BILL ANALYSIS �
SB 785
Page 1
Date of Hearing: June 25, 2014
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
K.H. "Katcho" Achadjian, Chair
SB 785 (Wolk) - As Amended: June 17, 2014
SENATE VOTE : 35-0
SUBJECT : Design-build.
SUMMARY : Repeals existing law authorizing the Department of
General Services (DGS), the Department of Corrections and
Rehabilitation (CDCR), and local agencies to use the
design-build (DB) procurement process, and enacts uniform
provisions authorizing DGS, CDCR, and local agencies to utilize
the DB procurement process for specified public works projects.
Specifically, this bill :
1)Repeals statutes governing the use of DB by DGS, CDCR, and a
number of local agencies, and instead, revises and recasts
those statutes to allow DGS, CDCR, cities, counties, and
specified special districts and transit agencies (awarding
authorities) to use DB for their public works contracts in
excess of $1 million using either a low bid or best value
process.
2)Requires specified notification to the State Public Works
Board before DB can be used for DGS or CDCR projects.
3)Prohibits DGS and CDCR from using DB for projects on the state
highway system.
4)Requires the awarding authority to develop guidelines for a
standard organizational conflict-of-interest policy in
connection with DB projects.
5)Specifies the procurement process that DB projects must
follow, including:
a) Preparation of documents setting forth scope and
estimated price, as specified;
b) A prohibition against design-build-operate contracts;
c) Preparation and issuance of a request for qualifications
SB 785
Page 2
(RFQ) in order to pre-qualify bidders. The RFQ must
contain specified elements, including:
i) Skilled labor force availability that shall be
deemed satisfied by the existence of an agreement with a
registered apprenticeship program, approved by the
California Apprenticeship Council, that has graduated at
least one apprentice in each of the preceding five years.
This graduation requirement shall not apply to programs
providing apprenticeship training for any craft that was
first deemed by the federal Department of Labor and the
State Department of Industrial Relations (DIR) to be an
apprenticeable craft within the five years prior to the
effective date of this bill; and,
ii) A standard template request for statements of
qualifications that requires an acceptable safety record
that shall be deemed acceptable if:
(1) Its experience modification rate for the most
recent three-year period is an average of 1.00 or
less, and its average total recordable injury or
illness rate and average lost work rate for the most
recent three-year period does not exceed the
applicable statistical standards for its business
category; or,
(2) The proposer is a party to an alternative
dispute resolution system as provided for in a
specified section of the Labor Code.
6)Requires the awarding authority to prepare a request for
proposals (RFP) that invites prequalified or short-listed
entities to submit competitive sealed proposals in the manner
prescribed by the awarding authority.
7)Requires the RFP to include certain elements, as specified,
including project scope, cost, evaluation and awarding
methods, relative weight of selection factors, and procedures
for negotiations on best value selections.
8)Requires, for projects utilizing low bid as the selection
method, the competitive bidding process to result in lump-sum
bids by the prequalified or short-listed DB entities, and
awards to be made to the DB entity that is the lowest
responsible bidder.
SB 785
Page 3
9)Requires projects utilizing best value as a selection method
to follow a specified process that requires proposals to be
evaluated by using only the criteria and selection procedures
specifically identified in the RFP, with the following minimum
factors that must be weighted as deemed appropriate by the
awarding entity: price; technical design and construction
experience; and, life-cycle costs over 15 or more years.
10)Allows the awarding authority to hold discussions or
negotiations with responsive proposers, and requires proposers
to be ranked based on a determination of value provided, with
a limit of three proposers required to be ranked, as
specified.
11)Requires the award of the contract to be made to the
responsible DB entity whose proposal is determined to have
offered the best value to the public, and requires the
awarding authority to publicly announce its award, as
specified.
12)Requires the DB entity to provide payment and performance
bonds for the project in the form and in the amount required
by the awarding authority, and issued by a California admitted
surety. The amount of the payment bond shall not be less than
the amount of the performance bond.
13)Requires the DB contract to provide errors and omissions
insurance coverage for the design elements of the project.
14)Requires the awarding authority to develop a standard form of
payment and performance bond for its DB projects.
15)Specifies that awarding authorities may identify specific
types of subcontractors that must be included in the DB entity
statement of qualifications and proposal, as specified, and
outlines procedures for awarding subcontracts with a value
exceeding 0.5% of the contract price allocable to construction
work.
