BILL ANALYSIS Ó SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION Senator Isadore Hall, III Chair 2015 - 2016 Regular Bill No: SB 630 Hearing Date: 4/28/2015 ----------------------------------------------------------------- |Author: |Hancock | |-----------+-----------------------------------------------------| |Version: |4/21/2015 | ----------------------------------------------------------------- ------------------------------------------------------------------ |Urgency: |No |Fiscal: |Yes | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant:|Arthur Terzakis | | | | ----------------------------------------------------------------- SUBJECT: Public contracts: bidders: cost overruns DIGEST: This bill requires a contractor bidding on a state public works construction project to include with the bid a report of all cost overruns on public works projects or purchase contracts previously awarded by the state to that bidder or contractor. ANALYSIS: Existing law: 1)Establishes rules governing the awarding of contracts by state agencies, including general requirements for competitive bidding on contracts for construction projects, goods, services, and information technology. 2)Designates the Department of General Services (DGS) as the lead purchasing and procurement agency for the State of California and sets forth the various responsibilities of DGS and other state agencies in overseeing and implementing state contracting procedures and policies. 3)The State Contract Act regulates contracting between state agencies and private contractors, and outlines requirements for bidding and awarding of contracts for projects. 4)Contains a body of law, within the Public Contract Code, SB 630 (Hancock) Page 2 of ? relating to contracts let by a public entity for the performance of public works of improvement, including provisions for the payment of progress payments and the disbursing and withholding of retention proceeds. This bill adds a new provision to the Public Contract Code that requires a bidder or contractor bidding on a state public works contract to include with the bid a report of all cost overruns on public works projects or purchase contracts previously awarded by the state to that bidder or contractor. Background Purpose of SB 630: According to the author's office, this measure is simply intended to require state agencies and departments to ask bidders and contractors, as part of the bidding process, to submit information about cost overruns on previous public works projects or purchase contracts that were awarded to that bidder or contractor. The author's office believes SB 630 will help reduce future cost overruns and discourage low-ball bids by contractors. The author references an information technology project contract, managed by Deloitte Consulting, which ballooned from an original bid cost of $33 million in 2003 to $310 million by 2010 and was eventually abandoned. Other recent cost overruns include a $250 million overrun by SAP Public Services for overhauling the state's payroll system in 2013; San Francisco Bay Bridge construction costs rising to over $6 billion; and, more than triple the projected costs for the BrEze computer system for the Department of Consumer Affairs, rising from $28 million to $96 million. Prior/Related Legislation AB 2471 (Frazier), 2013-14 Session. Among other things, would have required public entities, when additional work is needed, to issue change orders promptly, and generally not later than 60 days after the extra work is performed as long as the contractor submitted reasonable documentation to support the request for a change order. (Held in Senate Appropriations Committee) SB 293 (Padilla), Chapter 700, Statutes of 2011. Among other things, prohibited a public entity from retaining more than 5% of a contract price until final completion and acceptance of a SB 630 (Hancock) Page 3 of ? project, but allowed retention of higher amounts when a project is deemed "substantially complex." FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No SUPPORT: None received OPPOSITION: Air Conditioning Sheet Metal Association Air-Conditioning & Refrigeration Contractors Association American Subcontractors Association California, Inc. Associate General Contractors California Chapters of the National Electrical Contractors Association California Legislative Conference of the Plumbing, Heating and Piping Industry Construction Employers' Association Finishing Contractors Association of Southern California United Contractors ARGUMENTS IN OPPOSITION: Opponents note that the controversy surrounding information technology projects and the cost overruns associated with those projects have been well documented and that gathering additional information on those types of businesses that contract with the state makes perfect sense. However, opponents emphasize that "the construction industry functions in a completely different manner with respect to cost overruns." Specifically, opponents point out that public works construction projects are performed in coordination and synchronization with many different parties, all of which could have an impact on the final cost of the project. This includes the owner, the engineer, the contractor, subcontractors, material suppliers and the labor force. Opponents contend that this bill "fails to distinguish between cost overruns caused by other parties such as change orders requested by project owners, flawed architectural or engineering plans, building code compliance, subcontractor failure, and labor strikes." Furthermore, opponents believe that under SB SB 630 (Hancock) Page 4 of ? 630, "contractors would effectively be tarnished due to the actions of any number of other parties."