BILL ANALYSIS
SB 474
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Date of Hearing: June 28, 2010
ASSEMBLY COMMITTEE ON TRANSPORTATION
Bonnie Lowenthal, Chair
SB 474 (Ducheny) - As Amended: August 24, 2009
SENATE VOTE : 38-0
SUBJECT : Transportation projects: alternative project delivery
and finance methods.
SUMMARY : Requires a lead transportation agency of a
public-private partnership, design-build, or design-sequencing
project to make one of several specific findings regarding the
benefits of using the alternative project delivery or financing
method. Specifically, this bill :
1)Requires a lead agency, within 90 days after awarding a
contract involving an alternate contracting or financing
method (i.e., public-private partnerships, design-build, or
design-sequencing), to make a finding that the use of the
alternative method will provide any of several specifically
identified benefits, compared to a traditional contracting or
financing method; specifically identified benefits include:
a) Early project completion;
b) Savings in personnel or financing resources;
c) Lower costs to the users of the facility being built;
or,
d) An influx of additional resources not otherwise
available.
2)Requires the owner of the facility to concur in the finding if
the owner is not the lead agency on the project (for example,
if a regional transportation agency is the lead on a state
highway project, the California Department of Transportation
(Caltrans) would have to concur with the finding as the owner
of the state highway).
3)Articulates that the sole purpose of requiring the finding is
to assist the public and the Legislature in evaluating the
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effectiveness of the specific alternative methods of project
delivery and financing.
4)Holds agencies harmless for making the finding in the event
that the benefits do not materialize.
5)Requires the California Transportation Commission (CTC), in
cooperation with Caltrans and regional transportation
agencies, to develop the methodology for determining whether a
project realizes any of the specified benefits.
6)Requires CTC to submit a consolidated annual report to the
Legislature on the progress of the following pilot programs:
a) Public-private partnerships;
b) Design-build for highways; and,
c) Design-sequencing.
7)Requires the consolidated report to include information on any
time or resources savings achieved as a result of using these
alternative methods of contracting or financing.
8)States legislative intent that any agency seeking to use
alternative project delivery or financing is to justify the
use of a finding of the benefit the alternative method is
expected to achieve and to report on the extent to which
actual benefits were or were not achieved.
9)Includes urgency provisions.
EXISTING LAW:
1)Sets forth provisions governing public works contracting.
These provisions generally prohibit public agencies from
contracting with the same firm for both the design and the
construction phases of a project.
2)Generally requires public works construction contracts to be
awarded to the lowest responsible bidder and only after
complete plans have been developed.
3)Establishes a number of alternative project delivery and
financing pilot programs, including the following programs
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specifically referenced in SB 474:
a) Public-private Partnership (P3) agreements: P3
agreements are an alternative means of providing both
project delivery and financing. SBX2 4 (Cogdill), Chapter
2, Statutes of 2009, allows regional transportation
agencies and Caltrans to enter into an unlimited number of
agreements with private entities for the design, finance,
construction, maintenance, or operation of a highway,
street, or rail projects, subject to specified terms and
conditions. The authority to enter into P3 agreements
using this authority sunsets on January 1, 2017.
b) Design-build: Design-build, also authorized by SBX2 4,
is a project delivery procurement method in which both the
design and construction of a project are procured from a
single entity. Among other things, SBX2 4 established the
Design-build Demonstration Program to permit Caltrans and
local transportation entities to utilize design-build for
up to a total of 15 transportation projects, subject to
specified conditions. SBX2 4 vests the CTC with
responsibility for authorizing transportation entities to
use this procurement method. The authority to use
design-build expires on January 1, 2014.
c) Design-sequencing: Design-sequencing is a project
delivery procurement method that enables the sequencing of
design activities to permit each construction phase to
commence when design for that phase is complete, instead of
requiring design for the entire project to be completed
before commencing construction. Caltrans had been
authorized to use design-sequencing for a limited number of
projects although that authority expired January 1, 2010.
Provisions authorizing the use of design-sequencing have
since been repealed.
