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
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          |Author:    |Hancock                                              |
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          |Version:   |4/21/2015                                            |
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          |Urgency:   |No                     |Fiscal:      |Yes             |
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          |Consultant:|Arthur Terzakis                                      |
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          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,  







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            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  








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          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  








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          630, "contractors would effectively be tarnished due to the  
          actions of any number of other parties."