BILL ANALYSIS �
AB 1565
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Date of Hearing: April 18, 2012
ASSEMBLY COMMITTEE ON EDUCATION
Julia Brownley, Chair
AB 1565 (Fuentes) - As Amended: January 30, 2012
�Note: This bill was doubled referred to and heard by the
Assembly Business, Professions and Consumer Protection Committee
as it relates to issues under its jurisdiction.]
SUBJECT : Public contracts: school districts: bidding
requirements
SUMMARY : Requires school districts to use or cover the issues
contained in the questionnaire developed by the Department of
Industrial Relations (DIR) for prequalifying and rating
prospective bidders for a public works project contract.
Specifically, this bill :
1)Requires, until January 1, 2018, the questionnaire and the
uniform system of rating bidders to cover, at a minimum, the
issues covered by the standardized questionnaire and model
guidelines for rating bidders developed by the DIR.
2)Specifies that nothing shall preclude a governing board from
prequalifying or disqualifying a subcontractor. Specifies
that the disqualification of a subcontractor by the governing
board does not disqualify an otherwise prequalified
contractor.
3)Requires the following for districts receiving state bond
funds through the Leroy F. Greene School Facility Program
(SFP):
a) For contracts awarded on or after January 1, 2013 until
January 1, 2018, if the governing board of a school
district does not utilize a district-established process
for prequalification utilizing a questionnaire and rating
process, the governing board is required to use the
procedures for qualification of bidders established by the
Local Agency Public Construction Act.
b) Specifies that for the purposes of this bill, bidders
shall include all subcontractors performing work in excess
of 3 percent of the total cost.
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4)Requires, on or before January 1, 2017, the DIR to submit a
report to the Legislature evaluating whether, during the years
the provisions of this bill applied to contracts, violations
of the Labor Code on school district projects have decreased
as compared to the same number of years immediately preceding
the enactment of this bill, and recommend improvements to the
system for prequalifying contracts and subcontractors on
school district projects.
5)Specifies that the provisions in this bill shall not apply to
a school district with an average daily attendance (ADA) of
less than 2,500.
EXISTING LAW :
1)Requires the governing board of a school district to
competitively bid and award to the lowest bidder contracts
involving the following:
a) An expenditure of $50,000 or more for the purchase of
equipment, materials, or supplies, services (except for
construction services), and repairs.
b) An expenditure of $15,000 or more for a public contract
project defined as construction, reconstruction, erection,
alteration, renovation, improvement, demolition, repair,
painting or repainting of any publicly owned, leased, or
operated facility. (Public Contract Code (PCC) Sections
20111 and 22002)
2)Authorizes the governing board of a school district to require
each prospective bidder for a contract to participate in a
prequalification process that includes the submission of a
standardized questionnaire and financial statement in a form
established by the district, including a complete statement of
the prospective bidder's financial ability and experience in
performing public works. (PCC 20111)
3)Establishes the Local Agency Public Construction Act, which
authorizes a public entity to establish a prequalification
process and requires the DIR, in collaboration with affected
agencies and interested parties, to develop model guidelines
for rating bidders, and drafting a standardized questionnaire
that may be used by public entities. (PCC 20100 et seq.)
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4)Establishes the Leroy F. Greene School Facilities Act of 1998
and requires the State Allocation Board (SAB) to allocate to
applicant school districts prescribed per-unhoused-pupil state
funding for construction and modernization of school
facilities, including hardship funding, and supplemental
funding for site development and acquisition. (Education Code
(EC) 17070.35)
FISCAL EFFECT : According to the Assembly Appropriations
Committee of an identical bill in 2011:
1)Unknown, but significant ongoing state-reimbursable General
Fund (Prop 98) costs to school districts related to
establishing and administering the prequalification
process-likely as an additional contract cost for construction
management consultants.
