BILL ANALYSIS                                                                                                                                                                                                    Ó

          |SENATE RULES COMMITTEE            |                       AB 2551|
          |Office of Senate Floor Analyses   |                              |
          |(916) 651-1520    Fax: (916)      |                              |
          |327-4478                          |                              |

                                   THIRD READING 

          Bill No:  AB 2551
          Author:   Gallagher (R), Olsen (R) and Salas (D), et al.
          Amended:  8/19/16 in Senate
          Vote:     21 

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


           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  

          Senate Floor Amendments of 8/19/16 allow these reservoir  
          projects to use procurement methods that county water districts  
          and other similar water districts can already use, remove a  
          threshold for what constitutes an acceptable safety record, and  
          modify certain requirements that contracts for those projects  
          must meet.



                                                                    AB 2551  
                                                                    Page  2

          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").

          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).

          3)Requires, among other things:

             a)   Qualified bidders to have an acceptable safety record,  
               defined as exceeding a specified threshold, and

             b)   A design build contract to meet certain percentage  
               requirements for the share of skilled work performed by  
               graduates of an apprenticeship program.

          4)Prohibits design-build-operate procurement methods.

          5)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.

          6)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.


                                                                    AB 2551  
                                                                    Page  3

          7)Authorizes the sale of $3 billion in General Obligation bonds  
            for the construction of water storage projects that provide  
            public benefits (Proposition 1, 2014).  

          This bill: 

          1)Allows any surface storage project that 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, in addition to any  
            methods currently authorized for irrigation districts, county  
            water districts, and other similar water districts.

          2)Requires any entity using these methods to meet certain  
            requirements, including the following:

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

             b)   Requires at least 30 percent of the skilled workforce at  
               every tier of the contract or project to be graduates of an  
               apprenticeship program by January 1, 2017, increasing by 10  
               percent annually to at least 60 percent by January 1, 2020.

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

             d)   Requires bidders to have an "acceptable safety record,"  
               and defines "safety record" to include the prior history  
               concerning the safe performance of construction contracts,  
               based on specified criteria. 

          3)Requires the contract to be awarded to the lowest responsible  
            bidder or on a best-value basis.


                                                                    AB 2551  
                                                                    Page  4

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


          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.  

          Originally the authorizations for state agencies and local  


                                                                    AB 2551  
                                                                    Page  5

          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  

          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.


          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  
            other unanticipated complications.  Alternative delivery  


                                                                    AB 2551  
                                                                    Page  6

            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.

          FISCAL EFFECT:   Appropriation:    No          Fiscal  


                                                                    AB 2551  
                                                                    Page  7

          Com.:YesLocal:   Yes

          SUPPORT:   (Verified8/22/16)

          American Council of Engineering Companies, California
          Association of California Water Agencies
          California Chapters of the National Electrical Contractors  
          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:   (Verified8/22/16)

          Air Conditioning Trade Association
          Associated Builders and Contractors
          Plumbing-Heating-Cooling Contractors Association
          Sierra Club California
          Western Electrical Contractors Association
          ASSEMBLY FLOOR:  73-1, 5/23/16


                                                                    AB 2551  
                                                                    Page  8

          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
          8/22/16 23:05:46

                                   ****  END  ****