BILL ANALYSIS Ó
AB 975
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Date of Hearing: April 22, 2015
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Brian Maienschein, Chair
AB 975
(Frazier) - As Amended March 26, 2015
SUBJECT: Local Agency Public Construction Act: bid criteria.
SUMMARY: Prohibits local public agencies and school districts
from disqualifying prospective bidders on public works contracts
based on a bidder's involvement in a claim filed by either the
bidder or the project owner. Specifically, this bill:
1)Prohibits any public agency or school district requiring
prospective bidders to complete and submit pre-qualification
questionnaires from disqualifying or otherwise penalizing a
prospective bidder through its uniform system of rating
bidders based on either of the following:
a) A prospective bidder is or has been involved in an
affirmative claim filed by a project owner through the
courts, mediation, or arbitration; or,
b) A prospective bidder has filed a claim through the
courts, mediation, or arbitration against a project owner.
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2)Specifies that "affirmative claim" or "claim" does not include
any claim based on a violation of the Labor Code.
3)Specifies that nothing in this bill precludes a public agency
or school district from including in its uniform system of
rating bidders criteria related to affirmative claims that
have been finally adjudicated or settled, provided the
settlement or final judgment or award on the affirmative claim
is greater than 20% of the adjusted contract amount against
the prospective bidder.
4)Provides that, if the Commission on State Mandates determines
that this bill contains costs mandated by the state,
reimbursement to local agencies and school districts for those
costs shall be made pursuant to current law governing state
mandated local costs.
EXISTING LAW:
1)States that the objective of the Public Contract Code (PCC) is
to provide all qualified bidders with a fair opportunity to
enter the bidding process, thereby stimulating competition,
and to eliminate favoritism, fraud, and corruption in the
awarding of public contracts, among other provisions.
2)Provides the following definitions under the PCC:
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a) Defines public works contract as "an agreement for the
erection, construction, alteration, repair, or improvement
of any public structure, building, road, or other public
improvement of any kind;"
b) Defines "public entity" to mean the state, county, city,
city and county, district, public authority, public agency,
municipal corporation, or any other political subdivision
or public corporation in the state; and,
c) Defines the term "responsible bidder" to mean a bidder
who has demonstrated the attribute of trustworthiness, as
well as quality, fitness, capacity, and experience to
satisfactorily perform the public works contract.
3)Requires local officials, under the Local Agency Public
Construction Act (LAPC Act), to invite bids for construction
projects and then award contracts to the lowest responsible
bidder.
4)Allows, pursuant to the LAPC Act, public entities to require
prospective bidders to complete standardized questionnaires
and financial statements with specified information for the
purpose of pre-qualifying bidders.
5)Requires the State Department of Industrial Relations (DIR) to
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develop model guidelines for rating bidders.
6)Requires any public entity electing to make bidders complete a
questionnaire and financial statement to adopt and apply a
uniform system of rating bidders based on objective criteria.
7)Requires public entities that require questionnaires and
statements to establish a process that will allow prospective
bidders to dispute the proposed qualification rating before
the closing time for receipt of bids.
8)Allows school districts to require prospective bidders on
specified contracts that school districts must put out to bid
to complete and submit standardized questionnaires and
financial statements. School districts must adopt a uniform
system for rating bidders based on the questionnaires and
statements.
9)Requires, until January 1, 2019, school districts entering
into lease/leaseback or lease-to-own contracts to 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 more than 2,500.
FISCAL EFFECT: This bill is keyed fiscal and contains a
state-mandated local program.
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COMMENTS:
1)Bill Summary. This bill prohibits public agencies and school
districts that require prospective bidders to complete and
submit pre-qualification questionnaires from disqualifying or
otherwise penalizing a prospective bidder through their
uniform system
of rating bidders based on either of the following:
a) A prospective bidder is or has been involved in an
affirmative claim filed by a project owner through the
courts, mediation, or arbitration; or,
b) A prospective bidder has filed a claim through the
courts, mediation, or arbitration against a project owner.
The bill exempts claims based on a violation of the Labor
Code, and specifies that it doesn't preclude a public agency
or a school district from including in its uniform system of
rating bidders criteria related to affirmative claims that
have been finally adjudicated or settled, provided the
settlement or final judgment or award on the affirmative claim
is greater than 20% of the adjusted contract amount against
the prospective bidder. This bill is sponsored by the
Construction Employers' Association.
2)Author's Statement. According to the author, "AB 975 is
intended to address a troubling trend involving public works
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construction pre-qualification questionnaires. Specifically,
a number of public agencies have begun disqualifying, or
significantly penalizing through their pre-qualification
process, any contractor who has been involved, or is involved,
in any claim with a public agency, whether initiated by the
contractor or the public agency.
