BILL ANALYSIS
Bill No: SB
1457
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2009-2010 Regular Session
Staff Analysis
SB 1457 Author: Cogdill
As Amended: March 23, 2010
Hearing Date: April 13, 2010
Consultant: Art Terzakis
SUBJECT
State Facilities: alternative project delivery methods
DESCRIPTION
SB 1457 authorizes the Department of General Services (DGS)
to utilize two alternative construction project delivery
methods known as "job order contracting" and "construction
manager at risk contracting." Specifically, this measure:
1. Makes legislative findings and declares that
alternative project delivery methods can be an attractive
option to state entities in comparison to the existing
design-bid-build process and that it's in the state's
best interest to construct state facilities in a
cost-efficient manner that represents best overall value
to taxpayers and provides the greatest benefit to the
economy of California.
2. Grants DGS the authority to undertake public works of
improvement using "construction manager at risk
contracting" and "job order contracting," as defined.
Also, provides that each job order under a job order
contract shall not exceed the total cost limit
established by the Director of Finance.
3. Authorizes the director of DGS, whenever a public works
appropriation is made for acquisition, preliminary plans,
working drawings, or the construction phase of a project,
to determine the most appropriate delivery method for
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that project and consider the following criteria: (1) the
nature of the project; (2) the project delivery
schedules; (3) overall project cost, including life cycle
costs during the operational phase following
construction; (4) the ability to achieve design,
construction, or operational features not achievable
through the design-bid-build method; (5) shifting owner
risk from the department to the design or contracting
entities; (6) minimizing change orders; and, (7) other
criteria determined by the director to be critical to the
project based on specific facility program.
4. Stipulates that contracts entered into using
alternative delivery methods shall not be exempt from the
provisions of the Labor Code and shall provide for the
filing of separate performance and payment bonds by the
contractor. The payment bond shall secure the payment of
the claims of laborers, mechanics, or material men
employed on the work under the contract.
5. Requires the contract to contain a provision regarding
the time when the whole work or any specified portion of
the work contemplated shall be completed, and shall
provide that for each day completion is delayed beyond
the specified time, the contractor shall forfeit and pay
to the state a specified sum of money to be deducted from
any payments due or to become due to the contractor.
6. Provides that any contract may also provide for the
payment of extra compensation to the contractor as a
bonus for completion prior to the specified time.
7. Provides that any contract may also provide for the
payment of extra compensation to the contractor as a
bonus for completion prior to the specified time.
8. Requires DGS to establish policies and procedures to
implement the provisions of this bill.
9. Defines "construction manager at risk contract" as a
competitively bid contract by a department with an
individual, partnership, joint venture, corporation, or
other recognized legal entity, which is appropriately
licensed in this state and which guarantees the cost of a
project and furnishes construction management services,
including, but not limited to, preparation and
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coordination of bid packages, scheduling, cost control,
value engineering, evaluation, preconstruction services,
and construction administration.
10. Defines "job order contract" as a competitively bid,
fixed priced, indefinite quantity procurement contract
issued by a department to a job order contractor for a
definite project or work, as compiled from a catalog of
construction tasks to be performed pursuant to a job
order contract.
EXISTING LAW
Existing law establishes procedures governing
design-bid-build methods of procurement, but permits the
Director of DGS, when authorized by the Legislature, to use
the design-build procurement process for state office
facilities, other buildings, structures, and related
facilities. Existing law further requires the director,
prior to contracting for the procurement of state office
facilities and other state buildings and structures, to
prepare a program setting forth the scope of the project
and to establish a competitive prequalification process, as
provided.
Existing law provides various procedures, including
competitive bidding, for different types of contracts
involving state and local public entities, including school
districts.
Existing law authorizes the Regents of the University of
California to use job order contracting and construction
manager at risk contracting. The Trustees of the
California State University, the Los Angeles Unified School
District, and various cities (San Diego and Los Angeles)
and counties (Sacramento, Contra Costa and Ventura) are
authorized to use job order contracting.
