BILL ANALYSIS Ó
AB 975
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Date of Hearing: April 29, 2015
ASSEMBLY COMMITTEE ON EDUCATION
Patrick O'Donnell, Chair
AB 975
(Frazier) - As Amended March 26, 2015
[Note: This bill was doubled referred to the Assembly Local
Government Committee and was heard by that Committee as it
relates to issues under its jurisdiction.]
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,
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b) A prospective bidder has filed a claim through the
courts, mediation, or arbitration against a project owner.
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.
EXISTING LAW:
1)Requires the governing board of a school district to
competitively bid and award to the lowest bidder contracts
involving the following:
a) An expenditure of $50,000 or more for the purchase of
equipment, materials, or supplies, services (except for
construction services), and repairs.
b) An expenditure of $15,000 or more for a public contract
project defined as construction, reconstruction, erection,
alteration, renovation, improvement, demolition, repair,
painting or repainting of any publicly owned, leased, or
operated facility. (Public Contract Code (PCC) Sections
20111 and 22002)
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2)Requires, until January 1, 2019, a school district with an
average daily attendance (ADA) of more than 2,500 using state
school facility bond funds for a public project with an
expenditure of $1 million or more to require prospective
bidders, and if utilized, all electrical, mechanical, and
plumbing subcontractors, to complete and submit a standardized
prequalification questionnaire and financial statement. (PCC
Section 20111.6(a)(i)(l))
3)Requires a school district to adopt and apply a uniform system
of rating bidders on the basis of the completed questionnaires
and financial statements that cover, at a minimum, the issues
covered by the standardized questionnaire and model guidelines
for rating bidders developed by the Department of Industrial
Relations (DIR). (PCC Section 20111.6(c)(d))
4)Authorizes the governing board of a school district to
establish a process for prequalifying prospective bidders on a
quarterly or annual basis and specifies that the
prequalification shall be valid for one calendar year
following the date of initial prequalification. (PCC Section
20111.6(g))
5)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 prequalification, and any
recommended improvements on the prequalification system. (PCC
Section 20111.6(n))
FISCAL EFFECT: The Legislative Counsel has keyed this bill as a
state-mandated local program.
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COMMENTS: Prequalification. AB 1565 (Fuentes), Chapter 808,
Statutes of 2012, requires, until January 1, 2019, school
districts under 2,500 ADA 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.
A prequalification process is beneficial under a system where a
school district must accept the lowest responsible bidder for
public works contracts. 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 contractors that do not meet minimum points/standards.
While there is no guarantee that a contractor 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 the
project or to redo the project and potential litigation to
recoup funds a contractor had already received.
What does this bill do? This bill prohibits any public agency
or school district requiring prospective bidders to complete and
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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:
1) A prospective bidder is or has been involved in an
affirmative claim filed by a project owner through the
courts, mediation, or arbitration; or,
2) 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.
Purpose of the bill. The author states, "AB 975 is intended to
address a troubling trend involving public works construction
pre-qualification questionnaires. Specifically, a number of
public agencies have begun disqualifying, or significantly
penalizing, 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. Arguably, these clauses
stand in violation of the 14th Amendment as they deem parties
guilty, thus denying them the opportunity to bid, regardless of
whether or not the parties have actually been found guilty."
The sponsor of the bill, the Construction Employers'
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Association, provided an example of a bid request from a local
government that states the following: "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."
Amendments from the Assembly Local Government Committee. This
bill was heard in the Assembly Local Government Committee on
April 22, 2015. The bill passed the Committee on an 8-0 vote,
with the author agreeing to accept an amendment to strike the
provisions of the bill and instead, insert the following
language:
"Any public agency requiring prospective bidders to complete and
submit questionnaires shall not disqualify a prospective bidder
through its uniform system of rating bidders based solely on
whether a prospective bidder has filed a claim against a project
owner through the courts, mediation, or arbitration."