"These pre-qualification questions represent a fundamental
denial of a contractor's basic due process rights. The
automatic disqualification ignores the specific circumstances
surrounding a claim, the severity of the claim, the outcome of
the claim, whether the contractor prevailed, whether the claim
was the result of a subcontractor, architect or engineer or
whether the claim was simply erroneous. Also, because of
privity of contract, claims related to subcontractors are
attributed to general contractors so the claim itself may have
nothing to do with the general contractor."
3)Background. The LAPC Act allows, but does not require, public
agencies to establish a process to evaluate and pre-qualify
prospective bidders on public works projects. An agency may
choose to require prospective bidders to submit a standardized
questionnaire and a financial statement, which includes the
prospective bidder's experience in performing public works.
If the agency selects this procedure, it must adopt a uniform
rating system to determine the minimum requirements permitted
for qualification to bid and the type and size of contracts
for which each bidder is eligible to bid. It also must offer
an appeals process to allow prospective bidders to dispute
their proposed pre-qualification rating.
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The LAPC Act directs DIR to develop a model questionnaire and
guidelines for a uniform rating system that can be used by
public agencies. The DIR questionnaire requires 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.
A rating system assigns points according to a bidder's answers
to the questionnaire and enables a local agency to exclude
bids from companies that do not meet a minimum number of
points. According to DIR, "Each public agency?is free to
devise its own 'uniform system of rating prospective bidders .
. . based on objective criteria.' That is, each public agency
may determine its own scoring system and its own passing
scores for different portions of the questionnaire..."
The Local Agency Public Construction Act applies to all
cities, counties and special districts, but does not apply to
school districts, which have separate code sections pertaining
to pre-qualification. (This analysis is limited to the
jurisdiction of the Local Government Committee, which does not
include the provisions of this bill pertaining to school
districts.)
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4)DIR's Model Pre-Qualification Questionnaire. DIR's model
questionnaire includes the following questions regarding
claims:
a) "In the past five years has any claim against your firm
concerning your firm's work on a construction project been
filed in court or arbitration? If 'yes,' on separate
signed sheets of paper identify the claim(s) by providing
the project name, date of the claim, name of the claimant,
a brief description of the nature of the claim, the court
in which the case was filed and a brief description of the
status of the claim (pending or, if resolved, a brief
description of the resolution).
b) "In the past five years has your firm made any claim
against a project owner concerning work on a project or
payment for a contract and filed that claim in court or
arbitration? If 'yes,' on separate signed sheets of paper
identify the claim by providing the project name, date of
the claim, name of the entity (or entities) against whom
the claim was filed, a brief description of the nature of
the claim, the court in which the case was filed and a
brief description of the status of the claim (pending, or
if resolved, a brief description of the resolution).
DIR's model questionnaire or guidelines for rating bids does
not contain language disqualifying contractors for affirmative
answers to these questions. It does, however, provide a
scoring system for these questions that assigns points based
on the firm's gross revenue and number of occurrences. A
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bidder with more claims earns fewer points.
5)Local Agency Pre-Qualification Questionnaires. According to
the sponsor of this bill, a number of local agencies are
disqualifying contractors that have been involved in claims
against the contractor by a project owner or filed by a
contractor against an owner. Examples provided include:
a) A city contract documents stating, "At the time of
submission of this proposal package, the Contractor, or any
subsidiary, parent, holding company or affiliate, or any of
their respective owners, partners, or officers shall not be
a plaintiff in an active lawsuit against a public agency;"
b) A city contract that disqualified any firm that answered
yes to the following: "In the past five years, has an owner
filed, in a court of law or in an arbitration, any claim
against your firm concerning your firm's work on a
construction project, and either:
i) Your firm's average gross revenue for the last three
years was less than $50 million and two or more separate
claims have been filed against your firm; or,
ii) Your firm's average gross revenue for the last three
years was more than $50 million and five or more separate
claims have been filed against your firm?"
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6)Policy Considerations. The Committee may wish to consider the
following:
a) No Disqualification, Automatic or Otherwise. This bill
prohibits local agencies and school districts from
disqualifying a prospective bidder with current or prior
claims as described in the bill. While automatic
disqualification, without considering any of the details or
circumstances of a bidder's claims history, might be a
practice that should be curtailed, the Committee may wish
to consider whether a local agency or school district
should no longer have the option of disqualifying a bidder
after evaluating that bidder's track record of claims.
b) "Penalizing" Prospective Bidders. This bill prohibits
local agencies and school districts from penalizing in
their rating systems a prospective bidder that has an
involvement in claims as described in the bill. DIR's
model rating system allows this practice. The Committee
may wish to consider retaining the bill's provision that
prohibits outright disqualification, but striking the
language in the bill that prohibits "penalizing."