BACKGROUND
Purpose of SB 1457: According to the author's office, DGS,
the sponsor of this measure, is currently limited primarily
to one delivery method, known as "design-bid-build," for
construction projects. The author's office contends that
design-bid-build is not the best delivery method for all
types of public works projects as it is a cumbersome
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process, especially for smaller projects. The author's
office points out that DGS manages a variety of projects
including basic infrastructure, public service facilities,
emergency services facilities, advanced health care
facilities, state-of-the-art laboratories, basic office
space, tenant improvements, maintenance and repair. By
limiting DGS' ability to utilize other construction project
delivery methods, the State is not receiving the best
product or the best value on numerous projects. This
measure is designed to authorize DGS to utilize two
different alternative construction methods for project
delivery known as "job order contracting" and "construction
management at risk."
According to DGS, job order contracting would allow it to
award contracts for multiple renovation, repair or minor
construction projects that is based on a firm fixed price
for labor, material and contingencies, but is indefinite as
to the number of projects to be completed under the fixed
term contract. DGS claims that the reduction in
procurement, administration, and staff costs would be
substantial due to multiple small projects bundled under
one contract.
With respect to construction management at risk, DGS claims
that this particular public works delivery process would
enable DGS to hire design services and construction
services independently, similar to design-bid-build.
However, under construction management at risk, a
construction manager and specialists are brought into the
design process to provide advice on constructability, cost
containment, schedule, and building and construction
technology. With this method, DGS would retain control of
the architect and engineers and establish quality and
functional requirements early in the design process. DGS
also states that it would have control over the quality
assurance during construction with state inspectors.
The author's office emphasizes that in order to provide the
best tools for constructing public works projects
efficiently and within budget and with available technology,
independent of size or scope, DGS requires legislative
authority to utilize job order contracting and construction
management at risk. The author's office believes that SB
1457 not only would allow DGS to use the appropriate
delivery method on a construction project ensuring that it
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is cost effective and delivered on-time, but it also would
help the State with job creation as it would put public
money into the local economy in the timeliest and most
efficient manner and in the case of job order contracting,
many times, would employ smaller local subcontractors to
perform the work.
Arguments in Opposition: Writing in opposition, the
Professional Engineers in California Government (PECG) and
the American Federation of State, County and Municipal
Employees (AFSCME), both contend that the proposed
contracting methods contained in SB 1457 do not properly
serve the best interests of California's taxpayers. PECG
and AFSCME believe that the most cost-effective way to
ensure that public safety, specific building codes and
inspections are met and held to high standards is to use
the existing model of competitive bidding, public oversight
and public inspection. Furthermore, PECG believes that
"construction manager at risk" and "job order contracting"
are simply the latest euphemisms for outsourcing or
contracting out.
Staff Comments: As noted above, existing law authorizes
the UC Regents, the Trustees of CSU, the Los Angeles
Unified School District and various cities and counties to
use these alternative contracting and delivery vehicles
(job order contracting and construction management at risk.
For some contractors, construction management at risk
represents an opportunity to bid on larger, more complex
projects, while others say that it creates unnecessary red
tape. Most contractors agree that larger, more complicated
projects benefit from the process, but many say smaller,
simpler projects should be awarded to the lowest bidder.
Over the years, numerous public entities have made a
determination that the use of job order contracts benefits
them because it provides an effective means of reducing the
total lead-time and cost for public works projects or
repair work. This is achieved with unit price books and
work orders that eliminate the time-consuming and costly
aspects of the traditional public works process, which
require separate contracting actions for each small
project.
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"Job Order Contracting" (JOC): Allows for the awarding of
a competitively bid contract based upon published
construction tasks and unit prices. Rather than bid a
total price for the project, a contractor will bid an
adjustment factor, which reflects specified costs, to the
published unit prices. The unit price, multiplied by the
adjustment factor, equals the final price for any future
task. Awards must be made to the lowest responsible
pre-qualified bidder. The contractor is generally
informed of a range for the total contract value, with the
owner obligated to award only the minimum amount during the
term of the contract. Once a contract is awarded, the
contractor is given projects in a work order format. The
owner is able to evaluate the performance of the contractor
based upon the work orders, and, if
unsatisfactory, retains the ability to terminate the JOC
once the minimum dollar value of the range for the contract
value is met.
JOC is generally believed to be well suited to repetitive
jobs and situations in which owners know that many small
tasks will arise, but the timing, type of work, and
quantity of work are unknown at the time the contract is
signed. These jobs typically have minimal design
requirements, and design work is typically accomplished
quickly by the job order contractor's in-house
design staff.
