BILL ANALYSIS Ó
AB 2126
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Date of Hearing: April 11, 2016
ASSEMBLY COMMITTEE ON TRANSPORTATION
Jim Frazier, Chair
AB 2126
(Mullin) - As Introduced February 17, 2016
SUBJECT: Public contracts: Construction Manager/General
Contractor contracts
SUMMARY: Expands from 6 to 12 the number of projects for which
the California Department of Transportation (Caltrans) is
authorized to use the Construction Manager/General Contractor
(CMGC) procurement method. Of the 12 projects, at least 10
projects have to have construction costs greater than $10
million and at least 8 projects have to use Caltrans employees
or Caltrans consultants.
EXISTING LAW:
1)Sets forth provisions governing public works contracting.
These provisions generally prohibit public agencies from
contracting with the same firm for both the design and the
construction phases of a project.
2)Generally requires public works construction contracts to be
awarded to the lowest responsible bidder.
3)Describes the CMGC procurement method and makes legislative
findings and declarations regarding benefits related to risk
transfer and project phasing using CMGC.
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4)Authorizes the Caltrans to use CMGC on no more than six
projects, at least five of which must have construction costs
greater than $10,000,000, and at least four of which have to
use Caltrans employees or Caltrans consultants.
5)Defines key terms as follows relative to authority granted to
Caltrans to use CMGC:
a) "Construction manager/general contractor method" to mean
a project delivery method in which a construction manager
is procured to provide preconstruction services during the
design phase of the project and construction services
during the construction phase of the project. The contract
for construction services may be entered into at the same
time as the contract for preconstruction services, or at a
later time. The execution of the design and the
construction of the project may be in sequential phases or
concurrent phases;
b) "Preconstruction services" to mean advice given during
the design phase of a project related to, for example,
scheduling, pricing, and phasing to assist the department
design a more constructible project; and,
c) "Project" to mean the construction of a highway, bridge,
or tunnel.
6)Sets forth provisions governing the process for procuring CMGC
services.
FISCAL EFFECT: Unknown
COMMENTS: For decades, the traditional process for procuring
public works projects has been the design-bid-build process.
This process relies on the project owner: 1) preparing, or
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causing to be prepared, complete project design specifications
and estimates; 2) putting the complete package out to bid for
construction; and 3) awarding the construction contract to the
lowest responsible bidder. The design-bid-build process was
developed to protect taxpayers from extravagance, corruption,
and other improper practices by public officials as well as to
secure a fair and reasonable price for public works construction
by injecting competition amongst bidders into the process.
Although design-bid-build generally results in the lowest cost
construction contract, it is not without its drawbacks,
including:
1)Projects generally take longer to complete because designs
must be entirely completed, permits obtained, and right-of-way
acquired before the construction contract can be bid and
awarded.
2)Designs prepared for a competitive low-bid procurement are
developed to allow for a broad range of construction
approaches. As a result, low-bid designs do not always equate
to the most efficient designs possible, depending on a
particular contractor's strengths or capabilities.
3)Because the project designer does not have the benefit of
consulting with the entity that will ultimately be responsible
for construction of the project, there may be significant
issues that the designer does not anticipate, particularly
constructability issues. This can result in change orders
that ultimately drive up the price of the contract.
4)Low-bid is not always the least expensive option, once change
orders and contractor claims are factored into the overall
project costs.
In the early 1990s, public works agencies grew frustrated with
design-bid-build and began experimenting with more innovative
project delivery methods, namely design-build. Design-build is
an alternate method for procuring design and construction
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services that provides for the delivery of public works projects
from a single entity. Design-build combines project design,
permit, and construction schedules in order to streamline the
traditional design-bid-build environment.
Design-build differs from design-bid-build in some key areas,
including:
1)Overall elapsed project delivery times are shorter because
construction can begin before final design is complete.
2)Project costs and schedule risks are more heavily borne by the
design-build contractor.
3)Construction claims and change orders are minimized.
4)Designs can be developed to take advantage of a particular
contractor's strengths and abilities, thereby reducing the
need to "over-design" for generic use as in design-bid-build.
5)Project specifications are typically based on definitive
performance criteria, which may or may not be well established
by the project owner, rather than established specifications.