16)Prohibits retention proceeds withheld by an agency from a DB
entity from exceeding 5%
if a performance and payment bond, issued by an admitted surety
insurer, is required in the solicitation of bids, and
specifies the retention proceeds for subcontracts.
SB 785
Page 4
17)Deletes language in existing statutes governing the use of DB
that requires awarding authorities to reimburse DIR for its
costs of performing prevailing wage monitoring and enforcement
on public works projects, and that alternatively allows the
agency to continue operating an existing previously approved
labor compliance program to monitor and enforce prevailing
wage requirements on the project under specified
circumstances.
18)Deletes existing laws requiring specified DB reporting to the
Legislative Analyst's Office (LAO).
19)Adds the Marin Healthcare District to the statute authorizing
Sonoma Valley Health Care District to use DB, thereby allowing
the Marin Healthcare District to use the DB method to assign
construction contracts directly related to the construction of
a hospital or health facility building at the Marin General
Hospital.
20)Defines "best value" to mean the value determined by
evaluation of objective criteria related to price, features,
functions, life cycle costs, experience, and past performance.
A best value determination may entail selection of the lowest
priced technically acceptable proposals or selection of the
best proposal for a fixed price established by the procuring
agency, or a tradeoff between price and other specified
factors.
21)Defines "construction subcontract" to mean each subcontract
awarded by the DB entity to a subcontractor that will perform
work or labor or render service to the DB entity in or about
the construction of the work or improvement, or a
subcontractor licensed by the State of California that, under
subcontract to the DB entity, specially fabricates and
installs a portion of the work or improvement according to
detailed drawings contained in the plans and specifications
produced by the DB team.
22)Defines "design-build" to mean a project delivery process in
which both the design and construction of a project are
procured from a single entity.
23)Defines "design-build entity" to mean a corporation, limited
liability company, partnership, joint venture, or other legal
entity that is able to provide appropriately licensed
SB 785
Page 5
contracting, architectural, and engineering services as needed
pursuant to a DB contract.
24)Defines "design-build team" to mean the DB entity itself and
the individuals and other entities identified by the DB entity
as members of its team. Members shall include the general
contractor and, if utilized in the design of the project, all
electrical, mechanical, and plumbing contractors.
25)Defines "local agency" to mean the following:
a) A city, county, or city and county;
b) A special district that operates wastewater facilities,
solid waste management facilities, water recycling
facilities, or fire protection facilities; and,
c) Any transit district, included transit district,
municipal operator, included municipal operator, any
consolidated agency, as specified, any joint powers
authority formed to provide transit service, any county
transportation commission, as specified, or any other local
or regional agency, responsible for the construction of
transit projects.
26)Defines, for cities or counties, "project" to mean the
construction of a building or buildings and improvements
directly related to the construction of a building or
buildings, county sanitation wastewater treatment facilities,
and park recreational facilities, but does not include the
construction of other infrastructure, including, but not
limited to, streets and highways, public rail transit, or
water resources facilities and infrastructure. For cities or
counties that operate wastewater facilities, solid waste
management facilities, or water recycling facilities,
"project" also means the construction of regional and local
wastewater treatment facilities, regional and local solid
waste facilities, or regional and local water recycling
facilities.
27)Defines, for special districts as defined in 25) b), above,
"project" to mean the construction
of regional and local wastewater treatment facilities, regional
and local solid waste facilities, regional and local water
recycling facilities, or fire protection facilities.
SB 785
Page 6
28)Defines, for transit agencies as defined in 25) c), above,
"project" to mean a transit capital project, but does not
include state highway construction or local street and road
projects.
29)Makes findings and declarations regarding the DB method of
project delivery.
30)Makes additional technical and conforming changes.
EXISTING LAW :
1)Requires public entities to comply with certain procedures in
soliciting and evaluating bids and awarding contracts for the
construction of public works, and generally requires agencies
to invite bids based on a completed set of engineering plans
and then award the bid to the lowest bidder, also called
design-bid-build.
2)Allows limited use of DB, which allows public agencies to
procure both design and construction services from a single
entity before the development of complete plans and
specifications. DB contracts may be awarded on the basis of
best value or lowest responsible bidder, as specified in
existing law.