2)To the extent this process eliminates unqualified contractors
who would otherwise be the winning bidder, districts might
avoid certain costs associated with an underperforming
contractor, such as time delays or inferior construction, and
any associated legal costs.
3)The DIR will incur minor one-time costs ($75,000 or less) to
determine any impact of the prequalification process on Labor
Code violations and to make any recommendations for improving
the process.
COMMENTS : Background . Under the Local Agency Public
Construction Act, enacted by AB 574 (Hertzberg), Chapter 972,
Statutes of 1999, public agencies are authorized, but not
required, to establish a process whereby prospective bidders are
evaluated and prequalified to bid on public works projects.
Public agencies can establish a prequalification procedure for
single projects or for any projects that may be put out to bid
over the next year. The prequalification process entails the
completion of a questionnaire and submission of financial
statements that are verified under oath by the bidder. Public
agencies are required to adopt a uniform rating system to
determine the minimum requirements permitted for qualification
to bid and the type and size of contracts for which each bidder
is eligible to bid and maintain an appeals process to allow
prospective bidders to dispute their proposed prequalification
rating.
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AB 574 directed the DIR to develop a questionnaire and a uniform
rating system that can be used by public agencies. DIR also
established a rating system that includes recommended scores for
questions that are scorable. The Local Agency Public
Construction Act does not apply to school districts.
School districts are required to competitively bid any public
works contract over $15,000 and award the contract to the lowest
responsible bidder. School districts are also authorized, but
not required, to establish a prequalification process under a
separate PCC Section that is similar to the Local Agency Public
Construction Act. PCC Section 20111.5 authorizes school
districts to establish its own questionnaire and rating system
that includes a statement of the prospective bidder's financial
ability and experience in performing public works. The
questionnaire and financial statement are required to be
verified under oath by the bidder. It is not known how many
districts have established a prequalification process. Larger
school districts in the state that have greater school
construction needs are more likely to have prequalification
requirements as there are administrative costs to establish the
prequalification and appeals processes. The Los Angeles Unified
School District, West Contra Costa Unified School District, and
Irvine Unified School District are examples of districts that
use prequalification processes.
This bill requires, for a period of five years, school districts
that choose to implement a prequalification process to adopt a
questionnaire and rating system that covers, at a minimum, the
issues covered by the DIR questionnaire and rating scale. The
bill also requires governing boards that receive state education
bond funds through the SFP to implement the DIR prequalification
process, including subcontractors, if it does not implement its
own prequalification system. School districts that do not
receive state bond funds would continue to have the option of
not implementing a prequalification process. Small school
districts with less than 2,500 ADA are exempted from the
requirements of this bill.
What is the problem? The author states, "Since state law
requires the use of the lowest bidder, many unqualified
contractors are being awarded school construction projects with
little or no experience and who lack the financial fortitude to
accomplish a project on time and on budget. Under current law,
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the selected contractors may file a significant amount of change
orders that increases the cost of the project. In many
instances this also leads to cutting corners that produce
defects, prevailing wage violations and unsafe working
conditions for workers."
Benefits of Prequalification . Under a system where a school
district must accept the lowest responsible bidder for any
public works contract over $15,000, a prequalification process
is beneficial. The DIR questionnaire requires contractors to
provide detailed information regarding the company and its
financial status, including whether the company has been in
bankruptcy or involved in a civil lawsuit, licensing
information, prior contracting experience (whether the
contractor has completed other public works projects), whether
the contractor has been involved or been found to have violated
any federal, state or local laws, and whether the contractor has
violated any labor and health and safety laws, including
prevailing wage. A rating system enables a local agency to
exclude bids from companies that do not meet minimum points. A
local agency can predetermine the size of projects a company
that meets the minimum of points may be allowed to bid on.
Prequalification may be conducted annually, quarterly or by
project by project basis. While there is no guarantee that a
company that meets minimum points may not have financial
problems or provide substandard work, this process reduces the
risk of selecting a contractor with a low bid. A district that
does not implement a prequalification process must either accept
the lowest bid or not accept any bid and reopen the bidding
process, which may cause project delay.
