BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON GOVERNANCE AND FINANCE
                         Senator Robert M. Hertzberg, Chair
                                2015 - 2016  Regular 

                              
          
           ------------------------------------------------------------------ 
          |Bill No:  |SB 957                           |Hearing    |4/13/16  |
          |          |                                 |Date:      |         |
          |----------+---------------------------------+-----------+---------|
          |Author:   |Hueso                            |Tax Levy:  |No       |
          |----------+---------------------------------+-----------+---------|
          |Version:  |2/4/16                           |Fiscal:    |Yes      |
           ------------------------------------------------------------------ 
           ----------------------------------------------------------------- 
          |Consultant|Weinberger                                            |
          |:         |                                                      |
           ----------------------------------------------------------------- 

                     Health care districts:  design-build process



          Allows health care districts' boards of directors to use  
          design-build contracting for the construction of hospital or  
          health facility buildings.


           Background 

           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.

          State law also allows some state and local officials to use the  
          design-build method to procure both design and construction  
          services from a single company before the development of  
          complete plans and specifications.  Under design-build, a public  
          agency contracts with a single entity - which can be a single  
          firm, a consortium, or a joint venture - to design and construct  







          SB 957 (Hueso) 2/4/16                                   Page 2  
          of ?
          
          
          a project.  Before inviting bids, the agency prepares documents  
          that describe the basic concept of the project, as opposed to a  
          complete set of drawings and specifications of what will be  
          constructed.  In the bidding phase, the agency typically  
          evaluates bids on a best-value basis, incorporating technical  
          factors, such as qualifications and design quality, in addition  
          to price.

          Until January 1, 2025, all counties and cities can use the  
          design-build method to construct buildings and related  
          improvements and other specified types of public works that cost  
          more than $1 million (SB 785, Wolk, 2014).  The Legislature also  
          has authorized some special districts to construct projects  
          using the design-build method, including four local health care  
          districts:
                 The Sonoma Valley Healthcare District can use the  
               design-build process when contracting for the construction  
               of a building and improvements directly related to a  
               hospital or health facility building at the Sonoma Valley  
               Hospital (SB 1699, Wiggins, 2008).  Following SB 1699's  
               enactment, the Sonoma Valley Health Care District's voters  
               approved a $35 million bond to finance earthquake safety  
               improvements to bring the hospital's emergency room into  
               compliance with the state's seismic safety standards for  
               hospitals.  The District's upgraded facility, which was  
               constructed using design-build contracts, opened in 2013.

                 The Last Frontier Healthcare District can use the  
               design-build process when contracting for the construction  
               of a building and improvements directly related to a  
               hospital or health facility building at the Modoc Medical  
               Center (SB 268, Gaines, 2014).

                 The Marin Healthcare District can use the design-build  
               process when contracting for the construction of a building  
               and improvements directly related to a hospital or health  
               facility building at the Marin General Hospital (SB 785,  
               Wolk, 2014).

                 The Mayers Memorial Hospital District can use the  
               design-build process when contracting for the construction  
               of a building and improvements directly related to a  
               hospital or health facility building at the Mayers Memorial  
               Hospital District (AB 1290, Dahle, 2015).








          SB 957 (Hueso) 2/4/16                                   Page 3  
          of ?
          
          


           Proposed Law

           Senate Bill 957 allows, until January 1, 2025, any health care  
          district's board of directors, notwithstanding any other law, to  
          use the design-build procedure to construct a building or  
          improvements directly related to the construction of a hospital  
          or health facility building.

          SB 957 specifies that a health care district must use the  
          design-build procedure that current law establishes for local  
          agencies and provides that statutory references to a "local  
          agency" means a health care district and its board of directors.

          SB 957 requires that a hospital building project using the  
          design-build process authorized by the bill must be reviewed and  
          inspected in accordance with the standards and requirements of  
          the Alfred E. Alquist Hospital Facilities Seismic Safety Act of  
          1983.