3)Allows DGS and CDCR to utilize DB to construct specified
structures, including state office buildings and prison
facilities, for projects with a budget of at least $10 million
on a best value basis, using criteria such as proposed design
approach, life-cycle costs, project features and functions,
while contracts for projects with a budget of at least
$250,000 may be awarded to the lowest responsible bidder.
4)Requires local officials, under the Local Agency Public
Construction Act (LAPC Act), to invite bids for construction
projects and then award contracts to the lowest responsible
bidder under the traditional design-bid-build project delivery
system.
5)Allows local agencies to use DB as follows:
a) Allows counties to use DB to construct buildings and
related improvements and wastewater treatment facilities
that cost more than $2.5 million, until July 1, 2016;
SB 785
Page 7
b) Allows cities to use DB to construct buildings and
related improvements worth more than $1 million, until
January 1, 2016;
c) Allows cities, counties, and special districts to use DB
to construct a statewide total maximum of 20 local
wastewater facilities, solid waste management facilities,
or water recycling facilities that cost more than $2.5
million each; and,
d) Allows specified special districts to construct projects
using the DB method.
6)Generally requires awarding authorities to reimburse the DIR
for its costs of performing prevailing wage monitoring and
enforcement on public works projects, and that alternatively
allows the agency to continue operating an existing previously
approved labor compliance program to monitor and enforce
prevailing wage requirements on the project under specified
circumstances.
7)Requires reporting to the LAO under specified DB statutes.
8)Requires, pursuant to a county's authority to use DB, a
bidder's safety record to be deemed acceptable if:
a) Its experience modification rate for the most recent
three-year period is an average of 1.00 or less, and its
average total recordable injury/illness rate and average
lost work rate for the most recent three-year period does
not exceed the applicable statistical standards for its
business category; or,
b) The bidder is a party to an alternative dispute
resolution system as provided for in a specified section of
the Labor Code.
FISCAL EFFECT : According to the Senate Appropriations analysis
of the May 2, 2013, version of this bill:
1)Unknown impact on DGS and CDCR contacting costs as a result of
revising the thresholds for which a DB contract may be used,
and authorizing the awarding of contracts on a "best value"
rather than "lowest responsible bidder" basis for more
projects (General Fund). To the extent that more contracts
SB 785
Page 8
are awarded on a "best value" basis and contracts are awarded
to bidders who may not have the lowest bid price, overall
contracting costs may increase. On the other hand, overall
contracting costs may be lower to the extent that efficiencies
are gained by using the DB method on more projects.
2)Unknown, likely neutral fiscal impacts on DIR related to the
department's monitoring and enforcement of prevailing wage
requirements (State Public Works Enforcement Fund). All DIR
costs are reimbursed by DGS and CDCR, as applicable.
3)Minor savings to LAO by deleting reporting requirements
(General Fund).*
*Note: This bill has since been amended to remove language
pertaining to DIR's monitoring and enforcement of prevailing
wage requirements, which will likely change this bill's fiscal
impact.
COMMENTS :
1)Purpose of this bill . This bill repeals existing law
authorizing DGS, CDCR, and local agencies to use the DB
procurement process, and enacts uniform provisions authorizing
DGS, CDCR, and local agencies to utilize the DB procurement
process for specified public works projects costing more than
$1 million. This bill pertains only to DGS, CDCR, and most
local agencies. It does not include projects on the state
highway system or school construction projects. This bill is
sponsored by the Associated General Contractors and the
Design-Build Institute of America.
2)Author's statement . According to the author, "Under the
traditional design-bid-build method of delivery the design and
construction work is assigned to two separate entities. On
the other hand, under the design-build project delivery method
the general contractor is responsible for both the design and
construction of the project. The benefits of a design-build
contract project delivery system include an accelerated
project completion, cost containment, reduction of
construction complexity, and reduced risk exposure by shifting
the liability and risk for cost containment and project
completion to the design-build entity.
"Current design build authorization is based on a compromise
SB 785
Page 9
struck in 2000 among local officials, labor groups, and
contractors. Further changes to the language, consistent with
the principles of the 2000 compromise, were made by: SB 287
(Cox), Chapter 376, Statutes of 2005; SB 416 (Ashburn),
Chapter 585, Statutes 2007, which extended this authority to
use design-build contracting for the construction of buildings
and directly related improvements to all 58 counties in the
state; and, AB 642 (Wolk), Chapter 314, Statues 2008, which
extended this authority to use design-build contracting for
the construction of buildings and directly related
improvements to all cities in the state."
