BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 566 (O'Donnell) - School facilities: leasing property:
construction contracts.
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|Version: June 17, 2015 |Policy Vote: ED. 6 - 2 |
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|Urgency: No |Mandate: No |
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|Hearing Date: July 6, 2015 |Consultant: Jillian Kissee |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: This bill expands prequalification requirements for
lease/leaseback and lease-to-own contracts currently applicable
to public projects funded with state school facility bond funds
to also apply to projects regardless of the funding source and
contract amount. This bill also requires school districts that
enter into these types of contracts to use a skilled workforce,
as specified.
Fiscal
Impact: Ultimately, the costs of this bill are unknown but
increases in costs of facility construction projects at the
local level could potentially lead to state-level cost
pressures. See staff comments.
Skilled and trained workforce: Potentially significant
increases in state-funded and locally-funded contracts to
comply with labor requirements which could lead to
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increases in the cost of labor.
Prequalification: Since school districts are already
required to use a prequalification process to determine
qualified prospective bidders for public projects funded by
state bond funds that exceed $1 million, potential local
costs to modify the process to apply to public projects
funded by local resources could be minor. The expansion of
prequalification requirements could lead to increased costs
in contracts, but could also result in savings to the
extent project outcomes improve.
According to the Department of General Services, the
costs associated with implementing this bill at the state
level are minor and absorbable.
The Department of Industrial Relations cites unknown,
likely minor costs for potential increases in workload to
investigate apprentice complaints and evaluate applications
for new apprenticeship programs in the building and
construction trades.
Background:
Prequalification
Existing law authorizes the governing board of a school district
to require prequalification of prospective bidders for a public
project contract. 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 for up to
one year. (Public Contract Code § 20111.5)
Existing law requires, until January 1, 2019, school districts
with an average daily attendance of more than 2,500 using state
AB 566 (O'Donnell) Page 2 of
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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 above.
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.
(Public Contract Code § 20111.6)
Leasing
Existing law authorizes the governing board of a school district
to enter into a lease/leaseback contract with a person, firm, or
corporation without advertising for bids. Current law
prescribes that real property owned by the school district may
be leased for a minimum rental of $1 per year if the lessee is
required to construct, or provide for the construction of a
building or buildings for the use of the school district during
the term of the lease, and requires that the school district
owns the building at the expiration of the lease. (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, upon a designated site, in which
both the site and the building are to be used and leased by the
school district. Current law requires that the school district
owns the building at the expiration of the term and authorizes
ownership prior to expiration of the lease. Current law
requires that the agreement for such a lease be entered into
with the responsible bidder, as specified. (Education Code §
17407)
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Current law, until January 1, 2019, requires that school
districts entering into lease/leaseback or lease-to-own
contracts comply with specified prequalification 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 of the school district is greater than 2,500.
(Education Code § 17406 and § 17407)
Proposed Law:
This bill:
1) Expands prequalification requirements for
lease/leaseback and lease-to-own contracts currently
applicable to public projects funded with state school
facility bond funds to also apply to projects regardless of
the funding source and contract size.
2) Prohibits the governing board of a school district to
enter into a lease/leaseback or lease-to-own agreement with
an entity unless the entity provides an enforceable
commitment that the entity and its subcontractors will use
a skilled and trained workforce to perform all work on the
project or contract, as specified.
3) Finally, this bill clarifies existing law that school
districts seeking reimbursement from a future state bond
are also subject to prequalification requirements.
This bill defines "skilled and trained workforce" as workers
that are either skilled journeypersons or apprentices registered
in an apprenticeship program approved by the Chief of the
Division of Apprenticeship Standards of the Department of
Industrial Relations. This bill provides that a "skilled
journeyperson" is a worker who either graduated from an
apprenticeship program for the applicable occupation, or has
comparable hours of on-the-job experience in the applicable
occupation as would be required to graduate from the respective
apprenticeship program.
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This bill further provides that a "skilled and trained
workforce" adheres to the following phase-in of the proportion
of skilled journeypersons and subcontractors that are graduates
of an applicable apprenticeship program, as follows:
1) By January 1, 2016, at least 30 percent.
2) By January 1, 2017, at least 40 percent.
3) By January 1, 2018, at least 50 percent.
4) By January 1, 2019, at least 60 percent.
Finally, this bill provides the methods by which an entity's
commitment to a skilled and trained workforce may be
established:
1) The entity's agreement with the governing board of the
school district that the entity as well as its
subcontractors will comply with these requirements and will
provide monthly reports to the school district
demonstrating its compliance.
2) An existing project labor agreement, entered into by the
school district governing board, which includes these
requirements and binds all contractors and subcontractors
working on the contract, if the entity agrees to become a
party to that agreement.
3) Evidence that the entity has entered into a project
labor agreement that includes these requirements that will
bind the entity and its subcontractors.
Related Legislation: AB 1581, Buchanan (Chapter 408, Statutes
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of 2014) requires, until January 1, 2019, that school districts
entering into lease/leaseback or lease-to-own contracts comply
with specified prequalification 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 of the
school district is more than 2,500.
Staff Comments: Ultimately the costs of this bill are unknown.
However, it is likely that the bill's additional requirements
related to prequalification and a skilled and trained workforce
will increase the cost of entering into lease/leaseback and
lease-to-own contracts at the local level, which could result in
significant state level cost pressures.
Current law requires school districts entering into
lease/leaseback or lease-to-own contracts to comply with
specified prequalification 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 of the school
district is greater than 2,500. This bill expands
prequalification requirements for lease/leaseback and
lease-to-own contracts to also apply to projects regardless of
the funding source and contract size. Creating additional
barriers for prospective bidders to bid on a project could
result in fewer bids from which a school district can choose a
responsible bidder, which could drive increases in contract
costs. However, to the extent this process eliminates
unqualified bidders upfront, potential higher quality projects
and efficiencies could be achieved.
This bill also prohibits a school district from entering into a
lease/leaseback or lease-to-own agreement unless the entity and
its subcontractors agree to use a specified minimum amount of a
skilled and trained workforce at every tier. In addition, part
of that skilled and trained workforce are skilled journeypersons
who must have graduated from an apprenticeship program or have
as many hours of on-the-job experience as a graduate from an
applicable apprenticeship program. The prescribed percentage of
skilled and trained workforce required to carry out the work of
the project will likely drive increases to contract costs as the
percentage increases over the years.
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It is presumed that school districts currently opting to use
lease/leaseback and lease-to-own agreements do it because it is
in their best interest financially, compared to the traditional
design-build method. To the extent that a higher percentage of
skilled and trained workforce as prescribed by this bill
increases contract costs, school districts could experience a
decrease in savings as compared to other procurement methods,
which could lead to districts no longer choosing this option.
These cost pressures on local budgets could translate to a state
level cost pressure for future K-12 facilities state bond
funding, though it is unknown as to whether one will
materialize. For illustrative purposes, a one percent increase
in the average cost of a new school construction project
completed between 2002 and 2012 would result in a cost of about
$600,000.
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