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 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. 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. ANALYSIS: 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. 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. 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 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 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 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: (Verified8/22/16) 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 ****