BILL ANALYSIS Ó
AB 2316
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CONCURRENCE IN SENATE AMENDMENTS
AB
2316 (O'Donnell)
As Amended August 19, 2016
Majority vote
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|ASSEMBLY: |66-4 |(May 12, 2016) |SENATE: | 30-8 |(August 23, |
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Original Committee Reference: ED.
SUMMARY: Eliminates the authority for school districts to issue
a lease-leaseback contract without advertising for bid,
establishes a competitive selections process for awarding
lease-leaseback contracts, and allows a contractor to be paid
the reasonable cost of labor, equipment, materials, and services
furnished by the contractor meeting specified conditions if a
lease-leaseback contract entered into prior to July 1, 2015, is
found to be invalid by a court. Specifically, this bill:
1)Establishes the following definitions:
a) "Best value" means a competitive procurement process
whereby the selected proposer is selected on the basis of
objective criteria for evaluating the qualifications of
proposers with the resulting selection representing the
best combination of price and qualifications.
b) "Best value score" means the total score awarded to a
proposer for all scored evaluation factors.
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c) "Preconstruction services" means advice during the
design phase including, but not limited to, scheduling,
pricing, and phasing to assist the school district to
design a more constructible project.
2)Strikes the authority of a governing board of school district
to enter into a lease-leaseback instrument without advertising
for bid.
3)Specifies that a person, firm, or corporation authorized to
enter into a lease-leaseback instrument is one that is
licensed pursuant to the Business and Professions Code.
4)Requires a lease-leaseback instrument to be awarded based on a
competitive solicitation process to the proposer providing the
best value to the school district, taking into consideration
the proposer's demonstrated competence and professional
qualifications necessary for the satisfactory performance of
the services required. Specifies that before awarding an
instrument, the governing board of the school district shall
adopt and publish required procedures and guidelines for
evaluating the qualifications of proposers that ensure the
best value selections by the school district are conducted in
a fair and impartial manner. Specifies that these procedures
and guidelines shall be mandatory for the school district when
awarding an instrument pursuant to this section. Requires the
procedures to include, at a minimum, the following:
a) The school district shall prepare a request for sealed
proposals from qualified proposers. The school district
shall include in the request for sealed proposals an
estimate of price of the project, a clear, precise
description of any preconstruction services that may be
required and the facilities to be constructed, the key
elements of the instrument to be awarded, a description of
the format that proposals shall follow and the elements
they shall contain, the standards the school district will
use in evaluating proposals, the date on which proposals
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are due, the timetable the school district will follow in
reviewing and evaluating proposals.
b) The school district shall give notice of the request for
sealed proposals in the manner of notice provided in Public
Contract Code Section 20112, with the latest notice
published at least 10 days before the date for receipt of
the proposals.
c) A proposer must be prequalified in accordance with
Public Contract Code Section 20111.6 (b) to (m), inclusive,
of, in order to submit a proposal. If used, electrical,
mechanical, and plumbing subcontractors shall be subject to
the same prequalification requirements for prospective
bidders described in Public Contract Code Section 20111.6
(b) to (m), inclusive, including the requirement for the
completion and submission of a standardized
prequalification questionnaire and financial statement that
is verified under oath and is not a public record. These
prequalification requirements shall be included in a
lease-leaseback instrument.
d) The request for sealed proposals shall identify all
criteria that the school district will consider in
evaluating the proposals and qualifications of the
proposers, including relevant experience, safety record,
price proposal, and other factors specified by the school
district. The price proposal shall include, at the school
district's discretion, either a lump-sum price for the
instrument to be awarded or the proposer's proposed fee to
perform the services requested, including the proposer's
proposed fee to perform preconstruction services or any
other work related to the facilities to be constructed, as
requested by the school district. The request for
proposals shall specify whether each criterion will be
evaluated pass-fail or will be scored as part of the best
value score, and whether proposers must achieve any minimum
qualification score for award of the instrument under this
section.
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e) For each scored criterion, the school district shall
identify the methodology and rating or weighting system
that will be used by the school district in evaluating the
criterion, including the weight assigned to the criterion
and any minimum acceptable score.
f) Proposals shall be evaluated and the instrument awarded
in the following manner:
i) All proposals received shall be reviewed to
determine those that meet the format requirements and the
standards specified in the request for sealed proposals.
ii) The school district shall evaluate the
qualifications of the proposers based solely upon the
criteria and evaluation methodology set forth in the
request for sealed proposals, and shall assign a best
value score to each proposal. Once the evaluation is
complete, all responsive proposers shall be ranked from
the highest best value to the lowest best value to the
school district.
iii) The award of the instrument shall be made by the
governing board of the school district to the responsive
proposer whose proposal is determined, in writing by the
governing board of the school district, to be the best
value to the school district.
