BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |AB 2551 |Hearing |6/29/16 |
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|Author: |Gallagher |Tax Levy: |No |
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|Version: |4/27/16 |Fiscal: |Yes |
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|Consultant|Favorini-Csorba |
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Contract procurement: surface storage projects
Authorizes local agencies to use alternative procurement methods
for reservoirs funded by Proposition 1 bond funds.
Background
Alternative Procurement Methods. The Local Agency Public
Construction Act requires local officials to invite bids for
construction projects and then award contracts to the lowest
responsible bidder. This design-bid-build method is the
traditional, and most widely-used, approach to public works
construction. This approach splits construction projects into
two distinct phases: design and construction. During the design
phase, the local agency prepares detailed project plans and
specifications using its own employees or by hiring outside
architects and engineers. Once project designs are complete,
local officials invite bids from the construction community and
award the contract to the lowest responsible bidder.
By contrast, state law allows state and local officials, until
January 1, 2025, to use the design-build method for contracts in
excess of $1 million to procure both design and construction
services from a single company before the development of
complete plans and specifications. Under design-build, the
owner contracts with a single entity-which can be a single firm,
a consortium, or a joint venture-to design and construct a
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project. Before inviting bids, the owner prepares documents
that describe the basic concept of the project, as opposed to a
complete set of drawings and specifications of the final
product. In the bidding phase, the owner typically evaluates
bids on a best-value basis, incorporating technical factors,
such as qualifications and design quality, in addition to price.
The Department of General Services, the California Department
of Corrections and Rehabilitation, cities, counties, transit
districts, special districts operating wastewater, water
recycling, or solid waste management facilities, and certain
health care districts may use design-build.
Originally the authorizations for state agencies and local
governments to use design-build were dispersed throughout state
law in separate code sections. In 2014, the Legislature
consolidated these provisions into consistent,
generally-applicable statutes (SB 785, Wolk, 2014). SB 785
outlines a standardized design-build procurement process in
which the awarding authority may prepare a list of qualified or
short-listed entities, based on specified criteria. Once a list
of qualified or short-listed entities is complete, the awarding
authority may prepare a request for proposals (RFP) that invites
prequalified or short-listed entities to submit competitive
sealed proposals in the manner prescribed by the awarding
authority.
For projects utilizing low bid as the selection method, the
competitive bidding process must involve lump-sum bids by the
prequalified or short-listed design-build entities. Awards must
be made to the design-build entity that is the lowest
responsible bidder.
For those projects utilizing best value as a selection method,
proposals must be evaluated using only the criteria and
selection procedures specifically identified in the RFP. The
awarding authority may reserve the right to request revisions
and conduct negotiations with responsive proposers, if the
authority specifies in the RFP how it will ensure that
negotiations are conducted in good faith. The authority may
hold discussions or negotiations with responsive proposers using
the process specified in the RFP. Responsive proposers are
ranked based on value provided. The contract must be awarded to
the responsible design-build entity whose proposal is determined
by the authority to have offered the best value to the public.
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Upon issuance of a contract award, the awarding authority shall
publicly announce its award, identifying the design-build entity
to which the award is made, along with a written decision
supporting its contract award and stating the basis of the
award.
The state's design-build statutes also impose requirements for
the use of skilled labor, the issuance of performance bonds,
insurance coverage, and identification of subcontractors that
will complete at least one-half of 1% of the value of a
contract.
Local agencies may also use "construction manager at risk"
contracting, which allows local officials to retain a
construction manager, who provides pre-construction services
during the design period, later becomes the general contractor
during the construction process, and is responsible for
delivering the project within an agreed upon price, potentially
assuming the risk for cost-overruns (SB 328, Knight, 2013).
CALFED Surface Storage Projects. In response to increasing
environmental concerns and water supply restrictions in the
Sacramento-San Joaquin Delta (the Delta), state and federal
agencies created CALFED in 1994. In 2000, the parties to CALFED
signed the CALFED Record of Decision, which laid out the
agencies' commitment to water supply reliability, ecosystem
restoration, water quality improvements, and levee system
integrity. Constructing new dams upstream of the Delta was a
cornerstone of CALFED. The Record of Decision identified
numerous surface storage projects, including three that could
potentially be built by local agencies, specifically:
Sites Reservoir, off of the Sacramento River in Glenn
and Colusa Counties. Sites Reservoir would be constructed
by the Sites Joint Powers Authority, comprising the County
of Colusa, County of Glenn, Glenn-Colusa Irrigation
District, Maxwell Irrigation District, Reclamation District
108, Tehama-Colusa Canal Authority, and Yolo County Flood
Control and Water Conservation District;
Temperance Flat Reservoir, along the Upper San Joaquin
River. Temperance Flat would be constructed by the San
Joaquin Valley Water Infrastructure Authority, comprising
the Counties of Fresno, Kern, Kings, Madera, Merced, and
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Tulare;
Los Vaqueros Expansion Project, which would expand an
existing reservoir in Contra Costa County that diverts
water from the Delta. Contra Costa Water District
currently operates Los Vaqueros.
