BILL ANALYSIS Ó AB 1358 Page 1 Date of Hearing: April 22, 2015 ASSEMBLY COMMITTEE ON EDUCATION Patrick O'Donnell, Chair AB 1358 (Dababneh) - As Introduced February 27, 2015 SUBJECT: School facilities: design-build contracts SUMMARY: Aligns the process for school districts awarding contracts through the design-build method with the process established for state and local agencies. Specifically, this bill: 1)Repeals the existing provisions authorizing and governing the design-build procurement process for school districts. 2)Authorizes a school district, with approval of its governing board, to procure design-build contracts for school construction projects in excess of $1 million, and award the contract through the low bid or the best value method. 3)Finds and declares that there are reported benefits from the design-build method of project delivery, using a best value procurement methodology, including reduced project costs, expedited project completion and design features that are not achievable through the traditional design-bid-build method. AB 1358 Page 2 Definitions: 4)Establishes the following definitions: a) "Best value" means a value determined by evaluation of objective criteria that may include, but are not limited to, price, features, functions, life-cycle costs, experience, and past performance. A best value determination may involve the selection of the lowest cost proposal meeting the interests of the school district and the objectives of the project, selection of the best proposal for a stipulated sum established by the procuring school district, or a tradeoff between price and other factors. b) "Construction subcontract" means a subcontract awarded by the design-build entity to a subcontractor that will perform work or labor or will render service to the design-build entity in or about the construction of the work or improvement, or a subcontractor licensed by the state which, under subcontract to the design-build entity, specially fabricates and installs a portion of the work or improvement according to detailed drawings contained in the plans and specifications produced by the design-build team. c) "Design-build" means a project delivery process in which both the design and construction of a project are procured from a single entity. d) "Design-build entity" means a corporation, limited liability company, partnership, joint venture, or other legal entity that is able to provide appropriately licensed contracting, architectural, and engineering services, as needed, pursuant to a design-build contract. AB 1358 Page 3 e) "Design-build team" means the design-build entity and the individuals or other entities identified by the design-build entity as members of its team. Members shall include the general contractor and, if utilized in the design of the project, all electrical, mechanical, and plumbing contractors. f) "Project" means the construction of any school facility. Guidelines and Documents: 5)Requires the school district to develop guidelines for a standard organizational conflict-of-interest policy, consistent with applicable law, regarding the ability of a person or entity that performs services for the school district relating to the solicitation of a design-build project, to submit a proposal as a design-build entity, or to join a design-build team. 6)Requires the school district to prepare a set of documents setting forth the scope and estimated price of the project. The documents may include, but are not limited to, the size, type, and desired design character of the project, performance specifications covering the quality of materials, equipment, workmanship, preliminary plans or building layouts, or any other information deemed necessary to describe adequately the school district's needs. The performance specifications and any plans shall be prepared by a design professional who is duly licensed and registered in California. a) Prohibits the documents from including a design-build-operate contract for a project. The documents, AB 1358 Page 4 however, may include operations during a training or transition period, but shall not include long-term operations for a project. Prequalification: 7)Requires the school district to prepare and issue a request for qualifications in order to prequalify, or develop a short-list of, the design-build entities whose proposals shall be evaluated for final selection. The request for qualifications shall include, but not be limited to, the following: a) Identification of the basic scope and needs of the project or contract, the expected cost range, the methodology that will be used by the school district to evaluate proposals, the procedure for final selection of the design-build entity, and any other information deemed necessary by the school district to inform interested parties of the contracting opportunity. b) Significant factors that the school district reasonably expects to consider in evaluating qualifications, including technical design and construction expertise, acceptable safety record, and all other nonprice-related factors. c) A standard template request for statements of qualifications prepared by the school district. In preparing the standard template, the school district may consult with the construction industry, the building trades and surety industry, and other school districts interested in using the authorization provided by this bill. The template shall require the following information: 1) a listing of all shareholders, partners, including, a copy of AB 1358 Page 5 the organizational documents or agreement committing to form the organization; 2) evidence of ability to complete the project of similar size, scope or complexity; 3) licenses, bonds and insurance; 4) information regarding workers' compensation history and worker safety program; 5) an acceptable safety record, as specified. i) Requires all information to be verified under oath. ii) Specifies that information required that is not otherwise a public record under the California Public Records Act shall not be open to public inspection. 