iv) If the selected proposer refuses or fails to execute
the tendered instrument, the governing board of the
school district may award the instrument to the proposer
with the second highest best value score if the governing
board of the school district deems it to be for the best
interest of the school district. If the second selected
proposer refuses or fails to execute the tendered
instrument, the governing board of the school district
may award the instrument to the proposer with the third
highest best value score if the governing board of the
school district deems it to be for the best interest of
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the school district.
v) Notwithstanding any other law, upon issuance of a
contract award, the school district shall publicly
announce its award, identifying the entity to which the
award is made, along with a statement regarding the basis
of the award. The statement regarding the school
district's contract award and the contract file shall
provide sufficient information to satisfy an external
audit.
g) The governing board of the school district, at its
discretion, may reject all proposals and request new
proposals.
h) Following the award of an instrument, and if the price
proposal is a not a lump sum for the instrument awarded,
the successful proposer shall provide the school district
with objectively verifiable information of its costs to
perform the services requested under the instrument and
shall select subcontractors as specified. Once any
preconstruction services are completed and upon approval of
the plans and specifications for work on the site by the
Department of General Services' Division of State Architect
(DSA), and subcontractors are selected, the successful
proposer and the school district shall finalize the price
for the services to be provided under the instrument. The
contract file shall include documentation sufficient to
support the final price determination.
i) The school district, in the request for sealed
proposals, may identify specific types of subcontractors
that must be included in the proposal. All subcontractors
that are identified in the proposal shall be afforded the
protections of the Subletting and Subcontracting Fair
Practices Act.
j) Following the award of an instrument and for
subcontractors not identified in the proposal, the
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successful proposer shall proceed as follows in awarding
construction subcontracts with a value exceeding 1.5% of
the price allocable to construction work:
i) Provide public notice of availability of work to be
subcontracted in accordance with the publication
requirements applicable to the competitive bidding
process of the school district, including a fixed date
and time on which qualifications statements, bids, or
proposals will be due.
ii) Establish reasonable qualification criteria and
standards.
iii) Award the subcontract either on a best value basis
or to the lowest responsible bidder. The process may
include prequalification or short-listing. The process
shall not apply to subcontractors listed in the original
proposal. Subcontractors awarded construction
subcontracts under this subdivision shall be afforded all
the protections of the Subletting and Subcontracting Fair
Practices Act.
aa) Nothing shall preclude a school district from
segregating the request for proposals into a request for
qualifications, followed by a request for proposals with
price information from the proposers deemed most qualified
by the school district, provided that the procedures
specified in this bill are otherwise followed.
5)Specifies that notwithstanding Education Code Sections 17297
and 17402, for purposes of utilizing preconstruction services,
a school district may enter into an instrument before written
approval by the DSA if the instrument provides that no work
for which a contractor is required to be licensed in
accordance with Article 5 (commencing with Section 7065) of
Chapter 9 of Division 3 of the Business and Professions Code
and for which DSA approval is required shall be performed
before receipt of the required DSA approval. Specifies that
this provision does not waive the requirements in the School
Facility Program (SFP).
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6)Specifies that if a project for the construction, alteration,
repair, or improvement of any structure, building, or other
improvement of any kind that was leased through a
lease-leaseback instrument before July 1, 2015, is determined
to be invalid by a court of competent jurisdiction because it
fails to fall within the competitive bidding exception in the
lease-leaseback provision in effect prior to December 31,
2016, the contractor who entered into the instrument with the
school district may be paid the reasonable cost, specifically
excluding profit, of the labor, equipment, materials, and
services furnished by the contractor before the date of the
determination that the instrument is invalid if all of the
following conditions are met:
a) The contractor proceeded with construction, alteration,
repair, or improvement based upon a good faith belief that
the instrument was valid.
b) The school district has reasonably determined that the
work performed is satisfactory.
c) Contractor fraud did not occur in the obtaining or
performance of the instrument.
d) The instrument does not otherwise violate state law
related to the construction or leasing of public works of
improvement.
7)Specifies that in no event shall payment to the contractor
exceed either of the following:
a) The contractor's costs as included in the instrument
plus the cost of any approved change orders.
b) The lease payments made, less profit, at the point in
time the instrument is determined to be invalid by a court
of competent jurisdiction.
8)Specifies this bill shall not affect any protest and legal
proceedings, whether contractual, administrative, or judicial,
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to challenge the award of the public works contract, nor
affect any rights under the Code of Civil Procedure Section
337.1 or 337.15.
9)Sunsets on July 1, 2022, and is repealed as of January 1,
2023, unless a later enacted statute, that is enacted before
January 1, 2023, deletes or extends that date.
The Senate amendments:
1)Add the provisions authorizing the school district to identify
specific types of subcontractors and establish the process for
awarding construction subcontracts.
2)Specify that the provision authorizing a contract to be signed
prior to receiving DSA approval is for the purposes of
utilizing preconstruction services and specify that the
provision does not waive any of the requirements for funding
under the SFP.
3)Authorize, rather than require, a contractor who entered into
a lease-leaseback contract prior to July 1, 2015, to be paid
the reasonable cost, excluding profit, of the labor,
equipment, materials and services furnished by the contractor
if the instrument is determined to be invalid by a court.
