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 --