BILL ANALYSIS
SENATE LOCAL GOVERNMENT COMMITTEE
Senator Dave Cox, Chair
BILL NO: SB 879 HEARING: 4/19/10
AUTHOR: Cox FISCAL: Yes
VERSION: 4/14/10 CONSULTANT: Detwiler
DESIGN-BUILD CONTRACTING
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 approach to
public works construction. By contrast, the design-build
method allows local officials to procure both design and
construction services from a single company before the
development of complete plans and specifications.
Counties can use the design-build method for projects worth
more than $2.5 million. The counties' authority sunsets on
January 1, 2011 (SB 416, Ashburn, 2007). Cities can use
the design-build method on projects worth more than $1
million. The cities' design-build statute sunsets on
January 1, 2016 (AB 642, Wolk, 2008).
On January 20, 2010, the Senate Local Government Committee
held an oversight hearing called, "Faster, Cheaper, Better?
How Counties Use Design-Build Contracting." After a
briefing from the Legislative Analyst's Office, the
Committee heard from 18 speakers and received additional
written advice. The Committee's staff summarized the
hearing's results with six staff findings:
Broad support exists --- especially among counties
--- to repeal the sunset clause and make permanent the
state law that allows counties to use the design-build
contracting method. One labor group conditionally
supports an extension of the sunset clause.
The Legislative Analyst's recommendation to
eliminate the current $2.5 million price threshold
attracted endorsements from counties and contractors,
although one group affiliated with labor interests
disagreed.
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The Legislative Analyst's recommendation to enact a
uniform design-build contracting statute that applies
to all local governments drew similar support from
counties and contractors, although one labor group is
opposed.
Some counties want the Legislature to allow them to
use design-build contracting for any capital
improvement projects, but labor groups are opposed.
No consensus exists over how to define the criteria
and assign weights for the best-value selection
procedures. Most of the Legislature's debate over the
future of the counties' design-build law will need to
focus on controversies over these criteria and
weights.
o While the Legislative Analyst wants
legislators to place more emphasis on a project's
cost, contractors disagree and argue that other
criteria can be more important.
o While the Legislative Analyst suggested
that state law explicitly allow so-called
"two-envelope" bidding, there was disagreement
over its usefulness and over the usefulness of
the stipulated sum method.
o Some counties and labor groups disagree
about retaining or eliminating consideration of
life cycle costs and contractors' safety records.
o There is support for a new criterion that
asks prospective design-build entities about past
violations of state or federal False Claims Acts.
Because some counties and labor groups disagree
about the counties' faithful observance of state laws
that govern the counties' use of design-build
contracts, legislators may wish to consider creating a
forum to investigate allegations. Legislators may
wish to consider assigning this function to the
existing California Uniform Construction Cost
Accounting Commission which already investigates
allegations regarding misuse of local public works
contracts.
Existing Law
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Method . Local officials must follow a four-step
design-build method:
Prepare documents describing the project and its
specifications.
Prepare a detailed request for proposals, inviting
competitive bids.
Establish a detailed procedure to pre-qualify
design-build entities.
Establish the procedures to select the design-build
entity.
Local officials must establish and enforce labor compliance
programs. The requirement for a labor compliance program
doesn't apply if the local agency or the design-build
entity has a collective bargaining agreement.
When pre-qualifying design-build entities, local officials
must collect at least 11 types of information. The entity
must list its proposed mechanical subcontractors and
licenses. The entity must also report past worker safety
violations, contracting problems, contract defaults,
license violations, payroll violations, and bankruptcies.
The entity must verify this information under oath. State
law prohibits public inspection of information that is not
public under the Public Records Act.
Awarding contracts . Local officials must select the
design-build entity by using either a competitive bidding
process in which the award goes to the lowest responsible
bidder, or a "best value competition" in which the local
officials set the criteria. At least 50% of the weight of
these best value factors must include price, expertise,
life cycle costs, labor availability, and safety records.
Local officials must rank the top three responsive bidders
and the award goes to the responsible bidder whose proposal
local officials rank as "the most advantageous." After the
local officials publicly announce the award, they must also
identify the second and third ranked bidders.
Performance . The winning design-build entity must be
bonded and carry errors-and-omissions insurance that covers
its design and architectural services. The entity must
adhere to local performance criteria and design standards.
Deviations require local officials' written consent. Local
officials may hire a design professional to ensure
compliance.
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The winning design-build entity can use subcontractors who
were not listed in its original bid. The entity must award
subcontracts by following a process set by local officials,
including publishing notices and setting deadlines.
If the bid request required the design-build entity to
carry a performance and payment bond, the county or city
can retain only 5% of the contract.
Proposed Law
Senate Bill 879 changes the design-build statutes for both
counties and cities.
I. Project limits . Counties can use the design-build
contracting method on construction projects worth more than
$2.5 million. The statutory cost threshold for
cities'design-build projects is $1 million. Senate Bill
879 lowers the cost threshold for counties' design-build
projects from $2.5 million to $1 million.
II. Evaluation factors . When counties and cities prepare
requests for proposals for design-build projects, they must
include at least 11 types of information. Specifically,
they must include the "significant factors" which they will
consider when evaluating proposals, including cost or price
and all nonprime factors. For both counties and cities,
Senate Bill 879 requires these significant factors to be
"objective."
III. False claims . When counties and cities prepare
requests for proposals for design-build projects, they must
include at least 11 types of information. For its
oversight hearing, the Committee received written advice
which recommended that counties and cities ask prospective
design-build entities about past violations of the federal
or state or False Claims Acts. Senate Bill 879 requires
prospective design-build entities to disclose detailed
information if a court found that the firm submitted (or
that the firm admitted to having submitted) a claim that
violated the federal or state False Claims Acts.
