BILL ANALYSIS                                                                                                                                                                                                    



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          CONCURRENCE IN SENATE AMENDMENTS


          AB  
          566 (O'Donnell)


          As Amended  June 17, 2015


          Majority vote


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          |ASSEMBLY:  |53-26 |(May 11, 2015) |SENATE: |26-13 |(July 13, 2015)  |
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          Original Committee Reference:  ED.




          SUMMARY:  Requires school districts entering into specified  
          school building lease contracts to use a skilled and trained  
          workforce.  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 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  








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            contract that falls within an apprenticeable occupation in the  
            building and construction trades.  


          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.


               iv)    At least 60% by January 1, 2019.








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             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  
               apprenticeable 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:  a)  
            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 b) 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.


               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.








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               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)Specifies that the requirement to prequalify and rate  
            potential contractors and any electrical, mechanical and  
            plumbing subcontractors applies to school district projects  
            seeking reimbursement from future state bond funds.   


          The Senate amendments strike the provision requiring a school  
          district to prequalify and rate potential contractors and any  
          electrical, mechanical and plumbing subcontractors regardless of  
          the source of funding, reinstate existing law specifying that  
          the prequalification requirement applies to all projects over $1  
          million funded by state bond funds, and clarifies that the  
          requirement includes projects seeking reimbursement from future  
          state bond funds.  


          FISCAL EFFECT:  According to the Senate Appropriations  
          Committee, 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.  Since school  








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          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.  Minor costs to the Department of  
          General Services and the Department of Industrial Relations.


          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  
          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  








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          working on the project are either skilled journeypersons or  
          apprentices registered in an apprenticeship program approved by  
          the Chief of the DAS under the DIR.  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  
          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 paid, 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 two-thirds of which are  
          in building and construction trades.  The state budget currently  
          provides $23 million for the education component of  
          apprenticeship programs.  The Governor proposed and the  
          Legislature approved a $29 million increase in the Fiscal Year  
          2015-16 budget.     









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          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 average daily attendance 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.  


          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 or conduct any  
          repairs of the project or engage in potential litigation to  
          recoup funds a contractor had already received.  


          This bill requires prequalification of lease-leaseback and  








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          lease-to-own contractors and major subcontractors regardless of  
          the funding source and clarifies that prequalification applies  
          for all other projects over $1 million if a school district  
          intends to seek reimbursement of the project through future  
          state bond funds.  The author states that with state bond funds  
          exhausted, a school district constructing a school using local  
          resources may believe that prequalification does not apply to  
          that project.  This bill will close any potential loophole in  
          the event the district seeks reimbursement for that project at a  
          future date.    


          Arguments in support.  The State Building and Construction  
          Trades Council, the sponsor of this bill, states that this 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.  
           


          Analysis Prepared by:                                             
                          Sophia Kwong Kim / ED. / (916) 319-2087  FN:  
          0001226















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