BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 2126 (Mullin) - Public contracts: Construction
Manager/General Contractor contracts
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|Version: February 17, 2016 |Policy Vote: T. & H. 11 - 0 |
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|Urgency: No |Mandate: Yes |
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|Hearing Date: August 1, 2016 |Consultant: Mark McKenzie |
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This bill may meet the criteria for referral to the Suspense
File.
Bill
Summary: AB 2126 would expand the authority for the Department of
Transportation (Caltrans) to use the Construction
Manager/General Contractor (CMGC) procurement method.
Specifically, the bill would double the number of projects that
may be constructed using CMGC from six to12, as specified.
Fiscal
Impact: Unknown project costs or savings related to Caltrans' expanded
authority to use a new project delivery method (State Highway
Account and federal funds). Caltrans anticipates significant
long term savings, based on the experience of other states,
local entities, and early feedback related to the current CMGC
authority. Staff notes, however, that currently authorized CMGC
projects have not been completed or evaluated for cost
efficiency. (see staff comments)
AB 2126 (Mullin) Page 1 of
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In addition, since a contract for preconstruction and
construction services for CMGC is a negotiated process with the
most qualified construction manager, rather than a traditional
"lowest responsible bidder" process, it is difficult to
determine whether the negotiated price would be lower or higher
than project delivery costs through a traditional
design-bid-build process. It is expected that use of the CMGC
method minimizes change orders, which is currently a significant
factor in unexpected cost escalation on Caltrans projects.
Background: The traditional project delivery process is the
design-bid-build method, whereby complete plans and
specifications are prepared prior to the advertising, bidding,
and awarding of any construction contracts. The agency awards
the contract to the lowest responsible bidder. Although this
method is structured to ensure a project is built for the lowest
cost, oftentimes project costs escalate dramatically as change
orders are necessary to address unforeseen problems encountered
during the construction phase. In addition, the bulk of project
risk remains with the sponsoring agency.
In recent years, public agencies have adopted alternative
project delivery methods, including design-build,
design-sequencing, and CMGC. The principle reasons for using
alternate methods are to shift construction risk from the
agency/owner to the project contractor, minimize change order
and cost escalation, and to expedite project completion.
The CMGC project delivery method allows an agency to engage a
construction manager during the design process to provide
assistance to the design team, including advice regarding
scheduling, pricing, phasing, and other input that helps the
owner design a more constructible project. The agency selects
the construction manager on the basis of qualifications, past
experience, or a best-value basis. According to the Federal
Highway Administration, when design reaches approximately 60 to
90 percent completion, the agency and the construction manager
negotiate a guaranteed maximum price for the construction of the
project based on the defined scope and schedule. If this price
is acceptable to both parties, a contract is executed for
construction services, and the construction manager becomes the
general contractor. The benefits of this procurement method are
AB 2126 (Mullin) Page 2 of
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that the public agency does not sacrifice control over the
design of the project and the contractor is familiar with the
project design during the construction phase, resulting in fewer
change orders and disputes over design issues.
Existing law authorizes Caltrans to use the CMGC method on no
more than six projects, five of which must have construction
costs of over $10 million. On at least four of the projects,
Caltrans must use Caltrans employees or consultants under
contract with the department for project design and engineering
services. In addition, Caltrans must use its own employees or
consultants to perform all construction inspection services.
The existing CMGC authorization requires annual reports that
provide data on the stage of completion, the district, costs,
description, status, and estimated time to completion. Once
projects are completed, the annual reports must also include
information on the differences between initial cost estimates
and actual costs, estimated and actual dates of completion, the
reason for any differences, and the number and dollar value of
any change orders for all projects completed using CMGC.
Proposed Law:
AB 2126 would increase the number of projects, from six to 12,
for which Caltrans may use the CMGC procurement method. The
bill also requires at least 10 of the projects to have
construction costs of over $10 million and requires at least
eight projects to use Caltrans employees or contracted
consultants for project design and engineering services, as
specified.
Related
Legislation: AB 2498 (Gordon), Chap. 752/2012, authorized
Caltrans to use CMGC on up to six projects, five of which must
have costs of at least $10 million.
Staff
Comments: The Legislature has generally taken a measured
approach to authorizing the use of new project delivery methods.
This usually involves some limited authorization initially,
either through a fixed number of projects or period of time,
which provides the opportunity for evaluation through data
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collection and analysis. Caltrans has selected projects and
construction managers for all six projects authorized under
current law, with estimated costs ranging from $52 million to
$606 million, and estimated completion dates from March 2018
through Summer of 2020. Contracts have been awarded for parts
of three of the projects and are under construction, while the
other three are in the preconstruction phase. To date only one
construction package related to one of the projects has been
completed (San Francisco/Oakland Bay Bridge Foundation Removal).
Caltrans anticipates it will realize substantial savings through
the use of CMGC on these projects. Since no projects have been
completed, however, Caltrans has not reported on the differences
between estimated and actual costs, estimated and actual
completion dates, or the number of change orders. Absent this
data, it is unclear whether total projects costs will be higher
or lower than estimated costs, whether CMGC results in
accelerated project delivery, or whether CMGC project delivery
costs would be lower than project costs under the
design-bid-build method. The Committee may wish to consider
whether it is prudent to expand CMGC authority until the
Legislature has adequate data to evaluate the pilot program.
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