8)Specifies that a design-build entity shall not be prequalified or shortlisted unless the entity provides an enforceable commitment to the school district that the entity and its subcontractors at every tier will use a skilled and trained workforce to perform all work on the project or contract that falls within an apprenticeable occupation in the building and construction trades. a) Defines "apprenticeable occupation" as an occupation for which the Chief of the Division of Apprenticeship Standards (DAS) of the Department of Industrial Relations had approved an apprenticeship program before January 1, 2014. b) Defines "skilled and trained workforce" as a workforce that meets all of the following conditions: i) All workers are either skilled journeypersons or apprentices registered in an apprenticeship program approved by the Chief of the DAS. AB 1358 Page 6 ii) Individuals and subcontractors at every tier employed to perform work on the contract or project are comprised of skilled journeypersons that are graduates of an apprenticeship program approved by the Chief of the DAS 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: (1) At least 20% by January 1, 2016. (2) At least 30% by January 1, 2017. (3) At least 40% by January 1, 2018. (4) At least 50% by January 1, 2019. (5) At least 60% by January 1, 2020. iii) 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 apprenticable occupation prior to the chief's approval of an apprenticeship program for that occupation in the county in which the project is located. c) Defines "skilled journeyperson" as a worker who either: 1) graduated from an apprenticeship program that was approved by the chief of DAS or located outside California AB 1358 Page 7 and approved for federal purposes pursuant to apprenticeship regulations adopted by the Secretary of Labor, or 2) 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. 9)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 school district that the entity and its subcontractors at every tier will comply with the requirements of this bill and that the entity will provide the school district with evidence, on a monthly basis while the project or contract is being performed, that the entity and its subcontractors are complying with the requirements of this bill. 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. Request for proposals: AB 1358 Page 8 10)Requires the school district to prepare a request for proposals that invites prequalified or short-listed entities to submit competitive sealed proposals in the manner prescribed by the school district. The request for proposals shall include, but need not be limited to, the following elements: a) Identification of the basic scope and needs of the project or contract, the estimated cost of the project, the methodology that will be used by the school district to evaluate proposals, whether the contract will be awarded on the basis of low bid or best value, and any other information deemed necessary by the school district to inform interested parties of the contracting opportunity. b) Significant factors that the school district reasonably expects to consider in evaluating proposals, including, but not limited to, cost or price and all nonprice-related factors. c) The relative importance or the weight assigned to each of the factors identified in the request for proposals. d) Where a best value selection method is used, the school district may reserve the right to request proposal revisions and hold discussions and negotiations with responsive proposers, in which case the school district shall so specify in the request for proposals and shall publish separately or incorporate into the request for proposals applicable procedures to be observed by the school district to ensure that any discussions or negotiations are conducted in good faith. e) For those projects utilizing low bid as the final AB 1358 Page 9 selection method, the competitive bidding process shall result in lump-sum bids by the prequalified or short-listed design-build entities, and awards shall be made to the design-build entity that is the lowest responsible bidder. f) Requires projects utilizing best value as a selection method to follow a specified process that requires proposals to be evaluated by using only the criteria and selection procedures specifically identified in the request for proposal, with the following minimum factors that must be weighted as deemed appropriate by the awarding entity: 1) price; 2) technical design and construction experience; and, 3) life-cycle costs over 15 or more years. Award of the contract: 11)Authorizes the school district to hold discussions or negotiations with responsive proposers, and requires proposers to be ranked based on a determination of value provided, with a limit of three proposers required to be ranked, as specified. 12)Requires the award of the contract to be made to the responsible design-build entity whose proposal is determined to have offered the best value to the public, and requires the school district to publicly announce its award, as specified. 13)Requires the design-build entity to provide payment and performance bonds for the project in the form and in the amount required by the awarding authority, and issued by a California admitted surety. The amount of the payment bond shall not be less than the amount of the performance bond. 14)Requires the design-build contract to provide errors and omissions insurance coverage for the design elements of the project. AB 1358 Page 10 15)Requires the school district to develop a standard form of payment and performance bond for its design-build projects. 16)Authorizes the school district, in each design-build request for proposals, to identify specific types of subcontractors that must be included in the design-build entity statement of qualifications and proposal and outlines procedures for awarding subcontracts with a value exceeding 0.5% of the contract price allocable to construction work. Provides all subcontractors that are identified in the proposal to be afforded protections under the Subletting and Subcontracting Fair Practices Act. 17)Provides that the retention proceeds withheld by the school district from the design-build entity shall not exceed 5%, and the retention proceeds withheld between the design-build entity and any subcontractor may not exceed the percentage specified in the contract between the school district and the design-build entity. 