BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |SB 762 |Hearing |4/22/15 |
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|Author: |Wolk |Tax Levy: |No |
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|Version: |4/15/15 |Fiscal: |Yes |
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|Consultant|Weinberger |
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BEST VALUE CONTRACTING FOR COUNTIES
Let's counties award construction contracts through a "best
value" procurement process.
Background and Existing Law
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.
Over the last two decades, legislators have gradually expanded
local governments' authority to procure construction projects
using various alternatives to the design-bid-build project
delivery method. These alternative methods include:
"Design-build" contracting, which allows local officials
to procure both design and construction services from a
single company before the development of complete plans and
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specifications (SB 785, Wolk, 2014); and,
"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, and is responsible for delivering the
project within an agreed upon price, thereby assuming the
risk for cost-overruns (SB 328, Knight, 2013).
During the bidding phase, these alternative procurement methods
allow a local government to evaluate bids on a best-value basis,
incorporating technical factors, such as qualifications, in
addition to price. For example, the statutes authorizing
design-build contracting allow a contract to be awarded based on
consideration of objective criteria that include features,
functions, lifecycle costs, experience, and past performance.
State law allows the University of California, as a pilot
project until January 1, 2017, to award construction contracts
on a best-value basis, rather than awarding contracts based on
the lowest-priced bid (SB 835, Wolk, 2011).
Some county officials want the Legislature to grant them the
authority to award construction contracts on a best-value basis,
similar to the pilot program authorized for UC.
Proposed Law
Senate Bill 762 establishes a pilot program to allow counties,
until January 1, 2020, to use a "best value" procurement process
to award construction contracts in excess of $1 million.
Pilot program . SB 762 requires a county using the pilot program
to award a contract for a construction project to the lowest
responsible bidder or else reject all bids. The bill allows a
county to select the lowest responsible bidder on the basis of
the best value to a county. To ensure that selections are
conducted fairly and impartially, a county that wants to select
a bidder using the best value method must adopt and publish
mandatory procedures and criteria that conform to the bill's
requirements.
Definitions . SB 672 defines "best value" as a procurement
process whereby the lowest responsible bidder may be selected on
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the basis of objective criteria with the resulting selection
representing the best combination of price and qualifications.
SB 672 defines "qualifications" as comprising the following five
criteria:
"Demonstrated management competency," which the bill
defines as the experience, competency, capability, and
capacity of the proposed management staffing to complete
projects of similar size, scope, or complexity.
"Financial condition," which the bill defines as the
financial resources needed to perform the contract,
including the capacity to obtain all required payment
bonds, performance bonds, and liability insurance.
"Labor compliance," which the bill defines as the
ability to comply with, and past performance with, contract
and statutory requirements for the payment of wages and
qualifications of the workforce. Criteria used to evaluate
a bidder's labor compliance must include the bidder's
ability to comply with the apprenticeship requirements of
the California Apprenticeship Council and the Department of
Industrial Relations, its past conformance with those
requirements, and its past conformance with requirements to
pay prevailing wages on public works projects.
"Relevant experience," which the bill defines as
experience, competency, capability, and capacity to
complete projects of similar size, scope, or complexity.
"Safety record," which the bill defines as the prior
history concerning the safe performance of construction
contracts. The criteria used to evaluate a bidder's safety
record shall include, at a minimum, its experience
modification rate for the most recent three-year period,
and its average total recordable injury or illness rate and
average lost work rate for the most recent three-year
period.
SB 672 specifies that the bidding documents may require the
county to evaluate some or all of the preceding qualifications
as they pertain to subcontractors proposed to be used by the
bidder for designated portions of the work.
Bid Solicitation . SB 672 requires that a county using best
value contracting must establish a procedure to prequalify
bidders pursuant to a specified statute, prepare a solicitation
for bids, and give public notice of the solicitation pursuant to
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a specific statute. Each solicitation for bids must:
Invite prequalified bidders to submit sealed bids in a
specified manner.
Include a section identifying and describing the
following:
o Criteria that a county will consider in
evaluating bids.
o The methodology and rating or weighting system
that the county will use in evaluating bids.
o The relative importance or weight assigned to
the criteria identified in the request for bids.
Bidders must verify under oath the information that is required
as part of the bid solicitation process. Information submitted
by a bidder is not open to public inspection to the extent that
information is exempt from disclosure under the California
Public Records Act.
Contractor selection . SB 762 requires that an evaluation
committee appointed by a county selecting a best value
contractor must evaluate bidders' qualifications based solely
upon the criteria specified in the solicitation documents. The
evaluation committee must assign a qualifications score to each
bid. The bill requires that the final evaluation of a best
value contractor must be done in a manner that prevents cost or
price information from being revealed to the committee
evaluating the qualifications of the bidders prior to completion
and announcement of that committee's decision.
A county is prohibited from awarding a contract for a
construction project under the bill's provisions if a
solicitation for bids for that construction project results in
fewer than three responsive bids being submitted for the county
to evaluate.
The bidder whose bid is determined by a county, in writing, to
be the best value to a county must be awarded the contract. To
determine the best value contractor, the county must divide each
bidder's price by its qualifications score. The lowest
resulting cost per quality point represents the best value bid.
