BILL ANALYSIS �
SB 600
Page 1
Date of Hearing: July 6, 2011
ASSEMBLY COMMITTEE ON EDUCATION
Julia Brownley, Chair
SB 600 (Rubio) - As Amended: May 11, 2011
�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.]
SENATE VOTE : 26-14
SUBJECT : Public contracts: school districts: bidding
requirements
SUMMARY : Requires school districts to use a specified
questionnaire and process for prequalifying and rating
prospective bidders for a contract for a public works project.
Specifically, this bill :
1)Requires the governing board of a school district that chooses
to require a prospective bidder for a public works contract to
participate in a prequalification process to use a
questionnaire and uniform system of rating bidders that are
substantially similar to the information, questions, and
requirements as that of the standardized questionnaire and
model guidelines for rating bidders developed by the
Department of Industrial Relations (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) If the governing board of a school district does not
utilize a district-established process for prequalification
utilizing a questionnaire and rating process that is
substantially similar to that developed by the DIR, the
governing board is required to use the procedures for
qualification of bidders established by the Local Agency
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Public Construction Act.
b) Specifies that bidders shall include subcontractors.
4)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.)
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
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funding for site development and acquisition. (Education Code
(EC) 17070.35)
FISCAL EFFECT : According to the Senate Appropriations
Committee, substantial ongoing cost pressure on current and all
future K-12 construction bonds. The bill will create upfront
costs to schools seeking construction funding for both the
expanded process and potential appeals for contractors denied
prequalification. To the extent that the universe of bidders is
narrowed by the process, schools may end up paying more for
construction projects.
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.
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
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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 school districts that choose to implement a
prequalification process to adopt a questionnaire and rating
system that is substantially similar to 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,
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.
"This bill will help ensure quality construction of California
schools at the lowest price by requiring that school districts
pre-qualify their contractors on large construction projects.
This will allow schools 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."
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
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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.
Why not impose the requirement on all local agencies? 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. As such, the Committee may wish to consider
adding a sunset date and an evaluation.
Supporters further argue that state bond dollars should be
protected and used as efficiently as possible. A contractor
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 sponsor also cites a
recent example of a contractor, NBC General Contractor
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Corporation, located in the Northern California Bay Area who was
found by the State Department of Insurance to have
misrepresented the type of work performed by employees and wages
paid to them in order to underpay workers compensation costs and
to win public works projects, including more recently, school
projects.
Opponents, including the Coalition for Adequate School Housing,
the California School Boards Association, the California
Association of School Business Officials, a few school
districts, County School Facilities Consortium, and the
Association of California Construction Managers (ACCM), 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.
The ACCM further argues that by mandating prequalification,
school districts would lose the option of alternative selection
processes or expanded bidding pool, including Multiple Prime
(MP) construction delivery mechanism. Rather than hiring one
general contractor, under MP, there can be a number of prime
contractors and subcontractors, coordinated by Construction
Managers. The ACCM states, "In the current bid climate, MP
contracting provides the most cost effective means of
constructing a school facility project. This is because there
is a greater opportunity from multiple low bids that when
consolidated are lower than what has been occurring with a
general contractor submitting a bid." The ACCM further states
that under this bill, a significant number of prequalification
packages would have to be made in order to select the
contractors providing different services as part of the school
construction or modernization project. Requiring the DIR
prequalification document will greatly increase the amount of
paperwork, increase cost for school district in the review
process and increase cost of a school facility 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 last year, SB 258 (Oropeza), applied prequalification
requirements on projects valued at $1 million or more. The
Committee may wish to consider increasing the project threshold
to $1 million.
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What is "substantially similar" ? This bill requires a district
that chooses its own prequalification process to develop a
questionnaire and rating system that is "substantially similar"
to the DIR questionnaire and model guidelines for rating
bidders. It is unclear what districts would have to do to
comply with this provision. Is a district in compliance if it
adopts 70% or 80% of the DIR questionnaire? If a district
chooses to address some but not all of the topics in the
questionnaire, is that considered substantially similar? The
sponsor indicates that the purpose of this provision is to give
districts a minimum guideline for the components of the
questionnaire. Districts can add additional questions.
Opposition would argue that this provision will lead to further
litigation, as contractors that are rejected can sue a district
for not having a substantially similar questionnaire. The
Committee may wish to consider using a standard that is less
vague.