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Proposition 1. Proposition 1, approved by voters in November
2014, authorized the sale of $7.5 billion in general obligation
bonds for various types of water and environmental restoration
projects. Of that amount, Proposition 1 allocates $2.7 billion
to the Water Commission for competitive grants for water storage
projects, including any of the following:
Surface storage projects identified in the CALFED Record
of Decision, except projects prohibited by the California
Wild and Scenic Rivers Act.
Groundwater storage projects and groundwater
contamination prevention or remediation projects that
provide water storage benefits.
Conjunctive use and reservoir reoperation projects.
Local and regional surface storage projects that improve
the operation of water systems in the state and provide
public benefits.
Projects will be selected based on the magnitude of public
benefits the projects provide, as defined by Proposition 1.
Some local agencies want to be able to use alternative
procurement methods to construct and operate projects funded by
Proposition 1.
Proposed Law
Assembly Bill 2551 allows any surface storage project that is
identified in the CALFED Record of Decision and receives funding
from the water storage funding allocation in Proposition 1 to
use design-build, design-bid-build, and construction manager
at-risk alternative procurement methods. Specifically, AB 2551
reenacts, in a separate code section, the provisions of current
law governing local agency authority to use design-build
procurement, except that AB 2551:
Authorizes design-build-operate agreements where
existing law expressly prohibits this type of procurement.
Requires at least 50 percent of the skilled workforce at
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every tier of the contract or project to be graduates of an
apprenticeship program by the fourth year of project
construction, where existing statute requires at least 60
percent by January 1, 2020.
Omits a provision in existing law that prevents
materials not subject to the California Public Records Act
from being inspected by the public and further provides
that a local agency must make the list of prequalified
entities available to the public.
Requires a local agency that evaluates bids to consider
numerous additional factors as compared to existing law,
such as financial and bonding capacity requirements,
proposed construction approach and methods, ability to meet
a schedule, proposed risk allocation and sharing, and
safety record.
Omits a requirement in existing law that any
design-build project list and exclusively use
subcontractors that will perform special services for more
than one-half of one percent of the value of the prime
contractor's bid.
Omits a requirement in existing law that limits the
retention proceeds withheld by the agency from the
design-build entity to no more than 5 percent if a
performance and payment bond, issued by an admitted surety
insurer, is required in the solicitation of bids.
Makes other technical and conforming changes to
encompass construction manager at-risk and
design-build-operate procurement methods.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . Historically, water projects built by
local agencies have been limited to the design-bid-build
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delivery method. While there are benefits to this process, such
as an impartial design team and builders bidding on the same
design, there are also several drawbacks. Unexpected costs may
arise during construction due to change orders or other
unanticipated complications. Alternative delivery methods, on
the other hand, can be more cost effective when used to procure
large, complex projects because these methods give contractors
the freedom to develop clever solutions to problems and transfer
the risk of overruns from the public agency to the contractor.
Proposition 1 is expected to provide funding to several large
surface storage projects identified by CALFED in 2000. These
projects are expected to cost billions of dollars and often
include complex geological studies, making them prime candidates
for design-build or other procurement methods. AB 2551 provides
local agencies the necessary authorization to use these methods,
thereby ensuring timely construction of much-needed new dams and
helping stretch taxpayer dollars to fund more projects.
2. Design-build, by design . SB 785 was enacted precisely to
harmonize the state's design-build authorizations that had been
scattered across sections of code. The particulars of SB 785
were carefully negotiated to balance the interests of project
proponents, labor unions, contractors, and subcontractors. AB
2551 upsets this balance by enacting similar-but not
identical-design-build authority for certain surface storage
projects. Although proponents may argue that these projects are
unique and therefore warrant unique authority, AB 2551 sets a
precedent for carving out exceptions to the generally applicable
design-build statutes. Furthermore, by enacting a separate code
section, AB 2551 makes it difficult to identify which entities
may procure projects using design-build and to ensure that
future changes to design-build authorization are enacted
consistently for all entities. The Committee may wish to
consider amending AB 2551 to add CALFED storage projects (or all
projects that receive storage funding from Proposition 1) to the
existing design-build statutes, instead of creating a parallel
process.