6)Contracts are awarded based on best-value analyses rather than
low-bid.
Design-build contracts are not without their drawbacks as well.
For example, with a design-build project, the project owner must
give up a good deal of control over the details of the project
design. Additionally, design-build contractors are typically
selected using qualifications-based selection criteria or best
value analysis. These approaches are more subjective than a
low-bid approach, potentially subjecting the public works owner
to greater contract challenges and higher costs.
In 2012, AB 2498 (Gordon), Chapter 752, Statutes of 2012,
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authorized Caltrans to use CMGC on no more than six projects, at
least five of which must have construction costs greater than
$10 million. CMGC is an emerging project delivery method that
potentially combines the best of both design-bid-build and
design-build. Using CMGC, Caltrans can engage a design and
construction management consultant (construction manager) to act
as its consultant during the pre-construction phase and as the
general contractor during construction. During the design
phase, the construction manager acts in an advisory role,
providing constructability reviews, value engineering
suggestions, construction estimates, and other
construction-related recommendations. Later, Caltrans and the
construction manager can agree that the project design has
progressed to a sufficient enough point that construction may
begin. The two parties then work out mutually agreeable terms
and conditions for the construction contract, and, if all goes
well, the construction manager becomes the general contractor
and construction on the project commences, well before design is
entirely complete.
The CMGC process provides continuity and collaboration between
the design and construction phases of the project. Construction
managers have an incentive to provide input during the design
phase that will enhance constructability of the project later
because they know that they will have the opportunity to become
the general contractor for the project. Furthermore, CMGC
promises to save project delivery time, provide earlier cost
certainty, transfer risks from the department to the contractor,
and ensure project constructability. Additionally, CMGC allows
Caltrans to have greater control of design decisions. It also
allows the department to design the project to compliment the
CMGC's strengths and capabilities, thereby avoiding the need to
over-design the project to provide maximum competitiveness in a
low-bid procurement.
There are potential drawbacks of using CMGC contracts.
According to guidance published by the City of Seattle, CMGC
contracts carry risks, including:
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1)They are difficult and complex.
2)The procurement process takes longer and consumes greater
project staff time than traditional design-bid-build
contracts.
3)Project teams face steep learning curves.
4)Successful construction cost negotiations require experienced
staff.
Other literature on the use of CMGC contracts is generally
consistent with Seattle's guidance regarding concerns for risks
associated with CMGC contracts and cautions that CMGC is not
appropriate for every project. However, the same literature
suggests that, if carefully implemented, CMGC has the potential
to significantly improve project delivery.
AB 2126 increases the number of projects for which Caltrans can
use CMGC from 6 to 12. The author introduced the bill to
increase the opportunities to reduce costs and expedite highway
congestion relief projects in the state.
Committee comments: As a part of the authority granted in AB
2498, Caltrans is required to report each year on the progress
of its CMGC contracts. Last year, Caltrans reported that,
although it was still early in the process, it appears that the
department will realize substantial savings through the use of
CMGC on these projects. These early indications are consistent
with those reported by other transportation agencies that have
been granted statutory authority to use CMGC in recent years.
Consequently, modestly increasing the number of projects for
which Caltrans can gain additional experience with the use of
CMGC seems reasonable and prudent.
Related legislation: The Administration is proposing trailer
bill language that would increase from 6 to 12 the number of
contracts for which Caltrans can use CMGC.
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AB 2374 (Chiu), Extends existing authority for regional
transportation agencies to use the CMGC procurement method to
include ramp projects that are not on the state highway system
and removes the limitation that a CMGC project is in a sales tax
measure expenditure plan.
Previous legislation: AB 2498 (Gordon), Chapter 752, Statutes of
2012, authorized Caltrans to use CMGC on no more than six
projects, at least five of which must have construction costs
greater than $10 million.
REGISTERED SUPPORT / OPPOSITION:
Support
Associated General Contractors
Bay Area Council
California Transportation Commission
City/County Association of San Mateo County
San Mateo County Economic Development Association
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Opposition
None on file
Analysis Prepared by:Janet Dawson / TRANS. / (916) 319-2093