BILL ANALYSIS �
SENATE COMMITTEE ON EDUCATION
Alan Lowenthal, Chair
2011-2012 Regular Session
BILL NO: AB 1565
AUTHOR: Fuentes
AMENDED: June 21, 2012
FISCAL COMM: Yes HEARING DATE: June 27, 2012
URGENCY: No CONSULTANT:Kathleen Chavira
SUBJECT : School District Bidding Requirements.
SUMMARY
This bill, beginning with contracts awarded on or after
January 1, 2014 and until January 1, 2019, requires a school
district to prequalify a prime contractor who provides a bid
and all electrical, mechanical and plumbing subcontractors
utlized, if it meets all the following conditions:
1) Has an average daily attendance of 2,500 or greater.
2) Receives funds for any school facility construction
project from the state School Facility Program or from a
future state school bond.
3) Involves a projected expenditure of one million
dollars ($1,000,000) or more.
This bill also requires school districts that opt to
prequalify bidders for a construction contract and that have
an average daily attendance of 2,500 or greater to:
1) Use a questionnaire that covers, at a minimum, the
issues covered by the standardized questionnaire and
model guidelines for rating bidders developed by the
Department of Industrial Relations (DIR).
2) Prequalify a prime contractor who provides a bid and,
if utilized, all electrical, mechanical and plumbing
subcontractors.
BACKGROUND
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Current law requires the governing board of a school
district, to competitively bid, and award to the lowest
responsible bidder, any contract for a public project (as
defined) involving an expenditure of $15,000 or more.
(Public Contract Code � 20111)
Current law also authorizes the governing board of the
district to require prequalification of prospective bidders
for a contract for a public project. A prospective bidder
may be required to complete and submit to the district a
standardized questionnaire and financial statement in a form
specified by the district, including a complete statement of
the prospective bidder's financial ability and experience in
performing public works. A school district that establishes
a prequalification process is required to adopt and apply a
uniform system of rating bidders on the basis of the
completed questionnaires and financial statements. School
districts are authorized to establish a process for
prequalifying prospective bidders on a quarterly basis and to
consider a prequalification to be valid for up to one
calendar year following the date of initial prequalification.
(Public Contract Code � 20111.5)
Current law establishes the Local Agency Public Construction
Act (applicable to all public entities except school
districts), which, as the result of AB 574 (Hertzberg,
Chapter 972, Statutes of 1999), also authorizes a public
entity to require prequalification of prospective bidders for
a contract. Generally, these procedures parallel those that
existed for school districts. In addition, AB 574
established the right of a bidder to dispute the public
entities proposed prequalification rating and requires an
appeal process that includes notification to the bidder, in
writing, of the basis for disqualification and supporting
evidence and the opportunity for the bidder to rebut this
evidence. As required under AB 574, the Department of
Industrial Relations (DIR), in collaboration and consultation
with affected agencies and interested parties, has developed
model guidelines for rating bidders and drafted a
standardized questionnaire for use by public entities for the
purpose of prequalification. (Public Contract Code � 20100,
� 20101)
ANALYSIS
This bill :
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1) Establishes new requirements for a school district that
opts to prequalify prospective bidders for a school
construction contract. Specifically it:
a) Requires that the district use a
questionnaire that covers, at a minimum, the issues
covered by the standardized questionnaire and model
guidelines for rating bidders developed by the DIR
for use by public entities for this purpose under
the Local Agency Public Construction Act (LAPCA).
b) Prohibits the school district from
accepting a bid from any prime contractor bidder,
or any person or entity that uses an electrical,
mechanical or plumbing subcontractors (defined as
holding any of 11 different specified license
classifications issued by the Contractor's State
License Board) and is a prospective bidder on a
project, unless they have submitted a completed
financial statement and questionnaire for
prequalification.
c) Provides that a school district
governing board is not precluded from prequalifying
or disqualifying a subcontractor.
d) Requires a school district that has
a project that includes specified components to
provide a list of prequalified electrical,
mechanical and plumbing contracts to all bidders at
least two business days prior to the dates fixed
for the public opening of sealed bids.
e) Expands the timeframe requirements
for submission of bids and prequalification,
respectively, from five days to 10 days, and one
day to five business days, before the fixed date
for opening sealed bids.