3. Local agency, multinational corporation . Critics of the use
of design-build by public agencies note that the entities that
typically design and construct these projects are large,
sophisticated engineering companies that possess specialized
expertise in this area. These companies may be in a better
position than a local agency project proponent to understand the
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conditions of the contracts governing the agreement-and how
those contracts allocate risks between the design-build entity
and the local government. It is unclear whether the local
agencies that might make use of the authority granted by AB 2551
have the competencies necessary to effectively structure a
contract and oversee the project delivery.
4. Level playing field . Several types of water storage projects
are eligible for funding under Proposition 1, including
groundwater storage projects that may be cheaper on a
per-acre-foot basis than surface storage. But AB 2551 only
allows CALFED projects procured by local agencies to use
alternative procurement methods. To the extent that this
authority reduces costs or increases the certainty and
timeliness of project benefits for surface storage projects, AB
2551 may provide an advantage to CALFED surface projects
constructed by local agencies over other projects that are also
competing for Proposition 1 dollars. In order to ensure a level
playing field for all potential projects, the Committee may wish
to amend AB 2551 to apply to any projects that receive funding
under the storage funding allocation in Proposition 1.
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5. Technical amendments . The Committee may wish to consider the
following technical amendments:
On page 2, line 18, the bill authorizes the use of
construction management at risk. Elsewhere in the Public
Contract Code, this method of procurement is called
construction manager at-risk. The Committee may wish to
consider amending AB 2551 to correct "management" to
"manager."
On page 7, line 30, the bill provides that "pursuant to
subdivision (d), the local agency may hold discussions or
negotiations with responsive bidders..." But in the bill
subdivision (e) lays out the process for negotiations with
bidders. The Committee may wish to consider amending AB
2551 to correct this cross-reference.
6. Related legislation . SB 693 (Hueso), currently pending in
the Assembly Appropriations Committee, deletes "skilled and
trained workforce" requirements in various sections of existing
law related to alternative procurement methods and enacts a new
comprehensive section of the Public Contract Code applicable
whenever a public entity is required to ensure that contractors
use a "skilled and trained workforce."
7. Mandate . The California Constitution generally requires the
state to reimburse local agencies for their costs when the state
imposes new programs or additional duties on them. AB 2551
requires bidders to certify specified information under penalty
of perjury. By expanding the crime of perjury, AB 2551 creates
a new state-mandated program. But the bill disclaims the
state's responsibility for reimbursing local governments for
enforcing these new crimes. That's consistent with the
California Constitution, which says that the state does not have
to reimburse local governments for the costs of new crimes
(Article XIIIB, 6[a][2]).
Assembly Actions
Assembly Water, Parks, and Wildlife Committee:13-1
Assembly Appropriations Committee: 20-0
Assembly Floor: 73-1
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Support and
Opposition (6/23/16)
Support : American Council of Engineering Companies, California;
Association of California Water Agencies; California Chapters of
the National Electrical Contractors Association; California
Cotton Ginners and Growers Associations; California Fresh Fruit
Association; California Legislative Conference of Plumbing,
Heating and Piping Industry; California Rice Commission;
California-Nevada Conference of Operating Engineers; Far West
Equipment Dealers Association; Five Counties Central Labor
Council; General Teamsters Professional, Heath Care and Public
Employees Local 137; International Brotherhood of Electrical
Workers, Local 659; Marysville Central Labor Council, AFL-CIO;
Northern California Water Association; Northeastern California
Building & Construction Trades Council; Sheet Metal Workers'
Local Union No. 104; Sites Project Joint Powers Authority; State
Building and Construction Trades Council; United Association of
Journeymen and Apprentices of the Plumbing and Pipe Fitting
Industry, Local 228; Valley Ag Water Coalition; Western
Agricultural Processors Association.
Opposition : Air Conditioning Trade Association; Associated
Builders and Contractors; Plumbing-Heating-Cooling Contractors
Association; Professional Engineers in California Government;
Sierra Club California; Western Electrical Contractors
Association.
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