BILL ANALYSIS Ó AB 2126 Page 1 Date of Hearing: April 27, 2016 ASSEMBLY COMMITTEE ON APPROPRIATIONS Lorena Gonzalez, Chair AB 2126 (Mullin) - As Introduced February 17, 2016 ----------------------------------------------------------------- |Policy |Transportation |Vote:|16 - 0 | |Committee: | | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | | | | | | | | | | | | | | | ----------------------------------------------------------------- Urgency: No State Mandated Local Program: YesReimbursable: No SUMMARY: This bill expands from 6 to 12 the number of projects for which the Caltrans is authorized to use the Construction Manager/General Contractor (CM/GC) procurement method. Of the 12 projects, at least 10 projects must have construction costs greater than $10 million and at least 8 projects must use Caltrans employees or Caltrans consultants to provide project design and engineering services. AB 2126 Page 2 FISCAL EFFECT: Based on Caltrans experience to date, potential significant savings could be realized from additional CM/GC projects. Caltrans indicates that a project manager has been procured for the six currently authorized CM/CG projects, which range in value from $50 million to $600 million. According to Caltrans, use of this method has allowed the department to partner with contractors to identify risks and in many cases eliminate those risks when designing the projects. To date, comments from the industry have been very positive and supportive of the pilot program, and Caltrans is currently estimating project savings of 10% from using CM/GC. COMMENTS: 1)Background and Purpose. The traditional public works contracting method is known as design-bid-build, whereby project design is done under contract by an architectural/engineering firm (or in Caltrans' case, mainly in-house), then upon completion of the design phase, the construction phase is put out to bid and the contract is awarded to the lowest responsible bidder. In the last 15 years, the state has selectively used an alternative contracting method known as design/build, whereby entities with both design and construction management capabilities compete for a single contract for both project phases, typically for a fixed price. The intent of the design/build alternative is to reduce the contracting agency's risk with regard to project costs and schedule, expedite project completion, and minimize change orders and claims. AB 2126 Page 3 Design/build has some drawbacks, however, including that the contracting agency relinquishes significant control the details of project design. In addition, at the point when the design/build entity bids on a project, there are still many unknowns, and thus a degree of risk, which are factored into their bids. Therefore, even though the contracting agency is transferring risk, they are still paying for it in some manner. Use of CM/GC seeks to achieve the best of both worlds, i.e maintaining design control while minimizing overall risk. Under CM/GC, Caltrans performs the design in-house, thus maintaining control, but rather than designing in a vacuum, this work is done in partnership with the construction firm that has the right of first refusal to construct the project, assuming a mutually agreed upon price can be negotiated. The design progresses to a significant stage of completion prior to negotiating a final price, so that rather than just transferring risk, which Caltrans still pays for in the bid, CM/GC can actually mitigate much of the risk from the eventual project cost. 2)Purpose. 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. AB 2126 increases the number of projects for which Caltrans can use CMGC from 6 to 12. The author seeks to increase the opportunities to reduce costs and expedite highway congestion relief projects in the state. 3)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. As implementation of the budget is not dependent on enacting such a change, consideration of this policy is more appropriate through AB 2126 and the legislative bill process. AB 2126 Page 4 Analysis Prepared by:Chuck Nicol / APPR. / (916) 319-2081