2) Requires a school district to prequalify a bidder for
any school facility construction project that receives
funds under the Leroy Green School Facilities Act of
1998 or from any future state school bond for a public
project, that involves a projected expenditure of one
million dollars ($1,000,000) or more. More specifically
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it:
a) Requires a district that does not
use the procedures for prequalification established
for school districts as specified in number (1), to
use the prequalification procedures established for
other public agencies under the LAPCA.
b) Provides that bidder, for this
purpose, includes the prime contractor and any
electrical, mechanical or plumbing subcontractors,
defined as holding any of 11 different specified
license classifications issued by the Contractor's
State License Board.
c) Applies these provisions to
contracts awarded on or after January 1, 2014.
3) Requires the Director of Industrial Relations to submit
a report to the Legislature that:
a) Evaluates whether Labor Code
violations on school district projects have
decreased during the years these provisions are
operative as compared to the same number of years
prior to the bill's enactment.
b) Recommends improvements to the
system for prequalifying contractors and
subcontractors on school district projects.
4) Exempts school districts with an average daily
attendance of less than 2,500 from the provisions of the
bill.
5) Sunsets the bill's provisions on January 1, 2019.
STAFF COMMENTS
1) Need for the bill . According to the author, because
current law requires school districts to use the lowest
bidder, many unqualified contractors are being awarded
school construction projects with little or no
experience in school construction. The author contends
that these contractors lack the financial fortitude to
accomplish a project on time and on budget, may file an
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exorbitant amount of change orders that increase project
costs, and that in many instances cut corners that
produce defects, prevailing wage violations and unsafe
working conditions for workers. According to the
author, this bill will allow school districts to
continue to utilize the lowest responsible bidder
contracting method which protects tax dollars, while
ensuring that the bidding pool is made up of competent
and qualified contractors.
2) Why only school districts ? AB 574 (Hertzberg, Chapter
972, Statutes of 1999) extended the authority to
prequalify contractors to all public agencies.
Currently, however, no government entity of any type is
required to prequalify contractors. California has
authorized over $28 billion in funding for K-12
facilities since 2002 (Propositions 1D, 55, and 47).
According to the sponsors, no other infrastructure
sector is as far reaching and as geographically diverse
as school construction and prequalification is necessary
to ensure the state's substantial investment results in
quality public school construction.
3) Mandates/increased costs to districts . This bill
results in a mandate as well as increased administrative
costs to school districts relative to school facility
construction.
a) The state currently owes school districts
about $3.4 billion in deferred mandate payments.
Moreover, annual state costs for district mandates
total about $200 million.
b) This committee recently heard and passed
legislation to suspend level 3 developer fees,
which means that, once state new construction funds
are exhausted, districts will not have the ability
to levy higher fees to developers to cover their
school facility construction costs until 2014.
c) The proposed budget for K-12 school
districts relies upon a voter approved tax
initiative, and contains automatic trigger cuts in
order to accommodate that lost revenue should the
measure fail passage.
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What is the cumulative effect of these policy and fiscal
decisions on school districts? In light of the existing
budgetary challenges faced by school districts, is this
an appropriate time to enact another state reimbursable
mandate or impose additional fiscal burdens upon school
districts?
1) More requirements for "optional" prequalification ? This
bill requires all school districts with an ADA of 2,500
or more that opt to prequalify to be required to
prequalify a prime contractor that uses the specified
subcontractor and to prequalify the specified
subcontractors. The pilot program established by this
bill should lead to some information and recommendations
whether changes to the prequalification process, whether
optional or required, are appropriate. Aside from
creating a disincentive for school districts that might
otherwise consider the option of prequalification, these
new requirements on "optional" prequalification would
seem to be premature. Shouldn't any changes to optional
prequalification requirements be based upon information
received via the pilot program and from the DIR report?
Staff recommends that the recent amendments to the
provisions outlining criteria for districts that opt to
prequalify be deleted from Section 1 of the bill.
