions. Current law requires the governing board of a
school district, to competitively bid, and award to the lowest
responsible bidder, any contract for a public project
involving an expenditure of $15,000 or more. Lease/leaseback
is a process whereby a governing board of a school district
may, without advertising for a 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
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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 the entity that receives the contract will construct the
building on a designated site and lease the property to the
school district. The school district secures title to the
property at the end of the lease.
3)Concerns about lease/leaseback. In January 2004, the State
Allocation Board was presented with a report to discuss the
use of lease/leaseback agreements for project delivery of
facilities funded through the School Facility Program.
According to that report, the use of this project delivery
method was growing. Increasingly, districts were interpreting
existing law to allow the use of these provisions to award a
public works project without a competitive bid. The report
noted that some districts do institute a competitive selection
process voluntarily, but many do not, and expressed concern
that an interpretation that would potentially allow billions
of state bond dollars to be contracted through a "sole-source"
mechanism should be closely examined.
The report concluded that the State Allocation Board (SAB)
might wish to consider whether new construction and
modernization projects interpreting the authority as an
exemption from competitive bidding requirements should
continue to be presented for state funding, and whether
legislation clarifying the appropriate use of this authority
was necessary. The SAB did not accept the report, some members
expressed interest in pursuing proposed legislation to address
this issue, and staff were directed to provide written
notification to school districts to proceed with caution when
using lease/leaseback and interpreting the law.
This bill does not propose changes or clarifications to the
broader issues and concerns surrounding lease/leaseback
agreements and competitive bidding. According to the
sponsors, it is intended 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
"significantly raising the standards for contractors,
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increasing the quality of construction, and protecting
taxpayers and workers on lease-leaseback construction
projects."
4)Apprenticeship programs. According to the Department of
Industrial Relations (DIR), apprenticeship programs combine
training on the job with related and supplemental instruction
at school. Each program operates under apprenticeship training
standards agreed to by labor and/or management in accordance
with State and Federal laws. The period of training is from 1
to 6 years, depending upon the trade with most programs being
about 4 years. Apprentices attend classes of related technical
instruction, giving apprentices a comprehensive understanding
of the theoretical aspects of their work. In most cases this
means attending classes at night 4 hours each week, for at
least 108 hours a year. Instruction includes such subjects as
safety laws and regulations, mathematics, drafting, blueprint
reading and other sciences connected with the trade.
In March 2015, the Legislative Analyst's Office reported that
there are more than 50,000 apprentices registered in 47
trades, with the vast majority in the construction trades and
public safety. The state budget currently provides $23
million for the education component of apprenticeship
programs. The Governor has proposed a $29 million
augmentation to Apprenticeship Programs in the 2015-16 budget.
5)Premature expansion? AB 1565 (Fuentes, Chapter 808, Statutes of
2012), established a prequalification pilot program which
required a report from the DIR in order to evaluate the
effectiveness of the prequalification requirements in reducing
Labor Code violations as well as to identify and recommend
improvements to the prequalification system.
While the history of concerns around lease/leaseback and
lease-to-own agreements provides some argument for applying
the prequalification requirements to these agreements
regardless of the funding source, this bill expands these
requirements to all school facility construction projects
regardless of the project delivery method. Is it reasonable
to expand these provisions to traditional design-bid-build
projects prior to the report from DIR in 2018? Is there
sufficient information to evaluate whether expansion of
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prequalification requirements to include all funding sources
for regular school construction projects is advisable?
According to the sponsor, the intent of these provisions is to
ensure and clarify, that school districts seeking
reimbursement from future state bonds for projects completed
with local funding sources shall be subject to the
prequalification requirements.
Staff recommends the bill be amended to rewrite Section 4 of
the bill to reinstate current law, but clarify that projects
seeking reimbursement from state bond funds are also subject
to the prequalification requirements of Public Contract Code §
20111.6.
SUPPORT
Air Conditioning Sheet Metal Association
Air-conditioning & Refrigeration Contractors Association
California Labor Federation
California Legislative Conference of the Plumbing, Heating and
Piping Industry
California State Association of Electrical Workers
California State Pipe Trades Council
Finishing Contractors Association of Southern California
National Electrical Contractors Association
State Building and Construction Trades Council
United Contractors
Wall and Ceiling Alliance
Western State Council of Sheet Metal Workers
OPPOSITION
Air Conditioning Trade Association
Associated Builders and Contractors - San Diego Chapter
Associated Builders and Contractors - Southern California
Associated Builders and Contractors of California
Baker Roofing Company
J.H. Bryant Jr., Inc.
Mark Hoffman General Engineering
Pacific Power & Systems
Plumbing-Heating-Cooling Contractors Association of California
Western Electrical Contractors Association
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