18)Provides that nothing in this bill affects, expands, alters, or limits any rights or remedies otherwise available by law. 19)Sunsets on January 1, 2025, and as of that date is repealed, unless a later enacted statute, that takes effect before January 1, 2025, deletes or extends that date. EXISTING LAW: 1)Establishes a process, until January 1, 2020, for school district governing boards to enter into a design-build contract for both the design and construction of education AB 1358 Page 11 facility projects over $2.5 million. (Education Code (EC) Section 17250.20) 2)Specifies the elements required to be included in a design-build request for proposal (including significant factors, subfactors, methodology, rating and weighting schemes for evaluating proposals) and establishes, among others, prequalification, bonding and labor compliance program requirements (EC Sections 17250.10 - 17250.50) 3)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) 4)Authorizes the governing board of a school district to require each prospective bidder for a contract to participate in a prequalification process that includes the submission of a standardized questionnaire and financial statement in a form established by the district, including a complete statement of the prospective bidder's financial ability and experience in performing public works. (PCC 20111) FISCAL EFFECT: The Legislative Counsel has keyed this bill as a state-mandated local program. AB 1358 Page 12 COMMENTS: Background. Under current law, K-12 school districts are required to competitively bid any public works contract over $15,000 and award the contract to the lowest responsible bidder. Under this process, a school district would first hire an architect to design a school facility and then issue a bid for the construction phase, awarding the contract to the lowest bidder. This process is commonly called "design-bid-build". AB 1402 (Simitian), Chapter 421, Statutes of 2001 established a process called "design-build" that enables a school district to issue a bid for both the design and construction of projects over $10 million and authorizes school districts to consider factors other than cost. AB 1402 had an initial sunset of January 1, 2007 and required the Legislative Analyst's Office (LAO) to submit a report with information on the experiences of districts that used the design-build process and make recommendations to the Legislature. The sunset was extended to January 1, 2010 in 2006 (AB 127 (Nunez), Chapter 35, Statutes of 2006). The author introduced another bill in 2002, AB 1000 (Simitian), Chapter 637, Statutes of 2002, authorizing three California Community Colleges (CCC) districts to utilize design-build contracts for projects over $10 million with a sunset of January 1, 2008. SB 614 (Simitian), Chapter 471, Statutes of 2007, reduced the threshold for eligible K-12 and CCC projects from $10 million to $2.5 million, extended the authority to all CCC districts, and extended the sunset dates for both K-12 and CCCs to January 1, 2014. SB 1509 extended the sunset to January 1, 2020. Design-build. Under a design-build process, a K-12, CCC district, or other public or private agency issues a bid for both design and construction of a facility. A general contractor may collaborate with an architect/engineer to submit a proposal, or a general contractor may submit the proposal and subcontract with an architect/engineer. Prior to using a design-build process for a project, a school district must make AB 1358 Page 13 written findings that using the design-build method for the project will meet at least one of the following objectives: reduce comparable project costs, expedite the project's completions, or provide features not achievable through the traditional design-bid-build process. The school district must also establish a process to prequalify design-build entities using a standard questionnaire developed by the Department of Industrial Relations. The 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 has 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. Rather than selecting the contractor based solely on the lowest offer, a school district may use criteria in addition to cost, which may include qualification, experience, proposed design approach, life cycle costs, project features and project functions. Based on the criteria selected by a governing board, the proposals are scored and awarded to the bidder whose proposal is considered to be the best value to the school district. Under a design-bid-build process, the architect works independently on the design of the facility. Once construction begins, any problems identified by the contractor must be resolved, frequently with the school district acting as the mediator. Under design-build, the architect and contractor are working together from the beginning of the project, thereby reducing conflicts, delays, and additional costs during the construction phase. Design-build contracting can expedite the construction of a project, avoid conflicts between architects/engineers and contractors, and according to experiences from school and CCC districts, reduce costs by reducing change orders once construction begins. AB 1358 Page 14 In addition to K-12 schools and CCC districts, a number of design-build authorizations have been given to various cities and counties, state building projects, and transit districts. Last year, SB 785 (Wolk), Chapter 931, Statutes of 2014, repealed the authorization for a number of state and local agencies and enacted uniform provisions for the Department of General Services, the California Department of Corrections and Rehabilitation, and specified local agencies using the design-build method. SB 785 did not include the authorization for school districts. What does this bill do? This bill repeals the provisions authorizing school districts to utilize the design-build method and instead re-establishes provisions that are more aligned to SB 785. The premise and the basic structure of the current authorization for school districts and this bill are very similar. The differences between the existing process and this bill include: 1)This bill lowers the threshold for participation from $2.5 million to $1 million; thereby expanding the pool of projects eligible to be awarded through a design-build method. 