          The bill finds and declares the Legislature's intent that health  
          care districts use the design-build process solely for buildings  
          associated with hospitals and health care facilities, including  
          clinics and skilled nursing facilities, and not for other  
          infrastructure, including, streets, highways, public rail  
          transit, roads, bridges, and water resources facilities.


           State Revenue Impact

           No estimate.


           Comments

           1.  Purpose of the bill  .  When it comes to public works projects,  
          taxpayers want local officials to hold down costs, but they also  
          want to be sure that their tax dollars are spent wisely.  While  
          the traditional contracting process minimizes opportunities for  
          public officials to award construction contracts based on  
          subjective factors, it also can be more time consuming and more  
          expensive than the design-build method.  Health care districts,  
          in particular, face unique pressures to hold down costs.  They  








          SB 957 (Hueso) 2/4/16                                   Page 4  
          of ?
          
          
          face market pressures to compete with other health care  
          providers while complying with the Brown Act, the Public Records  
          Act, the Political Reform Act, public contracting laws, and  
          other statutory restrictions that are not imposed on their  
          private sector competitors.  The Legislature has already allowed  
          four health care districts to use design-build contracting to  
          construct new facilities.  SB 957 grants the same design-build  
          authority to all health care districts, allowing them to keep  
          costs down, expedite the design and construction process, and  
          save taxpayer dollars while fulfilling community health care  
          needs.

          2.   Which districts  ?  Although SB 957 uniformly extends  
          design-build contracting authority to all 78 of California  
          health care districts, not all health care districts will  
          realize similar benefits from using the design-build method.   
          The four health care districts that have the authority under  
          existing law all own and operate hospitals and were granted  
          authority to use design-build for construction projects that are  
          associated with those hospitals.  However, many health care  
          districts throughout the state do not own or operate a hospital,  
          clinic, or other medical facility.  These districts collect  
          property tax revenues and, in many cases, receive rental income  
          from district properties that are leased to third-party medical  
          care providers.  It is unclear why a health care district that  
          is only responsible for managing property should be allowed to  
          use design-build contracting to construct medical office  
          buildings or other infrastructure that will serve only to  
          generate rental income for the district.  One protection against  
          the potential misuse of design-build contracting authority is  
          the requirement in current law that it can only be used for  
          projects that cost at least $1 million, but this cost threshold  
          may not prevent some districts from using design-build to  
          construct large developments that will be rented to third  
          parties.  The Committee may wish to consider amending SB 957 to  
          provide greater certainty that design-build contracting will  
          only be used for the construction of hospitals and medical  
          clinics that are owned or operated by health care districts.

          3.   Mandate  .  The design-build procedures that SB 957 authorizes  
          all health care districts to use 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 957 also creates a new state-mandated  








          SB 957 (Hueso) 2/4/16                                   Page 5  
          of ?
          
          
          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]).

          4.   Try again  .  SB 957 is not the first legislative effort to  
          allow all health care districts to use design build contracting.  
           Early versions of SB 1699 (Wiggins, 2008) would have granted  
          all health care districts the authority to use the design-build  
          method, but the bill was subsequently narrowed to grant the  
          authority only to the Sonoma Valley Health Care District.   
          Similarly, early version of SB 1005 (Cox, 2010) would have  
          allowed all health care districts to construct projects using  
          the design-build contracting method.  That bill died in the  
          Assembly Appropriations Committee.

           


           Support and  
          Opposition   (4/7/16)


           Support  :  Association of California Healthcare Districts;  
          American Council of Engineering Companies - California; Beach  
          Cities Health Care District; California Labor Federation;  
          California Special District Association; District Hospital  
          Leadership Forum; Economic Development Corporation of Mariposa  
          County; John C. Fremont Health Care District; State Building and  
          Construction Trades Council.


           Opposition  :  Unknown.



                                      -- END --