BILL ANALYSIS                                                                                                                                                                                                    Ó






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          |SENATE RULES COMMITTEE            |                       AB 2551|
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                                   THIRD READING 


          Bill No:  AB 2551
          Author:   Gallagher (R), Olsen (R) and Salas (D), et al.
          Amended:  8/3/16 in Senate
          Vote:     21 

           SENATE GOVERNANCE & FIN. COMMITTEE:  6-0, 6/29/16
           AYES:  Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach
           NO VOTE RECORDED:  Pavley

           SENATE APPROPRIATIONS COMMITTEE:  Senate Rule 28.8

           ASSEMBLY FLOOR:  73-1, 5/23/16 - See last page for vote

           SUBJECT:   Contract procurement:  surface storage projects


          SOURCE:    Author

          DIGEST:   This bill authorizes local agencies to use alternative  
          procurement methods for reservoirs funded by Proposition 1 bond  
          funds.


          ANALYSIS:  


          Existing law:


          1)Requires, generally, local officials to invite bids for  
            construction projects and then award contracts to the lowest  
            responsible bidder (referred to as "design-bid-build").









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          2)Allows some state and local agencies, as defined, 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, using a  
            standardized process created by SB 785 (Wolk, Chapter 931,  
            Statutes of 2014) that :


             a)   Allows the awarding authority to prepare a list of  
               qualified or short-listed entities, based on specified  
               criteria.  


             b)   Allows the awarding authority to 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. 


             c)   Requires, for projects utilizing low bid as the  
               selection method, the competitive bidding process to  
               involve lump-sum bids by the prequalified or short-listed  
               design-build entities, and requires awards to be made to  
               the design-build entity that is the lowest responsible  
               bidder.


             d)   Requires, for those projects utilizing best value as a  
               selection method, proposals to be evaluated using only the  
               criteria and selection procedures specifically identified  
               in the RFP and requires the contract to be awarded to the  
               responsible design-build entity whose proposal is  
               determined by the authority to have offered the best value  
               to the public.  


             e)   Requires the awarding authority, upon issuance of a  
               contract award, to 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. 








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             f)   Requires 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.


          3)Prohibits design-build-operate procurement methods.


          4)Allows local agencies to 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.


          5)Requires reservoir construction to be approved by the  
            Department of Water Resources' Division of Dam Safety and  
            requires reservoirs to be inspected by the Division.


          This bill: 


          1)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 (including conventional, progressive, and target  
            price methods), design-bid-build, and construction manager  
            at-risk alternative procurement methods.


          2)Requires any entity using these methods to follow the process  
            for procuring a design-build project in existing law, except  
            that this bill:


             a)   Authorizes design-build-operate agreements where  
               existing law expressly prohibits this type of procurement.


             b)   Requires at least 50 percent of the skilled workforce at  
               every tier of the contract or project to be graduates of an  







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               apprenticeship program by the fourth year of project  
               construction, where existing statute requires at least 60  
               percent by January 1, 2020.


             c)   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.


             d)   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.


             e)   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.


             f)   Omits a requirement in existing law that limits the  
               retention proceeds withheld by the agency from the  
               design-build entity to no more than five percent if a  
               performance and payment bond, issued by an admitted surety  
               insurer, is required in the solicitation of bids.


             g)   Clarifies the process by which compliance with skilled  
               labor requirements are met and enforced.


             h)   Makes other technical and conforming changes to  
               encompass construction manager at-risk and  
               design-build-operate procurement methods.


          3)Requires the contract to be awarded to the lowest responsible  







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            bidder or on a best-value basis.


          4)Requires any project procured under the bill to be subject to  
            the approval and review by the Division of Dam Safety.


          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  
          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.  









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          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).  


          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, Temperance Flat Reservoir, and Los Vaqueros Expansion  
          Project.


          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 new reservoirs.


          Some local agencies want to be able to use alternative  
          procurement methods to construct and operate projects funded by  
          Proposition 1.


          Comments


          1)Purpose of the bill.  Historically, water projects built by  
            local agencies have been limited to the design-bid-build  
            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  







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            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)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 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.


          Related Legislation


          SB 693 (Hueso, 2016), currently pending on the Assembly Floor,  
          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."   
          AB 2551 includes changes that conform to these provisions.











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          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:YesLocal:   Yes


          SUPPORT:   (Verified8/10/16)


          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
          Northeastern California Building & Construction Trades Council
          Northern California Water Association
          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:   (Verified8/10/16)


          Air Conditioning Trade Association
          Associated Builders and Contractors
          Plumbing-Heating-Cooling Contractors Association
          Sierra Club California
          Western Electrical Contractors Association
           
           







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          ASSEMBLY FLOOR:  73-1, 5/23/16
          AYES:  Achadjian, Alejo, Travis Allen, Atkins, Baker, Bigelow,  
            Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos,  
            Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh,  
            Dahle, Daly, Dodd, Frazier, Beth Gaines, Gallagher, Cristina  
            Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez,  
            Gordon, Gray, Grove, Hadley, Roger Hernández, Holden, Irwin,  
            Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low,  
            Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin,  
            Nazarian, Obernolte, O'Donnell, Olsen, Quirk, Rodriguez,  
            Salas, Santiago, Steinorth, Thurmond, Wagner, Waldron, Weber,  
            Wilk, Williams, Wood, Rendon
          NOES:  Mark Stone
          NO VOTE RECORDED:  Arambula, Eggman, Harper, Patterson,  
            Ridley-Thomas, Ting

          Prepared by:Anton Favorini-Csorba / GOV. & F. / (916) 651-4119
          8/10/16 15:34:57


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