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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Page 2
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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Page 4
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
AB 2551
Page 9
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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