c) Settlement Amount Limit. This bill contains language
that states, "Nothing in this bill precludes a public
agency or school district from including in its uniform
system of rating bidders criteria related to affirmative
claims that have been finally adjudicated or settled,
provided the settlement or final judgment or award on the
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affirmative claim is greater than 20% of the adjusted
contract amount against the prospective bidder." This
limit on the rating system based on settlement amounts does
not appear in DIR guidelines. The Committee may wish to
consider whether this is an appropriate limit to impose on
pre-qualification questionnaires.
d) Existing Dispute Process. Current law allows
contractors to dispute a local agency's proposed
qualification rating. The Committee may wish to ask the
author to explain why the existing dispute process is
problematic.
e) Prevalence. It is not clear how many local
jurisdictions or school districts are disqualifying
contractors based on claims filed by or against them. The
Committee may wish to ask the author if there is any
additional evidence of this practice by California local
agencies and school districts.
f) Affirmative claim. There is no definition in this bill
of the term "affirmative claim." The Committee may wish to
define this term or strike it from the bill.
7)Technical Amendments. The Committee may wish to amend
Sections 2 and 3 of the bill to delete references to "public
agency" and replace them with "district," as those sections
apply to school districts.
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8)Related Legislation. AB 566 (O'Donnell), pending in the
Assembly Education Committee, requires, until January 1, 2019,
school districts to require prospective bidders on public
contracts to submit a pre-qualification questionnaire and
financial statement, if the expenditure of the project is $1
million or more, regardless of the funding source, and the ADA
of the school district is more than 2,500 (among other
provisions).
9)Previous Legislation. AB 1581 (Buchanan), Chapter 408,
Statutes of 2014, required, until January 1, 2019, school
districts entering into lease/leaseback or lease-to-own
contracts to require prospective bidders to submit a
pre-qualification questionnaire and financial statement, if
the project is funded with state bond funds, the expenditure
of the project is
$1 million or more, and the ADA of the school district is more
than 2,500.
AB 1565 (Fuentes), Chapter 808, Statutes of 2012, required,
beginning with contracts awarded on or after January 1, 2014
and until January 1, 2019, school districts to require
prospective bidders on public contracts to submit a
pre-qualification questionnaire and financial statement, if
the project is funded with state bond funds, the expenditure
of the project is $1 million or more, and the ADA of the
school district is more than 2,500.
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AB 281 (Burmudez) of 2003 would have prohibited the bidder
pre-qualification form that is required under the LAPC Act
from disqualifying a bidder solely based on the bidder's
financial capacity, provided that the bidder otherwise
qualifies for the public works contract. This bill was
referred to the Assembly Local Government Committee, but was
never heard.
AB 574 (Hertzberg), Chapter 972, Statutes of 1999, defined the
term "responsible bidder" as it relates to public contracts,
authorized public entities to require prospective bidders to
complete pre-qualification questionnaires and financial
statements, and required DIR to develop a model questionnaire
and guidelines for rating bidders.
AB 611 (Villaraigosa), Chapter 390, Statutes of 1997, allowed
school districts to pre-qualify bidders on a quarterly basis
and allowed the pre-qualification to be valid for up to one
calendar year.
10)State Mandate. This bill is keyed a state mandate, which
means the state could be required to reimburse local agencies
and school districts for implementing the bill's provisions if
the Commission on State Mandates determines that the bill
contains costs mandated by the state.
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11)Arguments in Support. The Associated General Contractors, in
support of this measure, state, ""Proliferation of these types
of pre-qualification questionnaires will enable public
agencies to renegotiate contract terms because they know that
any claim will adversely impact a contractor on a future
pre-qualification. The questions will also have a chilling
effect on the filing of otherwise legitimate claims by
contractors because of the potential impact on future
pre-qualification questionnaires. Finally, these types of
questions will also minimize the pool of otherwise qualified
contractors and drive prices up."
12)Arguments in Opposition. None on file.
13)Double-Referral. This bill is double-referred to the
Accountability and Administrative Review Committee.
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REGISTERED SUPPORT / OPPOSITION:
Support
Construction Employers' Association [SPONSOR]
Air Conditioning Sheet Metal Association
Air-conditioning & Refrigeration Contractors Association
Associated General Contractors
California Chapters of the National Electrical Contractors
Association (NECA)
California Legislative Conference of the Plumbing, Heating and
Piping Industry (CLC)
Finishing Contractors Association of Southern California
United Contractors
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Opposition
None on file
Analysis Prepared by:Angela Mapp / L. GOV. / (916) 319-3958