BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                    AB 1358


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          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.










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          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.








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             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,  








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               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  








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               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.









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               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  








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               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:










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          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  








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               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.








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          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  








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            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.










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          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  








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          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.  









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          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).












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          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:










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          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  








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          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)










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          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)









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          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