Subcontractors . This bill requires districts that receive state
bond funds to also include subcontractors in the
prequalification process. Under existing law, local agencies
and school districts are authorized but not required to require
subcontractors to be prequalified. This requirement would be
imposed only on districts that receive bond funds. Districts
that do not receive bond funds would not be required to include
subcontractors. Currently, districts prequalify general
contractors only. Under this bill, general contractors will
only be authorized to use those subcontractors that are also
prequalified. This provision will likely result in increased
costs for districts that currently have prequalification
processes that do not include subcontractors. Should
subcontractors that do minimal work be required to prequalify?
The Committee may wish to consider excluding subcontractors that
do minimal work from the requirements of this bill.
Impact on projects waiting for state bond funds . SB 50 (L.
Greene), Chapter 407, Statutes of 1998, established the SFP
which governs the allocation of state education bond funds and
the construction and modernization of kindergarten through grade
12 school facilities. In November, 2006, voters approved
Proposition 1D, the Kindergarten-University Public Education
Facilities Bond Act of 2006, which provided $10.416 billion for
the construction and rehabilitation of kindergarten through
grade 12 and higher education school facilities. State bond
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funds require a 50% local match for new construction projects
and 40% match for modernization projects.
Currently, due to the state budget crisis, the state is only
able to sell bonds periodically. There is currently almost $1.5
billion worth of projects that have been approved by the SAB and
waiting for funds. If this bill is enacted before these
projects receive funds, districts that do not already have
prequalification process may have to delay the projects in order
to establish a prequalification process. Districts that do have
a prequalification process will have to ensure that the process
is substantially similar to the DIR guidelines and prequalify
subcontractors.
Committee Amendments :
1)Staff recommends delaying implementation of the bill until
January 1, 2013 to give districts time to comply with the
provisions of the bill and to ensure that projects currently
waiting for state bond funds are not negatively impacted.
2)Staff recommends adding a sunset date of 5 years and requiring
the DIR to submit a report to the Legislature showing the
number of labor violations before and after the implementation
of this bill.
3)Staff recommends applying the requirements of the bill to
projects valued at $1 million or more.
4)Staff recommends limiting the requirement for subcontractors
to subcontractors that perform work in excess of three percent
of the total project cost.
5)Staff recommends changing the requirement for a
district-developed prequalification process to be
"substantially similar" to the DIR questionnaire to, instead,
specify that the district-developed questionnaire use the DIR
questionnaire as a guideline and include the topics in the DIR
questionnaire.
Arguments in Support . The State Building and Construction
Trades Council, the sponsor of this bill, states, "School
districts have the ability to prequalify on a voluntary basis.
We believe that in the current bidding environment it is
critical to protect the taxpayer investment in infrastructure
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against less than qualified bidders. School districts may also
have experienced excessive change orders during the construction
process from contractors. These contractors often fail to
deliver a project on schedule. Also, it is important to note
that some projects will require a specialized contractor that
has experience with specified construction techniques."
Arguments in Opposition . The California Association of School
Business Officials states, "SB 600 will result in a great deal
more administrative work for school which will cost more and
delay projects. It also targets only school districts and
county offices of education and does not apply to other local
public entities. SB 600 is unnecessary and costly. The school
construction process in California is the most regulated of all
the 50 states and is the most costly. The mandate intended to
be imposed on schools by this bill will add to the regulatory
process and increase costs of construction and legal services
with no benefit at all to the student who will attend those
schools.
Prior legislation . SB 258 (Oropeza) would have required the
prequalification questionnaire and uniform system a school
district uses to rate bidders on a public works project to
contain substantially similar information, questions, and
requirements to the questionnaire and guidelines for rating
bidders developed by the DIR, and requires prequalification for
school public works projects costing $1 million or more. The
bill was held in the Assembly Appropriations Committee suspense
file in 2010.
This bill passed the Assembly Business, Professions and Consumer
Protections Committee on a 6-2 vote.
REGISTERED SUPPORT / OPPOSITION :
Support
State Building and Construction Trades Council of California
(sponsor)
Associated General Contractors
California Labor Federation
California Legislative Conference of the Plumbing, Heating and
Piping Industry
National Electrical Contractors Association, California Chapter
PW Construction, Inc.
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Southern California Contractors Association
Opposition
Association of California Construction Managers (unless amended)
Association of California School Administrators
California Association of School Business Officials
California School Boards Association
Clovis Unified School District
Coalition for Adequate School Housing
County School Facilities Consortium
Kern Union High School District
Ledesma & Meyer Construction Company Inc.
RGM and Associates
Riverside County School Superintendents' Association
San Bernardino County Superintendent of Schools, Dr. Gary S.
Thomas
Wiseburn School District
Analysis Prepared by : Sophia Kwong Kim / ED. / (916) 319-2087