FISCAL EFFECT: None. This bill is keyed non-fiscal by the
Legislative Counsel.
COMMENTS: Contracting. Under current law, school districts are
required to competitively bid any public works contract over
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$15,000 and award the contract to the lowest responsible bidder.
Alternative methods for awarding contracts have emerged over
time, including design-build, which enables a school district to
issue a request for proposal for both design and construction of
projects; best value, which authorizes school districts to
consider factors other than cost; and job order contracting,
which is based on prices for specific construction tasks.
Lease-leaseback. Unlike the other contracting methods that
require a competitive process, lease-leaseback is a process
whereby a governing board of a school district may, without
advertising for bid, rent district property for a minimum of $1
a year, to any person, firm or corporation. The person, firm or
corporation constructs the school building and rents the
facility back to the school district. At the end of the lease,
the district resumes title to the building and site.
The non-competitive nature of lease-leaseback has been a subject
of contention for a long time, even though it is authorized in
Education Code Section 17406. Recently, over a dozen lawsuits
against school districts and contractors have been filed
throughout the state, challenging that lease-leaseback contracts
should have been competitively bid. Most of the plaintiffs in
the lawsuits were represented by the same attorney and most were
found to be unsuccessful, except for three that have been
appealed to the Appellate Court level.
Purpose of the bill. The author states that this bill will halt
sole source contracting by striking the authority to award a
lease-leaseback contract without advertising for bid and
establishing a competitive process. Existing law requires
competitive bidding to ensure that a governmental entity is
getting a good price while ensuring that there is no favoritism
towards a business entity for services or goods. Under the
traditional design-bid-build method, a school district would
first hire an architect to design a school facility and then
issue a bid for the construction phase using the plans already
developed, awarding the contract to the lowest responsible
bidder. The author states that the traditional bidding method
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doesn't work well in a lease model because the lease structure
will vary depending on the length, interest, and monthly
payments. Instead, this bill establishes a competitive
selections process that is modeled after design build and best
value, both of which are alternatives to traditional
design-bid-build already approved by the Legislature. Under a
design-build process, a K-12, community college district, or
other public or private agency issues a request for proposal for
both design and construction of a facility. Best value is a
procurement process whereby the selected bidder may be selected
on the basis of objective criteria for evaluating the
qualifications of bidders with the resulting selection
representing the best combination of price and qualifications.
The author states that similar to design build, this bill allows
a contractor to work with an architect early to avoid costly
change orders later, and similar to best value, this bill allows
evaluation of proposals based on price and other factors,
including the proposed lease structure.
Under this bill, a school district must develop and publish
guidelines for the request for sealed proposals that includes
information about the estimated price of the project, a
description of the facilities to be constructed, including a
description of any preconstruction services, if sought by the
school district, the key elements and the standards by which the
proposals will be evaluated, a timetable for submission and
review of proposals, the process to be used by the successful
proposer for the award of subcontracts, and the key elements of
the instrument (lease structure). This bill also requires the
request for sealed proposals to identify all the criteria that
the school district will consider in evaluating the proposals
and qualifications of the proposers, including relevant
experience, safety record, price proposal and other factors
identified by a school district. The school district may
request a lump-sum price or a proposer's proposed fee for work
related to the construction of facilities, including
preconstruction services.
Once proposals are reviewed and rated, the bill requires the
district to select the proposal with the highest score.
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Consistent with existing law, the bill requires a proposer and
major subcontractors (electrical, mechanical and plumbing) to be
prequalified, comprised of a questionnaire and a rating system,
for any request for proposal issued by a district with more than
2,500 average daily attendance, regardless of funding source.
DSA approval. Current law requires architectural plans to be
approved by the DSA before a construction contract can be
signed. School districts state that this requirement prevents
them from entering into contracts when prices can be guaranteed
or being able to sign contracts to secure work to be completed
during summer months when facilities are not full of students.
This bill authorizes a contract to be signed prior to DSA
approval, but prohibits construction work to be conducted until
after approval by the DSA has been granted. Amendments adopted
in the Senate clarify that this provision does not change the
requirements for funding under the SFP, and specifically, the
requirements for DSA approval prior to apportionment for
funding.
Disgorgement. This bill provides contractors who entered into a
lease-leaseback contract prior to July 1, 2015 that is found to
be invalid by a court to be paid the reasonable cost of labor,
equipment, materials and services furnished by the contractor if
specified conditions are met, including that the contractor
proceeded with good faith belief that the contract was valid,
the school district reasonably determines that the work is
satisfactory, contractor fraud did not occur in obtaining or
performance of the contract, and the contract does not violate
any other state construction or leasing laws. This bill
excludes any profit. Amendments adopted in the Senate
authorize, rather than entitle, the contractor to be paid
reasonable costs.
Analysis Prepared by:
Sophia Kwong Kim / ED. / (916) 319-2087 FN: 0004858
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