BILL ANALYSIS �
AB 1724
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Date of Hearing: April 28, 2014
ASSEMBLY COMMITTEE ON TRANSPORTATION
Bonnie Lowenthal, Chair
AB 1724 (Frazier) - As Amended: March 28, 2014
SUBJECT : Construction Manager/General Contractor: regional
transportation agencies
SUMMARY : Authorizes regional transportation agencies (RTAs) to
use an alternative procurement method referred to as
construction manager/general contractor (CMGC) contracts.
Specifically, this bill :
1)Defines key terms, namely:
a) "Construction manager/general contractor" to mean a
partnership, corporation, or other entity that is able to
provide licensed contracting and engineering services;
b) "Construction manager/general contractor method" to mean
a project delivery method in which a construction manager
is procured to provide preconstruction services during the
design phase of the project and construction services
during the construction phase of the project. Contracts
for preconstruction services and construction services can
be, but need not be, entered into at the same time and the
design and construction phases of a project may be carried
out sequentially or concurrently; and,
c) "Project" to mean the construction of a highway, bridge,
expressway, or tunnel.
2)Authorizes an RTA to use the CMGC project delivery method
under the condition that after evaluating the traditional
design-bid-build process as well as the CMGC process in a
public meeting, the agency makes a written finding that use of
the CMGC process on a particular project will meet one or more
of the following objectives:
a) Reduce project costs;
b) Expedite the project's completion; or,
c) Provide features not achievable through a
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design-bid-build process.
3)Requires RTAs to comply with prevailing wage laws on projects
for which CMGC is used or, alternatively, to enter into a
collective bargaining contract that will bind all contractors
on a project and that includes provisions governing the
resolution of disputes about wage payments.
4)Requires an RTA, within 180 days after completion of a project
using CMGC, to report on specific elements of the process and
make the report available on its Internet web site and
requires notification to the relevant legislative policy
committees that the report is available.
5)Sets forth provisions governing the process for procuring CMGC
services.
6)Requires all work not performed by the construction manager to
be performed by subcontractors. Contracts for subcontractors
must be competitively bid and must comply with the Subletting
and Subcontracting Fair Practices Act that, among other
things, protects subcontractors.
EXISTING LAW :
1)Sets forth provisions governing public works contracting.
These provisions generally prohibit public agencies from
contracting with the same firm for both the design and the
construction phases of a project.
2)Generally requires public works construction contracts to be
awarded to the lowest responsible bidder.
3)Defines "design-build" to mean a procurement process in which
both the design and construction of a project are procured
from a single entity.
4)Authorizes, until January 1, 2024, RTAs to use design-build
procurement for projects on or adjacent to the state highway
system and on expressways.
5)Authorizes the California Department of Transportation
(Caltrans) to use CMGC on no more than six projects, at least
five of which must have construction costs greater than ten
million dollars ($10,000,000).
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6)Authorizes the Santa Clara County Valley Transportation
Authority, the San Mateo County Transit District, and the San
Diego Association of Governments to use CMGC for transit
projects.
FISCAL EFFECT : In previous analyses of bills that included
similar authorization to use CMGCs, the Assembly Appropriations
Committee noted that costs to administer and report on the new
contracting method will be minor and absorbable. To the extent
the CMGC process is successful there may be significant savings
on those projects.
COMMENTS : For decades, the traditional process for procuring
public works projects has been the design-bid-build process.
This process relies on: 1) a design entity preparing complete
project design specifications and estimates; 2) the project
owner putting the complete package out to bid for construction;
and 3) awarding the construction contract to the lowest
responsible bidder. The design-bid-build process was developed
to protect taxpayers from extravagance, corruption, and other
improper practices by public officials as well as to secure a
fair and reasonable price for public works construction by
injecting competition amongst bidders into the process.
Although design-bid-build generally results in the lowest cost
construction contract, it is not without its drawbacks,
including:
1)Projects generally take longer to complete because designs
must be entirely completed, permits obtained, and right-of-way
acquired before the construction contract can be bid and
awarded.
2)Designs prepared for a competitive low-bid procurement are
developed to allow for a broad range of construction
approaches. As a result, low-bid designs do not always equate
to the most efficient designs possible, depending on a
particular contractor's strengths or capabilities.
3)Because the project designer does not have the benefit of
consulting with the entity that will ultimately be responsible
for construction of the project, there may be significant
issues that the designer does not anticipate, particularly
constructability issues. This can result in change orders
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that ultimately drive up the price of the contract.
4)Low-bid is not always the least expensive option, once change
orders and contractor claims are factored into the overall
project costs.
In the early 1990s, public works agencies grew frustrated with
design-bid-build and began experimenting with more innovative
project delivery methods, namely design-build. Design-build is
an alternate method for procuring design and construction
services that provides for the delivery of public works projects
from a single entity. Design-build combines project design,
permit, and construction schedules in order to streamline the
traditional design-bid-build environment.
Design-build differs from design-bid-build in some key areas,
including:
1)Shorter overall elapsed project delivery time because
construction can begin before final design is complete.
2)Project costs and schedule risks are more heavily borne by the
design-build contractor.
3)Construction claims and change orders are minimized.
4)Designs can be developed to take advantage of particular
contractor's strengths and abilities, thereby reducing the
need to "over-design" for generic use as in design-bid-build.
5)Project specifications are typically based on definitive
performance criteria (which may or may not be well established
by the project owner) rather than established specifications.
6)Contracts are awarded based on best-value analyses rather than
low-bid.