3)Background . State law generally requires public agencies to
invite bids for construction projects and then award contracts
to the lowest responsible bidder. This design-bid-build
method is the traditional approach to public works
construction.
Under the DB method, a single contract covers the design and
construction of a project with a single company or consortium
that acts as both the project designer and builder. The DB
entity arranges all architectural, engineering, and
construction services, and is responsible for delivering the
project at a guaranteed price and schedule based upon
performance criteria set by the public agency. The DB method
can be set by the public agency. The DB method can be faster
and, therefore, cheaper, than the design-bid-build method, but
it requires a higher level of management sophistication since
design and construction may occur simultaneously.
Advocates for the DB method of contracting for public works
contend that project schedule savings can be realized because
only a single request for proposals is needed to select the
project's designer and builder. The more traditional
design-bid-build project approach requires the separate
selection of the design consultant or contractor, completion
of design, and then advertising for bids and selection of the
construction contractor. Proponents add that DB allows the
overlap of design and construction activities, resulting in
additional time savings and lower project costs. By avoiding
the delays and change orders that result from the traditional
design-bid-build method of contracting, proponents argue that
DB can deliver public works faster and cheaper.
Detractors of DB contend that it eliminates competitive
SB 785
Page 10
bidding, allows the private contractor or consortium to
inspect and sign off on their own work, and increases project
delivery costs.
4)LAO reports and recommendations . The LAO issued a report to
the Legislature on
February 3, 2005, titled "Design-Build: An Alternative
Construction System," which reported on all DB authorities
granted to various types of government entities. After
analyzing the claims of proponents and opponents and reviewing
the experience of local agencies that were authorized to use
DB at the time, the LAO recommended that "the Legislature
grant design-build authority only to buildings and directly
related infrastructure. There are more complex issues
associated with other public works projects such as
transportation, public transit, and water resources
facilities. Evaluation of design-build as a construction
delivery option for these other infrastructure facilities is
beyond the scope of this report."
In January of 2010 the LAO issued a second report, this time
updating the Legislature on the use of DB by counties in
California, based on data received from counties that utilized
this methodology. In the report, LAO states that "although it
was difficult to draw conclusions from the reports received
about the effectiveness of design-build compared to other
project delivery methods, we do not think that the reports
provide any evidence that would discourage the Legislature
from granting design-build authority to local agencies on an
ongoing basis. In doing so, however, we recommend the
Legislature consider some changes such as creating a uniform
design-build statute, eliminating cost limitations, and
requiring project cost to be a larger factor in awarding the
design-build contract."
5)Policy considerations .
a) Uniformity . The stated intent of this bill is to
provide uniform statutes to govern the use of DB by state
and local agencies. However, it does not repeal and recast
all existing DB statutes. For example, current statutes
governing transit operators' use of DB are not repealed by
this bill. In addition, this bill creates a statute that
applies to transit operators that is in addition to, and
inconsistent with, the provisions of SB 1433, (Hill) of
SB 785
Page 11
2014, which makes a number of changes to transit operators'
existing authority to use DB (see "Related legislation,"
below). There are additional DB statutes that remain
untouched by this bill. The Committee may wish to ask the
author to clarify the intent of this bill and whether
additional changes for the sake of uniformity will be made
in the future.
b) Legislative oversight . This bill also repeals statutes
requiring specified DB reporting to the LAO, and repeals a
number of sunset dates in existing statutes without
including a sunset date in the new statutes this bill
creates. The Committee may wish to consider whether
continued Legislative oversight over the use of DB via
these mechanisms is prudent, or whether it is no longer
necessary.
6)Related legislation . SB 1433 (Hill) of 2014 repeals the
sunset date on transit operators' authority to use DB for
transit projects, expands the number of entities eligible to
exercise this authority, eliminates minimum cost thresholds,
and deletes reporting requirements. AB 1433 is pending in the
Assembly Transportation Committee.
7)Arguments in support . The Design-Build Institute of America,
co-sponsor of this bill, states, "SB 785 which will help
streamline, consolidate and simplify design-build in
California. Over the years far too many design-build statutes
have become law causing confusion, inconsistency, inefficiency
and wasted costs. SB 785 will bring these various statutes
into a single 'boiler plate' for use by state agencies,
counties, cities, water municipalities, transit operators and
others.
