BILL ANALYSIS                                                                                                                                                                                                    Ó






           ----------------------------------------------------------------- 
          |SENATE RULES COMMITTEE            |                        AB 566|
          |Office of Senate Floor Analyses   |                              |
          |(916) 651-1520    Fax: (916)      |                              |
          |327-4478                          |                              |
           ----------------------------------------------------------------- 


                                   THIRD READING 


          Bill No:  AB 566
          Author:   O'Donnell (D)
          Amended:  6/17/15 in Senate
          Vote:     21  

           SENATE EDUCATION COMMITTEE:  6-2, 6/10/15
           AYES:  Liu, Block, Leyva, Mendoza, Monning, Pan
           NOES:  Runner, Vidak
           NO VOTE RECORDED:  Hancock

           SENATE APPROPRIATIONS COMMITTEE:  5-2, 7/6/15
           AYES:  Lara, Beall, Hill, Leyva, Mendoza
           NOES:  Bates, Nielsen

           ASSEMBLY FLOOR:  53-26, 5/11/15 - See last page for vote

           SUBJECT:   School facilities:  leasing property:  construction  
                     contracts


          SOURCE:    Author

          DIGEST:  This bill clarifies that prequalification requirements  
          currently applicable to state bond funded school facility  
          construction projects include projects reimbursed from any  
          future state school bond, are applicable to lease/leaseback or  
          lease-to-own contracts 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. 

          ANALYSIS:









                                                                     AB 566  
                                                                    Page  2


          Existing law:  Prequalification

          1)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 for up to one calendar year  
            following the date of initial prequalification.  (Public  
            Contract Code § 20111.5) 

          2)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

          3)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  







                                                                     AB 566  
                                                                    Page  3


            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) 

          4)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 specified.  (Education Code § 17407)

          5)Requires, until January 1, 2019, 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)Clarifies that prequalification requirements currently  
            applicable to projects funded with state school facility bond  
            funds include projects reimbursed from any future state school  
            bond.

          2)Expands prequalification requirements applicable to  
            lease/leaseback or lease-to-own contracts to include all such  
            contracts regardless of the funding source.

          3)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:








                                                                     AB 566  
                                                                    Page  4


               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 (DIR)  
                 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  
                 approved by the Chief of the Division of Apprenticeship  
                 Standards of the DIR.

             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:







                                                                     AB 566  
                                                                    Page  5



               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 entity and  
                 all its subcontractors at every tier performing the  
                 project/contract. 

          4)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. 

          5)Makes a number of technical changes.

          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,  







                                                                     AB 566  
                                                                    Page  6


            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  
            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 (SAB) 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 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  







                                                                     AB 566  
                                                                    Page  7


            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,  
            increasing the quality of construction, and protecting  
            taxpayers and workers on lease-leaseback construction  
            projects."

          4)Apprenticeship programs. According to the 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.     

          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:YesLocal:   No








                                                                     AB 566  
                                                                    Page  8


          According to the Senate Appropriations Committee 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.  

          " Skilled and trained workforce: Potentially significant  
            increases in state-funded and locally-funded contracts to  
            comply with labor requirements which could lead to 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 DIR 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.


          SUPPORT:   (Verified7/6/15)


          Air Conditioning Sheet Metal Association
          Air-conditioning & Refrigeration Contractors Association
          California Legislative Conference of the Plumbing, Heating and  
          Piping Industry
          Finishing Contractors Association of Southern California 
          National Electrical Contractors Association
          State Building and Construction Trades Council
          United Contractors and the Wall and Ceiling Alliance


          OPPOSITION:   (Verified7/6/15)







                                                                     AB 566  
                                                                    Page  9




          National Right to Work Committee


          ASSEMBLY FLOOR:  53-26, 5/11/15
          AYES:  Alejo, Bloom, Bonilla, Bonta, Brown, Burke, Calderon,  
            Campos, Chau, Chiu, Chu, Cooley, Cooper, Dababneh, Daly, Dodd,  
            Eggman, Frazier, Cristina Garcia, Eduardo Garcia, Gatto,  
            Gipson, Gomez, Gonzalez, Gordon, Gray, Roger Hernández,  
            Holden, Irwin, Jones-Sawyer, Levine, Linder, Lopez, Low,  
            McCarty, Medina, Mullin, Nazarian, O'Donnell, Perea, Quirk,  
            Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth,  
            Mark Stone, Thurmond, Ting, Weber, Williams, Wood
          NOES:  Achadjian, Travis Allen, Baker, Bigelow, Brough, Chang,  
            Chávez, Dahle, Beth Gaines, Gallagher, Grove, Hadley, Harper,  
            Jones, Kim, Lackey, Maienschein, Mathis, Mayes, Melendez,  
            Obernolte, Olsen, Patterson, Wagner, Waldron, Wilk
          NO VOTE RECORDED:  Atkins

          Prepared by:Kathleen Chavira / ED. / (916) 651-4105
          7/8/15 11:29:01


                                   ****  END  ****