2)This bill extends the sunset from January 1, 2020 to January 1, 2025, consistent with the sunset established for SB 785. 3)This bill deletes the provision requiring a school district governing board to make written findings of the benefits by using the design-build process for a particular project prior to exercising the authority to use design-build (e.g., will reduce project costs or expedite the project's completion). AB 1358 Page 15 4)The process for issuing a request for proposal under the current authorization is more prescriptive than the process established by this bill. For example, under the existing process, 50% of the factors used for best value selection must include price, technical expertise, life-cycle costs over 15 years or more, skilled labor force availability and acceptable safety record. This bill requires only price, technical design and construction expertise, and life-cycle costs over 15 or more years to be required factors in the evaluation and gives districts the authority to determine the weight of each factor. 5)This bill and the current authorization require the use of registered apprentices. However, this bill requires the employment of specified percentages of skilled journeypersons who are graduates of state approved apprenticeship programs by specified dates. 6)The existing process requires a project inspector. This bill does not include a project inspector. Legislative Analyst's Office's (LAO) report. In February 2005, the LAO issued a report titled Design-Build: An Alternative Construction System in which it reported its consolidated findings on design-build across several public works sectors. The LAO report was based on reports provided by entities authorized to use design-build contracting and had difficulty finding conclusive evidence as to the benefits of the design-build method. However, the LAO reported that the entities that experimented with design-build were generally pleased with the process and outcomes. The LAO concluded that design-build is a useful alternative delivery method, but made the following recommendations: AB 1358 Page 16 1)The state should adopt a single statute applying to all public entities (state and local governments and education institutions); 2)Design-build should be available as an option and not a replacement for design-bid-build; 3)Contracts for most of the project costs should be objectively awarded based on competitive bidding; 4)No cost threshold should be imposed on the authority to use design-build; 5)Access for small and newly established contractors should be assured by requiring that design build contracts be awarded to contractors with experience and qualifications that are consistent with the needs of the project, rather than limited to the biggest and longest-established firms. (The LAO made this recommendation due to considerations of qualification and experience in awarding design-build contracts, which may disadvantage small, newly established contractors, who do not have the range of experience of more established firms); and, 6)The authority should only be granted to construct buildings and directly related infrastructure given the more complex issues associated with transportation, public transit, and water resources facilities. Arguments in support. The State Building and Construction Trades Council, the sponsor of the bill, states, "School construction projects should be built to the highest standard using a skilled and trained workforce. Because there are limited funds available to school districts for construction it is critical that these projects be done on time and done right the first time. AB 1358 achieves these goals and aligns the statutes for school design-build to the comprehensive legislation on design-build that included cities, counties, transit and special districts (SB 785 Wolk-2014)." Arguments in opposition. The Air Conditioning Trade Association, the Associated Builders and Contractors - San Diego, the Plumbing-Heating-Cooling Contractors Association of California, and the Western Electrical Contractors Association have an oppose unless amended position. These organizations AB 1358 Page 17 oppose the provision allowing an entity to show its commitment to hiring a skilled and trained workforce through a project labor agreement. The letter submitted on behalf of all of the organizations does not specify the amendment they are seeking. Related legislation. AB 975 (Frazier), pending in the Assembly Local Government Committee, prohibits a public agency from disqualifying or otherwise penalizing a prospective bidder in the prequalification and rating system if the bidder is or has been involved in any court claims. Prior related legislation. SB 785 (Wolk), Chapter 931, Statutes of 2014, aligned the design-build process for the Department of General Services, the California Department of Corrections and Rehabilitation, and several local agencies. SB 1509 (Simitian), Chapter 736, Statutes of 2012, extended the sunset for K-12 and CCC authorization to use design-build from January 1, 2014 to January 1, 2020. REGISTERED SUPPORT / OPPOSITION: Support State Building and Construction Trades Council (sponsor) AB 1358 Page 18 Air-Conditioning & Refrigeration Contractors Association Air Conditioning Sheet Metal Association California Chapters of the National Electrical Contractors Association California Labor Federation California Legislative Conference of the Plumbing, Heating and Piping Industry California State Association of Electrical Workers California State Pipe Trades Council Finishing Contractors Association of Southern California Western States Council of Sheet Metal Workers Opposition Air Conditioning Trade Association (unless amended) Associated Builders and Contractors - San Diego (unless amended) AB 1358 Page 19 Plumbing-Heating-Cooling Contractors Association of California (unless amended) Western Electrical Contractors Association (unless amended) Analysis Prepared by:Sophia Kwong Kim / ED. / (916) 319-2087