Design-build contracts are not without their drawbacks as well.
For example, with a design-build project, the project owner must
give up a good deal of control over the details of the project
design. Additionally, design-build contractors are typically
selected using qualifications-based selection criteria or best
value analysis. These approaches are more subjective than a
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low-bid approach, potentially subjecting the public works owner
to greater contract challenges and higher costs.
This bill authorizes RTAs to use CMGC, an emerging project
delivery method that potentially combines the best of both
design-bid-build and design-build, similar to authority already
granted to Caltrans, the Santa Clara County Valley
Transportation Authority, the San Mateo County Transit District,
and the San Diego Association of Governments.
Using CMGC, each RTA will be able to engage a design and
construction management consultant (construction manager) to act
as its consultant during the pre-construction phase and as the
general contractor during construction. During the design
phase, the construction manager acts in an advisory role,
providing constructability reviews, value engineering
suggestions, construction estimates, and other
construction-related recommendations. Later, each agency and
the construction manager can agree that the project design has
progressed to a sufficient enough point that construction may
begin. The two parties then work out mutually agreeable terms
and conditions for the construction contract, and, if all goes
well, the construction manager becomes the general contractor
and construction on the project commences, well before design is
entirely complete.
The CMGC process is meant to provide continuity and
collaboration between the design and construction phases of the
project. Construction managers have an incentive to provide
input during the design phase that will enhance constructability
of the project later because they know that they will have the
opportunity to become the general contractor for the project.
Furthermore, CMGC promises to save project delivery time,
provide earlier cost certainty, transfer risks from the RTA to
the contractor, and ensure project constructability.
Additionally, CMGC allows each agency to have greater control of
design decisions. It also allows each agency to design the
project to compliment the CMGC's strengths and capabilities,
thereby avoiding the need to over-design the project to provide
maximum competitiveness in a low-bid procurement.
At one point, the Federal Highway Administration (FHWA)
considered CMGC "innovative" and required prior approval before
states could use the process on a federal-aid contract; however,
that approval is no longer necessary. According to FHWA,
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projects that are best suited for the CMGC process are those for
which the owner needs contractor feedback during the design
phase. These projects include complex components that require
innovation and are typically located in urban, more congested
areas. Other projects that are a good fit for the CMGC process
are projects that entail extensive public involvement or include
right-of-way or utility issues that affect the overall schedule.
Seventeen states authorize the use CMCG contracts for
transportation.
There are potential drawbacks of using CMGC contracts.
According to guidance published by the City of Seattle, CMGC
contracts carry risks, including:
1)They are difficult and complex.
2)The procurement process takes longer and consumes greater
project staff time than traditional design-bid-build
contracts.
3)Project teams face steep learning curves.
4)Successful construction cost negotiations require experienced
staff.
Other literature on the use of CMGC contracts is generally
consistent with Seattle's guidance regarding concerns for risks
associated with CMGC contracts and cautions that CMGC is not
appropriate for every project. However, the same literature
suggests that, if carefully implemented, CMGC has the potential
to significantly improve project delivery.
Supporters of this bill suggest that early collaboration and
coordination between the designer and the construction
contractor should lead to innovations that reduce costs,
increase efficiency, or accelerate project delivery,
particularly on large and complex projects.
Opponents to the measure are not opposed to the authority to use
CMGC but rather to provisions in the bill that exempt projects
governed by a project labor agreement from the requirement to
reimburse the Department of Industrial Relations for its
reasonable costs to enforce labor laws.
Committee concerns :
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1)The procedures set forth in this bill are unnecessarily
prescriptive. RTAs are often very sophisticated and used to
managing large, complex, expensive projects and generally they
report to boards comprised of locally elected officials.
Decisions regarding, for instance, how the RTA is to evaluate
and report on the effectiveness of the CMGC contract or how it
runs its selection panel are best left to the RTA's governing
board and should not be set forth in statute.
2)The author's office should work with committee staff and
counsel to ensure that general local agency public contracting
provisions related to, for example, dispute resolution,
performance and payment bonds, labor compliance, contractor
licensing requirements, preferences, and subletting and
subcontracting rules apply without having to be restated.
This will avoid confusion in the future and ensure all the
appropriate public contract provisions apply to this new type
of contract.
Committee members may wish to suggest to the author that he
continue to work with committee staff, upon approval of this
bill, to resolve these issues as the bill moves forward, within
the overall framework approved by the Committee.
Previous legislation: AB 2498 (Gordon), Chapter 752, Statutes
of 2012, authorized the Department of Transportation to use CMGC
on no more than six projects, at least five of which must have
construction costs greater than ten million dollars
($10,000,000).
SB 1549 (Vargas), Chapter 767, Statutes of 2012, authorized the
San Diego Association of Governments to use CMGC contracting on
transit projects.
AB 797 (Gordon), Chapter 320, Statutes of 2013, authorized the
Santa Clara Valley Transportation Authority and the San Mateo
County Transit District to use CMGC contracting on transit
projects.
REGISTERED SUPPORT / OPPOSITION :
Support
Contra Costa Transportation Authority (sponsor)
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Associated General Contractors
California Transit Association
San Francisco County Transportation Authority
Self-Help Counties Coalition
Transportation California
United Contractors
Opposition
Air Conditioning Trade Association
Associated Builders and Contractors, San Diego Chapter
National Right to Work Committee
Plumbing-Heating-Cooling Contractors Association of California
Western Electrical Contractors Association
Analysis Prepared by : Janet Dawson / TRANS. / (916) 319-2093