"Any school district requiring prospective bidders to complete
and submit questionnaires shall not disqualify a prospective
bidder through its uniform system of rating bidders based solely
on whether a prospective bidder has filed a claim against a
project owner through the courts, mediation, or arbitration."
Staff recommends supporting the amendments. The current version
of the bill makes it difficult to use prequalification
effectively. The purpose of prequalification is to avoid
problems. Understandably, a school district would want to hire
a contractor that has not been involved in claims, or avoid
rehiring a contractor a school district has had conflicts with
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previously. The current version of the bill prohibits a school
district from disqualifying a bidder that has been or is
involved in a claim involving the court, arbitration or
mediation, even if the bidder may not meet the district's
minimum score, or if the district is involved in an active claim
with the bidder on a prior project.
The sponsor states that this bill is needed because public
agencies are disqualifying a potential bidder who has been or is
involved in a claim, regardless of the severity or outcome of
the claim. The same could be said about the current version of
this bill on the flip side. A school district would not have
the ability to disqualify a potential bidder regardless of the
reasons for, the number of, or the severity of claims a
potential bidder is involved in.
Prequalification questionnaire. School districts have
flexibility to design the prequalification questionnaire as they
deem appropriate, as long as the questionnaire covers the issues
contained in a model questionnaire designed by the DIR. The DIR
model questionnaire does suggest inquiring whether a potential
bidder had been involved in a claim filed in court or
arbitration, either by the potential bidder or a project owner,
and suggests asking for details of the claim. The model scoring
guide suggests awarding points based on a sliding scale from
zero to five depending on the number of instances over the
previous five years.
The amendment will prohibit a school district from disqualifying
a potential bidder solely because the bidder had previously
filed a claim against a project owner, thereby giving the bidder
a chance to compete, while allowing a school district to take
claims into consideration by awarding points accordingly.
Concerns remain that the bill, even as amended, will force
school districts to accept a bidder the school district may have
had disputes with.
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Reasons for claims. A change order is the most common source
for disputes leading to claims involving litigation, arbitration
or mediation. Once a contract is signed, any changes, either
from the project owner or the contractor, that deviate from the
terms of a contract, are done through "change orders." Change
orders can be due to unexpected problems discovered after work
had begun (e.g., rot, mold, asbestos), design changes, changes
in material, changes in the agreed upon schedule, etc. Disputes
over change orders that cannot be resolved by the contractor and
project owner may lead to the filing of a claim by either the
contractor or the project owner. Other types of claims may
involve a contractor not completing a project, defective work,
or payment owed by a project owner.
Related legislation. AB 566 (O'Donnell), pending in the
Assembly Appropriations Committee, requires school districts
entering into specified school building lease contracts to use a
skilled and trained workforce and comply with the requirement to
prequalify and rate prospective bidders regardless of the source
of funding.
Related prior legislation. AB 1581 (Buchanan), Chapter 408,
Statutes of 2014, requires, until January 1, 2019, school
districts entering into lease-leaseback or lease-to-own
contracts to prequalify and rate prospective bidders, 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, requires,
until January 1, 2019, school districts 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
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projected expenditure of $1 million or more, is required to
complete a standardized questionnaire provided by the district
and submit a financial statement.
SB 600 (Rubio), introduced in 2011, was a similar bill to AB
1565. The bill was held in the Assembly Appropriations
Committee suspense file in 2011.
REGISTERED SUPPORT / OPPOSITION:
Support
Construction Employers' Association (sponsor)
Air-conditioning & Refrigeration Contractors Association
Air Conditioning Sheet Metal Association
Associated General Contractors
California Chapters of the national Electrical Contractors
Association
California Legislative Conference of the Plumbing, Heating and
Piping Industry
Finishing Contractors Association of Southern California
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United Contractors
Opposition
None on file
Analysis Prepared by:Sophia Kwong / ED. / (916) 319-2087