BILL ANALYSIS                                                                                                                                                                                                    

                              Senator Carol Liu, Chair
                                2015 - 2016  Regular 

          Bill No:             AB 566                
          |Author:    |O'Donnell                                            |
          |Version:   |March 26, 2015                          Hearing      |
          |           |Date:    June 10, 2015                               |
          |Urgency:   |No                     |Fiscal:    |Yes              |
          |Consultant:|Kathleen Chavira                                     |
          |           |                                                     |
          Subject:  School facilities:  leasing property:  construction  

          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. 


          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)


          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)

          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,  

                   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.

       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  

            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  

       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   
          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

           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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