IV. Subcontractor information . When counties and cities
prepare requests for proposals for design-build projects,
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they must include at least 11 types of information,
including a listing of all partners and subcontractors. A
witness at the Committee's oversight hearing said that it
was hard to obtain public records of subcontractors' bid
lists and payroll records. Senate Bill 879 requires a
successful design-build entity to submit lists of
subcontractors, bidders, and bid awards within 14 days of
the contract's award. SB 879 declares that those documents
are public records and available for public inspection.
The bill also requires the design-build entity to provide
the awarding party with certified payroll records with 14
days of a request under the Labor Code.
V. County reports and termination . When the Legislature
extended the design-build contracting authority to all
counties, it required counties to tell the Legislative
Analyst's Office (LAO) about their experiences by December
1, 2009. The LAO had to report on these experiences by
January 1, 2010. The LAO report came out in early January
2010. The counties' design-build statute automatically
terminates ("sunsets") on January 1, 2011. One of the
staff findings from the Committee's oversight hearing was
that broad support exists to repeal the sunset clause and
make the counties' design-build contracting powers
permanent. Senate Bill 879 repeals the January 1, 2011
automatic termination date for the county's design-build
contracting authority. SB 879 also repeals the requirement
for the LAO to report on the counties' use of the law.
Comments
1. Good to go . Fifteen years ago, the Legislature let a
handful of counties experiment with the design-build method
of contracting for public works. Ten years ago,
legislators struck a compromise among local officials,
labor groups, and contractors to revise the design-build
procedures. Five years ago, the Legislative Analyst
reviewed state and local design-build practices and found
that this contracting method could be a useful option.
Earlier this year, the Committee's oversight hearing
explored how counties use design-build contracts. SB 879
reflects many of the suggestions that emerged from the
Committee's hearing, including the broad support for
repealing the counties' sunset clause, lowering the cost
threshold for eligible projects, making the county and city
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statutes similar, and improving public disclosure of
important information. Although not all labor groups and
construction companies like design-build contracting, the
custom and practice seems reasonably settled.
2. Too much, too soon ? The requirement for
design-bid-build contracts was a reaction to the
favoritism, corruption, and waste associated with major
public works projects in the 19th Century. Ever since the
reforms that separated the design and construction phases
at the turn of the 20th Century, design-bid-build contracts
became the norm. Responding to local officials' requests
for more flexibility, legislators have loosened the
statutes to allow experiments with design-build contracts.
In its last review, the LAO learned that five counties
completed five design-build projects in recent years, with
10 more projects still underway. Some labor groups say
that's not enough experience to justify making the
counties' design-build law permanent. Instead of repealing
the sunset clause, the Committee may wish to consider
another seven-year extension until January 1, 2018, and
asking for another LAO report by January 1, 2017.
3. Referee needed . At and after the Committee's oversight
hearing, some labor groups and county officials disagreed
about the counties' faithful observance of the state laws
that govern design-build contracts. Other than lawsuits,
there is no forum to air allegations and investigate
grievances. The Committee may wish to consider assigning
those functions to the existing California Uniform
Construction Cost Accounting Commission which already
reviews charges that local officials misuse public works
contracts.
4. Two envelopes ? The recent LAO report recommended that
state law explicitly authorize the so-called "two-envelope
system" of awarding design-build contracts in which
pre-qualified contracts submit their technical proposals in
one envelope and the price in a second envelope. Local
officials would determine which firms had satisfactory
technical proposals, then open their second envelopes and
award the contract to the proposal that has the lowest
price. Although that practice is possible under current
design-build laws, the statute isn't explicit nor is that
provision in SB 879. The Committee may wish to consider
whether the Legislature should formally recognize the
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two-envelope system.
5. Two more amendments . Although the April 14 amendments
made the county and city design-build statutes more like
one another, the bill's author wanted to propose two other
changes that did not make it into those amendments:
City selection factors . Counties and cities may use
best value and other criteria to select design-build firms.
A design-build competition must evaluate the proposed
design-build entities' proposals based on only the
established criteria and selection procedures. However,
price, technical design, construction experience, life
cycle costs, skilled labor force availability, and safety
records must represent at least 10% of the total weight of
the consideration give to all criteria. State law requires
cities to weigh each of these factors equally; that
restriction doesn't apply to counties. SB 879 could repeal
the requirement that cities weigh the selection factors
equally.
City reports . When the Legislature extended the
design-build contracting authority to all cities, it
required counties to tell the Legislative Analyst's Office
(LAO) about their experiences by December 1, 2014. By
January 1, 2015, the LAO must report on these experiences.
The cities' design-build statute automatically terminates
("sunsets") on January 1, 2016. Some observers want to see
more detail in these reports. When cities tell the LAO
about their design-build experiences, SB 879 could require
the cities to report the estimated and actual length of
time to complete projects.
Support and Opposition (4/15/10)
Support : American Institute of Architects-California
Council, California Chamber of Commerce, California Special
Districts Association, California State Sheriffs'
Association, CH2MHill, Regional Council of Rural Counties,
Counties of Orange and San Diego, Santa Clara Valley Water
District.
Opposition : American Federation of State, County and
Municipal Employees AFL-CIO, California State Pipe Trades
Council, California State Association of Electrical
SB 879 -- 4/14/10 -- Page 8
Workers, Professional Engineers in California Government,
Western States Council of Sheet Metal Workers.