A county must issue a written decision of its contract award.
SB 762 requires that, after issuing a contract award, a county
must:
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Publicly announce its award identifying the best value
contractor to which the award is made, the project, the
project price, and the selected best value contractor's
score based on the evaluation criteria listed in the
request for bids.
Make the notice of award public and include the score of
the selected best value contractor in relation to all other
responsive bidders and their respective prices.
Include, in the contract file, documentation sufficient
to support the decision to award.
If a successful bidder for a project refuses or fails to execute
a tendered contract, SB 762 allows a board of supervisors that
deems it to be in the best interest of the county to award the
contract to the second lowest responsible bidder. If the second
lowest responsible bidder fails or refuses to execute the
contract, the bill allows the board of supervisors to likewise
award the contract to the third lowest responsible bidder.
Reporting . Senate Bill 762 requires that the board of
supervisors of a county that uses the best value contracting
process authorized by the bill must submit a report to the
appropriate policy committees of the Legislature and the Joint
Legislative Budget Committee. The report must comply with
statutory requirements for submitting reports to the Legislature
and must include specified information about projects awarded
using best value procedures.
The bill clarifies that, except for the best-value process it
authorizes, it is not intended to change any guideline,
criteria, procedure, or requirement for a county to let a
contract to the lowest responsible bidder or else reject all
bids.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . Proponents of awarding contracts on a
best-value basis assert that allowing local governments to
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consider a range of relevant criteria, rather than focusing
solely on price, allows local governments to better match a
contractor to a public works project's specific requirements.
Contracts awarded solely on a low-bid basis may go to bidders
who are not necessarily the best-qualified to meet the technical
challenges, mitigate the unique risks, or fulfill the scheduling
requirements of a particular construction project. This
sometimes results in change orders, construction defects,
delays, and litigation that ultimately cost taxpayers more than
the savings that were realized by awarding a contract to the
lowest bidder. SB 762 allows counties to use a version of the
"best value" bid evaluation that is already authorized as part
of some alternative project delivery methods, like design-build.
By doing so, the bill allows local officials to exercise vital
discretion in awarding contracts to the bidder who is most
likely to provide the public with the best project outcome for a
fair price.
2. Is a more subjective process necessary ? The purpose of
awarding construction contracts to the lowest responsible bidder
is to reduce, as much as possible, local officials' discretion
to award contracts to undeserving bidders based on favoritism,
payoffs, or bad judgment. By allowing officials to award
contracts based on a range of variously-weighted criteria in
addition to price, SB 762 makes the procurement process for
county construction projects more subjective. More subjectivity
increases the chances that inappropriate factors could influence
which bidders are awarded some contracts. Many common public
works projects can be specified with great precision in bid
documents. In such cases, where a public agency can
meticulously describe a project exactly as it is to be built, it
is unclear why the agency should distinguish between bidders
based on any criteria other than price. The Committee may wish
to consider amending SB 762 to require a local agency, before it
prepares a solicitation for bids, to adopt findings that justify
why awarding a contract on a best value basis for a specific
construction project will serve the public's interest.
3. Evaluation committee . SB 762 requires an appointed
evaluation committee to judge the qualifications of bidders
participating in a best value solicitation process, but does not
describe the committee in any detail. The objectivity of the
best value process could be significantly enhanced by the
involvement of a committee of independent reviewers who are
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insulated from political influence and possess technical
expertise relevant to the project being procured. To ensure the
evaluation committee's independence and objectivity, the
Committee may wish to consider amending SB 762 to:
Require that members of an appointed evaluation
committee must be subject to the contracting
conflict-of-interest prohibitions in Government Code
Section 1090 and the Political Reform Act.
Require members of an evaluation committee to possess
expertise relevant to the project for which bid were
solicited.
4. Subletting . Some contractors worry that the bid solicitation
process established by SB 762 is not explicitly subject to the
"Subletting and Subcontracting Fair Practices Act" (AB 515,
Harris, 1986), which establishes statutory protections for
public construction subcontractors. The Committee may wish to
consider amending SB 762 to require that its bid solicitation
process must extend the Subletting and Subcontracting Fair
Practices Act's protections to subcontractors working on
contracts awarded through a best-value process.
5. Definitions . SB 762 defines the criteria that must be
considered to assign a qualifications score to a bid. However,
the definitions of "demonstrated management competency" and
"relevant experience" seem to be largely redundant. Other
criteria, like "competence" and "capability" to perform
specified functions, seem difficult to quantify to produce a
numerical qualifications score, as required by the bill. The
Committee may wish to consider amending SB 762 to clarify the
definitions of criteria that counties must use when awarding
best value contracts.
6. Mandate . SB 762 requires that specified information provided
by bidders in response to a request for qualifications must be
certified under penalty of perjury. By creating a new crime, SB
762 also creates a new state-mandated program. But the bill
disclaims the state's responsibility for reimbursing local
governments for enforcing these new crimes. That's consistent
with the California Constitution, which says that the state does
not have to reimburse local governments for the costs of new
crimes (Article XIIIB, 6[a] [2]).
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Support and
Opposition (4/17/15)
Support : Solano County.
Opposition : American Subcontractors Association California;
Southern California Contractors Association.
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