Construction Management at Risk (CM): Allows the client to
choose the CM before
the design stage is complete. The CM is chosen based on
qualifications, and then the entire operation is
centralized under a single contract. The architect and CM
work together in order to cultivate and assay the design.
Then, the CM gives the client a guaranteed maximum price,
and coordinates all subcontract work. Cost savings can be
realized in a number of ways. By hiring the CM during the
design phase, early coordination is possible, which can
increase the speed of the project and strengthen
coordination between the Architect/Engineer and the CM.
Since the client hires the construction manager based on
qualifications, it ensures a construction manager with a
strong allegiance to the client, because their business
relies on references and repeat work. Finally, transparency
is enhanced, because all costs and fees are in the open,
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which diminishes adversarial relationships between
components working on the project, while at the same time
eliminating bid shopping.
Unlike design-build, clients that already have established
relationships with architecture
firms can still use their architect, but then like
design-build have one point of contact for
every other part of the project. Furthermore, CM at-risk
enables the contractor to get
involved in the project at an early stage, thereby
delivering many of the efficiencies found in other
alternative delivery methods.
PRIOR/RELATED LEGISLATION
AB 642 (Wolk) Chapter 314, Statutes of 2008. Allowed any
city to use design-build contracts for the construction of
buildings or improvements directly related to the
construction of a building in excess of $1 million. Also,
authorized a city, county or special district to use
design-build contracting to construct up to 20 local
wastewater treatment facilities, local solid waste
facilities, or local water recycling facilities in excess
of $2.5 million
SB 233 (Cox) Chapter 584, Statutes of 2007. Among other
things, broadened the definition of a "project" that
counties can construct with design-build contracting
methods to the construction of "public improvements,"
except for streets, roads, and bridges. Also, declared
Legislature's intent to allow counties to use the
design-build method for transportation facilities, such as
streets, roads and bridges.
AB 2362 (Jerome Horton) Chapter 570, Statutes of 2006.
Extended the operative date of the job order contracting
pilot project for the Los Angeles Unified School District
from December 1, 2007 to December 1, 2012. Also, required
all participating school districts to submit, before
December 1, 2011, a report to certain legislative
committees and the Office of Public School Construction in
the Department of General Services regarding the
implementation of the job order contracting process for
each job order procured, and the work completed on or
before November 1, 2011.
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AB 1511 (Evans) Chapter 350, Statutes of 2005. Extended
the automatic termination date in law for counties use of
design-build from January 1, 2006 to January 1, 2011. Also,
added Del Norte, Humboldt, Los Angeles, Mendocino, Napa,
and Yolo counties to the list of counties that can use the
design-build contracting method and declared that it is not
the Legislature's intent to authorize the design-build
process for transportation facilities, including roads and
bridges.
AB 14 (Jerome Horton) Chapter 889, Statutes of 2003.
Authorized, until December 1, 2007, job order contracting,
as defined, by the Los Angeles Unified School District, and
required the district, if it adopted this option, to submit
an interim report to the Legislature and the Office of
Public School Construction in the Department of General
Services regarding all job order contract projects
completed by December 31, 2004, and a report regarding the
implementation of the job order contracting process for
each job order procured, and the work completed on or
before November 1, 2007.
AB 2841 (Jerome Horton) 2001-02 Session. Similar to AB 14
(Horton) of 2003. (Vetoed by the Governor, who stated in
his veto message that AB 2841 "would disenfranchise all
contractors wishing to take part in the process be they
large, small, or a disabled veteran business enterprise.
It is not in the best interest of the Los Angeles Unified
School District or a prudent use of taxpayer dollars to
eliminate the free and open process. Furthermore, this
bill creates one policy for the Los Angeles Unified School
District that is different from all other school
districts in the State of California.")
AB 3132 (Firestone) Chapter 938, Statutes of 1996. Enacted
the California State University (CSU) Management Efficiency
Act of 1996 and made changes to the
law relating to CSU's state agency status, contract and
purchasing authority, rulemaking authority, and authority
to create a joint power agency for the purpose of
administering risk management pools.
SUPPORT: Department of General Services (sponsor)
OPPOSE: As of April 9, 2010:
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American Federation of State, County and Municipal
Employees (AFSCME), AFL-CIO
Professional Engineers in California Government
California State Employees Association
CSEA Retirees, Inc.
California State University Employees Union
Association of California State Supervisors
FISCAL COMMITTEE: Senate Appropriations Committee
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