Includes requirements that agencies evaluate the use of these
alternative project delivery and financing programs and report
their findings to the Legislature, as follows:
a) SBX2 4 requires CTC, in cooperation with the Legislative
Office (LAO), to prepare an annual report on the progress
and operation of each facility developed under P3
authority. The report shall include a review of the
performance standards established in the lease agreement, a
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financial analysis, and any concerns or recommendations
regarding P3.
b) Regarding design-build, SBX2 4 requires each
transportation entity that utilizes design-build to submit
a progress report to CTC not later than June 30th of each
year after the contract is awarded. The progress report is
to include a list of specific elements, including:
i) A description of the project;
ii) The estimated and actual costs of the project;
iii) The estimated and actual schedule for project
completion;
iv) A description of any written protests concerning any
aspect of the solicitation, bid, proposal, or award of
the design-build project, including, but not limited to,
the resolution of the protests;
v) A description of the method used to evaluate the
bid, including the weighting of each factor and an
assessment of the impact of this requirement on a
project; and
vi) Recommendations to improve the design-build process
of construction procurement.
c) In addition to the reporting requirements, SBX2 4
requires CTC to establish a peer review committee to
conduct an evaluation of the 15 projects selected to
utilize design-build. The peer review committee is
required to compare design-build projects to similar
transportation projects that used the design-bid-build
method of procurement (the standard method of procurement)
and to consider whether the projects were on time and on
budget.
FISCAL EFFECT : Unknown
COMMENTS : According to the author, SB 474 is intended to
provide a means to track projects using innovative project
delivery and financing methods under one, comprehensive report.
The author contends that the bill is necessary because the
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Administration won significant concessions in the use of these
alternative methods as a part of last year's budget
negotiations. Consequently, the author is seeking to make it
easier for the Legislature and members of the public to access
information related to these projects.
Writing in opposition to SB 474, the American Council of
Engineering Companies (ACEC) argues that SB 474 is "ambiguous
and will produce more litigation than infrastructure." ACEC
contends that SB 474 will require Caltrans and local agencies to
make findings after entering into any contractual obligations,
such as a P3 agreement. ACEC believes that this requirement is
reviewable by the courts and could provide contracting opponents
a forum to contest the propriety of the finding, inciting
endless litigation.
Committee concerns:
1)Authority to use P3s, design-build, or design-sequencing for
transportation projects is either newly established,
significantly limited, or both. The Legislature's intent in
authorizing the use of these alternative methods on a pilot
basis was to test the potential benefits that these different
approaches might realize; as a result, use of these pilot
methods was conditioned upon on significant evaluation and
reporting requirements.
SB 474's requirement that an agency make a finding as to which
of four specific benefits the use of a pilot program will
provide is unrealistic and potentially deleterious to
completion of the project. These methods are available on
pilot project basis to test their effectiveness. It is
unrealistic to believe an agency could know with enough
certainty to make a finding what benefit will be realized, if
any, given the relatively limited amount of experience in
using these methods for transportation projects in California.
Furthermore, requiring a finding could be deleterious to
completion of the project for reasons presented by
opponents-that is, potential legal challenges could result in
project delays. The discussion whether to grant the authority
to use one these alternative methods has invited highly
charged debates for over twenty years, generally between the
labor union representing state engineers and private industry
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engineers. The likelihood of legal challenge is significant.
2)The bill requires the CTC, in cooperation with Caltrans and
regional transportation agencies, to develop the methodology
for determining whether a project will provide specified
benefits, such as cost or schedule savings. The issue of
determining whether using in-house or private engineers is
more cost effective than the other is another source of
decades-old debate that has not yet been resolved
conclusively. The CTC may or may not be the appropriate
entity to tackle the matter of developing a methodology but,
whatever the result, it is likely to be challenged and
resolution is likely to remain elusive, as demonstrated by
previous attempts on similar, related matters.
3)The list of potential benefits should not be limited to just
the four identified in the bill: time savings, cost savings,
lower costs to the users of the facility, and leveraging
financial resources. There may be other benefits anticipated
that are not accounted for here, such as securing greater
control over project costs and schedules than the traditional
design-bid-build approach offers.
1)Consolidating report requirements is redundant of existing,
extensive report requirements, would provide little or no
value, and would consume limited staff resources needlessly.
2)The bill states legislative intent that any agency using one
of these alternative methods should report on the extent to
which the method did in fact produce expected results.
Additional reports, on top of reports already required, is
excessive and would add no value (except, perhaps, to thwart
the use of these alternative methods).
Suggested amendments: Existing reporting requirements are
generally geared at evaluating and reporting on the results of
the pilot project. Asking an agency to acknowledge up front
what benefits it hopes to attain by using one of these three
alternative methods of project delivery or financing is not
without merit. In theory, the use of these alternative methods
involves some risk. Presumably, any agency that pursues the use
of one of these methods anticipates that there will be benefits
beyond the risks. It would be helpful to know up front, via a
resolution by the transportation agency's governing board, what
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those expectations may be so that, as the project progresses,
sometimes over the span of a number of years, the original
intent of the pilot project will not be lost.
REGISTERED SUPPORT / OPPOSITION :
Support
Professional Engineers in California Government
Opposition
American Council of Engineering Companies
Orange County Transportation Authority
Analysis Prepared by : Janet Dawson / TRANS. / (916) 319-2093