BILL ANALYSIS �
SB 1516
Page 1
Date of Hearing: June 26, 2012
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Mary Hayashi, Chair
SB 1516 (Leno) - As Amended: June 18, 2012
SENATE VOTE : 33-0
SUBJECT : Public contracts: bids: "or equal" materials or
service.
SUMMARY : Allows contractors bidding for state and local
construction projects and requesting to use an "or equal"
substitute to submit data substantiating its equality after a
contract is awarded, unless otherwise specified. Specifically,
this bill :
1)Allows contractors bidding for state and local construction
projects and requesting to use an "or equal" substitute to
submit data substantiating its equality after a contract is
awarded, unless otherwise specified.
2)Allows the public entity to require contractors requesting to
use an "or equal" substitute to submit data substantiating its
equality prior to the bid submission deadline if the bid
solicitation establishes procedures for all of the following:
a) The submission of information by any potential
contractor, subcontractor, supplier, or manufacturer of any
tier;
b) The evaluation of the submitted information; and,
c) The determination of acceptance or denial at least 10
days before the bid submission deadline. Requires that
submitted materials, the evaluation, and the determination
shall be confidential, proprietary information, as allowed
by the California Public Records Act (CPRA), and shall not
be disclosed until the contract is awarded.
1)Allows a contractor whose proposed equal item is rejected
under a pre-bid submission procedure to have standing to sue
for declaratory relief, but prohibits that civil action from
affecting the award of the contract.
SB 1516
Page 2
2)Requires a contractor whose proposed equal item is submitted
using the pre-bid submission procedure to bear the burden of
proof that the proposed item is equal to what is required by
bid specifications, and that in any resulting litigation
challenging its equality the prevailing party shall recover
reasonable attorney's fees and expert costs.
EXISTING LAW :
1)Prohibits a state agency, political subdivision, municipal
corporation, district, or public officer responsible for
letting a public works contract from drafting bid
specifications that limits the bidding to any one concern or
product, unless the specification is followed by the words "or
equal."
2)Requires bid specifications for state and local construction
projects to provide a period of time prior to or after, or
prior to and after, the award of the contract for submission
of data substantiating a request for a substitution of "an
equal" item. If no time period is specified, data may be
submitted any time within 35 days after the award of the
contract. �Public Contract Code (PCC) Section 3400]
FISCAL EFFECT : Unknown
COMMENTS :
Purpose of this bill . According to the author's office,
"Existing law encourages contractors and manufacturers bidding
on public works contracts to submit a bid which utilizes an
equal to or greater technique or product in lieu of that which
has been specified in the original Request for Proposal (RFP) by
the public agency. Unfortunately, current law allows public
agencies to require these 'or equal' submissions prior to the
actual bid �opening] day. This is a major disincentive to any
contractor, because there is nothing preventing the agency from
sharing the information with other competitors. Consequently,
innovations and/or major cost savings that could be derived from
these innovations are often withheld due to this requirement."
Background . Current law prohibits a public entity letting a
construction contract from requiring in its bid specifications
specific brand materials or one material, product, or service,
SB 1516
Page 3
unless an "or equal" clause is applied, allowing bidders to
provide equal materials, products, or services as a substitute.
The bid specifications must also provide a time period prior to,
after, or prior to and after, the award of a contract, for a
contractor to submit data substantiating that items are equal
when requesting permission to use substitutes. If no time
period is specified, data may be submitted any time within 35
days after the award of a contract.
This bill would restrict the ability of an awarding public
entity to decide when a bidder must submit data substantiating
the equality of a proposed substitute by. This bill requires
that substantiating data be submitted after a bid submission
deadline, unless the bid specifications establish procedures for
accepting bids from specified individuals other than the bidder,
an evaluation process, and a determination on whether the
proposed product or service is accepted as an equal substitute
at least 10 business days prior to the bid submission deadline.
This bill also requires that the substantiating data, the
evaluation, and the determination be kept confidential and to
the extent the CPRA allows, until a contract is awarded.
There are instances which may necessitate an awarding entity's
requirement for contractors to submit data substantiating a
proposed substitute's equality prior to the bid submission
deadline, including its consideration in the award of a
contract. The requirement for contractors to submit
substantiating data for proposed substitutes after a bid
submission deadline may result a greater number of bid protests
or change orders if a proposed substitute is rejected after a
contract is awarded.
Existing law allows contractors concerned with bid
specifications to contest the specifications and allows
contractors who are not awarded a contract to file a bid
protest. However, only the prime contractors are allowed to
submit bid proposals since they have standing to contest the
rejection of a proposed substitute. Currently, if a proposed
substitute is rejected, the contractor may elect to bid with
another product or service instead of contesting a proposed
substitute that has been rejected in order to meet the bid
submission deadline. This bill would allow any potential
contractor, subcontractor, supplier, or manufacturer of any tier
to contest a proposed equal substitute. This bill would allow
an individual whose proposed substitute is rejected to sue for
SB 1516
Page 4
declaratory relief even if the rejection of the proposed
substitute did not result in the loss of a contract award.