"The design-build project delivery process has become a
standard tool for public agencies in the United States over
the past 30 years. The Federal Government has been utilizing
this method of project delivery extensively for 20 years
within the United States and at its locations all over the
world. The vast majority of states have granted design-build
authority to state and local agencies in order to speed up the
overall time required for project delivery, reduction in
costs, enhanced quality, and dramatic reductions in
litigation.
SB 785
Page 12
"California legislation allowing design-build project delivery
was first adopted in 1993 with the passage of AB 896 and SB
772 (both applicable to the Department of General Services).
Since that time numerous statutes have been passed with
varying provisions for different public agencies. This has
created inconsistencies and inefficiencies for agencies and
industry practitioners trying to effectively utilize this
project delivery process.
"SB 785 will integrate the design-build project delivery
process by repealing existing statutes, and replacing them
with two (2) new chapters in the Public Contract Code. It
will create a common template for statewide use of the
design-build project delivery process for those agencies
currently authorized to use design-build. This bill will help
create common administrative guidelines which will improve
efficiencies and reduce costs to taxpayers on projects where
design-build delivery is utilized."
8)Arguments in opposition . The Associated Builders and
Contractors of California, in opposition, write, "SB 785, as
currently written, seeks to change Public Contract Code
�10191 (b)(2)(G) and �22164 (b)(2)(G): A proposer's safety
record shall be deemed acceptable if its experience
modification rate for the most recent three-year period is an
average of 1.00 or less, and its average total recordable
injury or illness rate and average lost work rate for the most
recent three-year period does not exceed the applicable
statistical standards for its business category or if the
proposer is a party to an alternative dispute resolution
system as provided for in Section 3201.5 of the Labor Code.
Only union contractors are able to establish an ADR program,
under the referenced Labor Code section 3201.5.
"ABC California does not believe it is appropriate public
policy to provide an exception for demonstration of safety.
Workplace safety does not depend on whether or not you have a
collective bargaining agreement. All prospective bidders
should have to place in the public record their experience
modification rate and other safety standards in the section to
meet the requirements of �10191 (b)(2)(G) and �22164
(b)(2)(G). We believe that ensuring a company's safety record
is part of their bid information is the best and only way to
demonstrate contractor commitment to workplace safety. There
shouldn't be exceptions for any bidder on safety.
SB 785
Page 13
"All approved apprenticeship programs should be allowed to
supply a skilled and safe workforce: Policymakers need to
ensure that all state and federally approved apprenticeship
training programs are able to provide trained apprentices and
journeymen under the skilled and trained workforce
requirements?
"Today, all programs must meet the same standards of training
apprentices on needed skills and workplace safety. The
language in SB 785 is designed to keep some state-registered
apprentices from being dispatched for many years after their
apprenticeship program has received state approval. It begs
the question as to why legislators believe it is appropriate
to bar skilled, trained, hardworking apprentices with the same
skill set as those dispatched from union programs from working
on projects funded with their tax dollars?One of the
requirements of apprenticeship training is to provide a wide
range of employment and learning opportunities for
apprentices. This current state policy is in direct conflict
with
SB 785's language in �22164 (b)(2)(B) and�10191 (b)(2)(B)."
9)Chaptering conflicts . Because provisions of this bill
conflict with provisions in AB 1650 (Jones-Sawyer) and SB 854
(Budget and Fiscal Review), the author may wish to amend the
bill to avoid any chaptering out issues that could occur
because of these conflicts.
REGISTERED SUPPORT / OPPOSITION :
Support
Associated General Contractors [CO-SPONSOR]
Design-Build Institute of America [CO-SPONSOR]
California Special Districts Association
California Transit Association
CH2M HILL
County of Los Angeles
County of San Diego
County of Santa Clara
East Valley Water District
Infrastructure Delivery Council
Marin Healthcare District
Santa Clara Valley Transportation Authority
SB 785
Page 14
Sonoma-Marin Area Rail Transit District (SMART)
Opposition
Air Conditioning Trade Association
Associated Builders and Contractors - San Diego Chapter
Associated Builders and Contractors of California
Plumbing-Heating-Cooling Contractors Association of California
Western Electrical Contractors Association
Analysis Prepared by : Angela Mapp / L. GOV. / (916) 319-3958