BILL ANALYSIS �
AB 2376
Page 1
Date of Hearing: April 30, 2014
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 2376 (Weber) - As Amended: April 10, 2014
Policy Committee: B & PVote:14-0
(Consent)
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill eliminates the requirement under the Department of
General Services' (DGS) master builders' risk insurance program
that a contractor's policy under the program have a minimum
deductible of $25,000, and instead requires the insurance policy
to require a deductible as outlined in the request for bids or
proposals.
FISCAL EFFECT
Ongoing cost savings in the administration of capital outlay
projects and in project-related indirect costs due to the
economies of scale available through a master builders' risk
insurance program.
COMMENTS
1)Background . Builders' risk insurance is a type of property
insurance that protects building projects, during the
construction phase only, from fire and other hazards. The
state currently requires the contractor to furnish builders'
risk insurance on state construction projects. When a state
project goes to bid, the contract will require a level of
insurance coverage up to the full value of the contract
amount, and the cost of this insurance is then passed onto the
state as part of the contractor's bid.
Since each contractor is responsible for securing its own
builders' risk insurance policy, the type of coverage a
contractor secures may vary, and may not satisfy coverage
requirements. SB 548 (Morrow)/Statutes of 2005, authorized DGS
AB 2376
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to establish a master builders' risk insurance program,
thereby authorizing DGS to negotiate the master policy for all
projects under the program in order to ensure adequate,
uniform insurance coverage. Under this program, DGS would
select an insurance broker through its competitive bidding
process, and propose a slate of projects to the insurer in
order to determine the appropriate deductible levels for each
project. Once those deductibles are approved, DGS could
specify in its notice for bid or proposal the minimum
deductible for which the contractor is responsible.
When SB 548 was adopted, the state had a large portfolio of
large capital outlay projects, which justified the $25,000
minimum deductible for contractors. According to DGS, a
$25,000 deductible would be appropriate for a project costing
at least $50 million. In 2007, an insurer broker was procured
for the implementation of the program. This was at the height
of the economic downturn, however, and the state's capital
outlay program, particularly of large projects, declined. As a
result, the SB 548 program was never implemented.
2)Purpose . According to DGS, the need for this program still
exists. In addition to ensuring state projects are uniformly
and adequately covered, SB 548 was intended to allow the state
to potentially reduce its insurance costs by obtaining more
favorable terms and conditions for these policies than
individual contractors, who would otherwise pass on their
higher insurance costs to the state. DGS also asserts that
implementing the program would reduce staff time and
administrative oversight for this portion of the contracting
process.
DGS believes that eliminating a statutory minimum deductible
amount would provide the flexibility to implement the program
and set the deductibles on a case by case basis, thereby
allowing all projects, even smaller ones, to benefit from the
efficiency and uniformity the program would achieve.
Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081