Existing law also directs bid rigging complaints to be reported
to the Attorney General for local projects, and to the Bureau of
State Audits (BSA) for state-funded projects. BSA reviews and
investigates complaints, requests information from the awarding
state entity, and refers bid rigging complaints with merit to
the appropriate law enforcement agency for criminal prosecution.
BSA staff has indicated that bid rigging is a very common
complaint but it is rare that such complaints are substantiated.
Support . According to the sponsors, the California Fence
Contractors' Association, the
Engineering Contractors' Association, the Flasher Barricade
Association, and the
Marin Builders Association, "PCC Section 3400 is known as the
'or equal' statute. Its purpose is to give taxpayers the
benefit of contractor/manufacturer ingenuity that reduces the
cost of construction while providing the same functionality of
the product or construction method specified by the public
agency who is bidding out the work. It does so by encouraging
ingenuous contractors/manufacturers to bid jobs at a lower
price, in anticipation of getting their ingenuous or equal
product or method approved by a public entity.
"To help ensure that the 'or equal' clause achieved its goals
for the public, the law was amended in 2001 to allow a
contractor up to 35 days after the award of the contract to
submit his documentation to the entity justifying that the
material or method was equal to or greater than that which was
specified in the RFP. In the end, taxpayers have benefitted
tremendously by the reduced costs of the construction of public
projects due to the PCC Section 3400.
"Unfortunately, while PCC Section 3400 has served the public
well for many years, there have been agencies through the years
that require the receipt of 'or equal' submissions before bid
day, and provides that the only way to get approval is by the
issuance of an addendum to the bid package before bid day, thus
allowing every competitor the opportunity to take advantage of
the contractor's/manufacturer's ingenuity that allows it to
lower its bid!
"Ingenuity that leads to a lower bid is not an unfair advantage
SB 1516
Page 5
- it is a classic fair advantage. It is an advantage that
benefits society at large by encouraging ingenuity. It is an
advantage that benefits taxpayers by leading to lower prices for
the same functionality. It is exactly the kind of good public
policy that we want bidders to use to lower bids."
Opposition . According to the California State Association of
Counties, the League of California Cities, and several school,
community college, and water districts, "Current law permits
local agencies to require contractors bidding projects to submit
requests for substitution of specified materials either before
or after submission of bids. Local agencies request the
submission of substitution requests prior to bid date on a
limited basis. Typically, an agency will evaluate the timing of
the substitution request on a project-by-project basis and may
only feel it is appropriate for maintenance projects or other
small projects. Some examples of instances in which an agency
benefits from include a pre-bid substitution request are:
To allow in-house staff extra time to examine the
request and determine whether the proposed product is truly
equal.
To ensure on-time delivery of materials on a project
with an extremely short timeline, where all products being
used need to be known as soon as the project is awarded.
An example of this is school projects that need to be
completed over a school break period.
To discover if one or more of the potentially equal
products might require the physical design of the facility
or its interior to be altered.
To avoid post-bid disputes."
According to the California's Coalition for Adequate School
Housing, "Not all systems are created equal, even if they appear
on paper to meet the tenets of the 'or equal' provision in
existing statute. For example, a proposed heating, ventilating,
and air-conditioning substitution may cost less and claim the
same performance standards as the system outlined in the �bid]
specifications, but differences in the quality of the materials,
service agreement, and product life cycle may render the system
incompatible with the district's demand. In this case,
acceptance of a substandard system would generate out-year
SB 1516
Page 6
repair and replacement costs that diminish the purported
benefits of an 'or equal' substitution. Worse still, it could
trigger a costly redesign, which the school district would
otherwise be unaware of until after the bid deadline in order to
engineer the proposed substitute. It is in the best interests
of both the school district and taxpayers to allow districts to
require substantiation of substitutes in advance of the bid
deadline, so that they can anticipate potential impacts to the
project."
REGISTERED SUPPORT / OPPOSITION :
Support
California Fence Contractors' Association (co-sponsor)
Engineering Contractors' Association (co-sponsor)
Flasher Barricade Association (co-sponsor)
Marin Builders Association (co-sponsor
Opposition
California Association of Sanitation Agencies
California Association of School Business Officials
California Special Districts Association
California State Association of Counties
California's Coalition for Adequate School Housing
Kern Community College District
League of California Cities
Los Rios Community College District
Orchard Dale Water District
Peralta Community College District
Rowland Water District
San Diego Community College District
Small School District Association
Yosemite Community College District
Analysis Prepared by : Joanna Gin / B.,P. & C.P. / (916)
319-3301