2) A step at a time ? This bill requires the
prequalification of subcontractors by a school district
that receives state bond funds for a projected
expenditure of $1 million or more. The provisions around
prequalification of subcontractors raise the following
concerns:
a Construction employers are concerned that
requiring prequalification of subcontractors
restricts legitimate competition and creates the
ability for a limited group of subcontractors to
essentially disqualify a general contractor by
refusing to provide them with a bid.
b Districts have already raised concerns
about the administrative burden and increased
potential for appeals by requiring
prequalification. The prequalification of
subcontractors and the preparation and distribution
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of lists of those who are prequalified creates an
additional level of issues and mandates around
administrative workload and potential appeal
processes to respond to both contractors and
subcontractors.
c This bill specifies the application of its
provisions to very specific subcontractor license
classifications. According to the sponsors, this
specificity is intended to ensure that the general
categories of electrical, mechanical and plumbing
contractors include "piping" contractors, "sheet
metal" contractors and "air-conditioning"
contractors. What is the basis for
including/excluding specific licensees?
d What is the profile of subcontractors who
may be challenged to comply with and meet
prequalification standards (generally focused on
elements such as the company's financial status,
whether they have completed other public works
projects, or whether there is a history of
violating any labor, health, or safety laws)? How
do these provisions affect Women and Minority-Owned
Business Enterprises (WMBEs)? How does it affect
locally owned small businesses?
This bill requires a report from the Department of
Industrial Relations regarding the implementation and
impacts of the bill's provisions. In light of the
concerns surrounding prequalification generally,
shouldn't the extension of prequalification beyond prime
contractors await the findings from the pilot program?
Staff recommends that the requirement that
subcontractors be prequalified be deleted from the bill.
Staff further recommends that section 3 of the bill be
amended to clarify that the procedures for
prequalification of prime bidders by a school district
do not preclude a local school district governing board
from prequalifying or disqualifying a subcontractor.
1) Flexibility versus overall benefits ? Under current law,
schools districts may prequalify contractors if they
choose and are authorized to develop their own rating
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systems and questionnaires for this purpose. This bill
would require a school district that uses state bond
funds to prequalify prime contractors, and specified
subcontractors and to use a questionnaire that includes,
at a minimum, the issues covered by the standardized
questionnaire and model guidelines for rating bidders
developed by the DIR.
This bill has been amended from prior versions seen by
this committee to limit its application to school
districts with an ADA of 2,500 or more and to projects
that involve expenditures of $1 million or more, thereby
affecting approximately one-third of school districts.
As a pilot project, this bill could allow the
opportunity, to inform policymakers whether requiring
prequalification ultimately results in benefits to both
the district and the state.
2) Mandated costs . The Assembly Appropriations Committee
analysis notes unknown, but significant ongoing
state-reimbursable General Fund (Proposition 98) costs
to school districts related to establishing and
administering the prequalification process. The
analysis also noted that additional costs would be
incurred to address appeals from contractors denied
qualification. To the extent the prequalification
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. According to the analysis, if the
prequalification process added 0.5% to project costs,
for every $500 million in school construction projects
exceeding $1 million, state mandated costs would be $2.5
million.
3) Prior legislation .
a) SB 600 (Rubio) would have required any school
facility construction project that received funds
under the state School Facility Program to
prequalify all prospective bidders, and also
required school districts that opt to prequalify
bidders for a contract to use specified processes
"substantially similar" to those developed by the
Department of Industrial Relations. SB 600 was
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heard and passed by this committee by a vote of 6-3
in May 2011, but was subsequently held under
submission in the Assembly Appropriations
Committee. When heard by Assembly Appropriations,
SB 600 was almost identical to this bill.
b) SB 258 (Oropeza, 2010) would have required
school districts to prequalify contractors on
public works projects exceeding $1 million,
pursuant to specified procedures. SB 258 was held
under submission in the Assembly Appropriations
Committee.
SUPPORT
California Association of Sheet Metal and Air Conditioning
Contractors'
California Legislative Conference of the Plumbing, Heating
and Piping
Industry
National Electrical Contractors Association - California
Chapter
State Building and Construction Trades Council - AFL-CIO
OPPOSITION
Association of California Construction Managers
California County Superintendents Educational Services
Association
California School Board Association
Coalition for Adequate School Housing
Construction Employers' Association
County School Facilities Consortium