Why require only school districts to implement prequalification
process ? Under current law, no local agencies are required to
use a prequalification process. This bill would require any
school district with more than 2,500 ADA that receives state
education bond funds to implement a prequalification process.
The sponsor of the bill, the State Building and Construction
Trades Council, states that because public works projects are
plentiful due to bond dollars and with the variation in size and
geographical locations, school projects provide a good basis to
establish a pilot to evaluate the impact of mandatory
prequalification.
Supporters further argue that state bond dollars should be
protected and used as efficiently as possible. A contractor
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that goes bankrupt before completion of a project or completes a
project with faulty construction will result in increased costs
to complete the project or to redo the project and potential
litigation to recoup funds a contractor had already received.
The sponsor cites several examples over the last 12 years of
faulty construction jobs leading to litigation or a district
having to redo parts of a project. The California chapter of
the national Electrical Contractors Association and the
California Legislative Conference of the Plumbing, Heating and
Piping Industry state, "With the recent downturn, many school
districts have been receiving bids from contractors who have
never performed school construction and in some cases; school
districts receive bids from contractors who have never worked on
a public works project in general?.Unqualified contractors are
the cause of many problems on school construction projects."
Opponents, including the Coalition for Adequate School Housing
(C.A.S.H.), the California School Boards Association, a few
school districts, County School Facilities Consortium, and the
Association of California Construction Managers (ACCM), oppose
the mandate created by this bill and argue that this bill will
increase time and resources to establish a prequalification
process and an appeals process. Opponents also argue that some
contractors may not be willing to complete the questionnaire and
as a result, there will be fewer bidders and less competition,
resulting in higher bids. C.A.S.H. further argues that recent
changes to state oversight of labor compliance on public works
projects should help prevent labor violations.
The ACCM states, "Because the pre-qualification provisions would
apply to all projects, even those with costs just barely greater
than $25,000, many project could have a pre-qualification
requirement that is a significant part of the total project
cost. Additionally, if a school district were to choose to use
the Construction Management Multiple Prime (CMMP) project
delivery process, the prequalification requirements could be
significant and include up to one hundred previews of
prequalification documents by each school district project."
Low threshold . This bill applies to any public works project
$15,000 or more. Should small projects such as painting several
classrooms be required to be prequalified? A similar bill
introduced in 2010, SB 258 (Oropeza), applied prequalification
requirements on projects valued at $1 million or more. Staff
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recommends increasing the project threshold to $1 million.
Subcontractor requirement . The current prequalification process
does not include subcontractors. This bill specifies that
bidders include subcontractors performing work in excess of 3
percent of the total cost. If a prequalification process is
done annually and not according to individual projects, the cost
threshold for projects will not yet be available and
subcontractors will not know if they need to prequalify. This
problem is resolved if the bill is amended to apply to projects
over $1 million.
This bill is a reintroduction of a bill from last year, SB 600
(Rubio), which passed this Committee on a 6-3 vote and was held
on the Assembly Appropriations Committee suspense file.
Committee amendments . At the suggestion of this Committee, SB
600 was amended to a five-year pilot with implementation delayed
for a year. Staff recommends moving all the dates in this bill
back by one year.
REGISTERED SUPPORT / OPPOSITION :
Support
California Labor Federation
California chapter of the National Electrical Contractors
Association
California Legislative Conference of the Plumbing, Heating and
Piping Industry
Opposition
Association of California Construction Managers (unless amended)
Bonita Unified School District
California School Boards Association
Coalition for Adequate School Housing (unless amended)
County School Facilities Consortium
Cupertino Union School District
Liberty Union High School District
Orange County Department of Education
Riverside County School Superintendents' Association
Analysis Prepared by : Sophia Kwong Kim / ED. / (916) 319-2087
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