BILL ANALYSIS �
SB 785
Page 1
SENATE THIRD READING
SB 785 (Wolk and Hill)
As Amended August 22, 2014
Majority vote
SENATE VOTE :35-0
LOCAL GOVERNMENT 7-2 APPROPRIATIONS 13-4
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|Ayes:|Achadjian, Levine, Alejo, |Ayes:|Gatto, Bocanegra, |
| |Bradford, | |Bradford, |
| |Gordon, Frazier, Rendon | |Ian Calderon, Campos, |
| | | |Eggman, Gomez, Holden, |
| | | |Linder, Pan, Quirk, |
| | | |Ridley-Thomas, Weber |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Melendez, Waldron |Nays:|Bigelow, Donnelly, Jones, |
| | | |Wagner |
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SUMMARY : Repeals existing law authorizing the Department of
General Services (DGS), the California Department of Corrections
and Rehabilitation (CDCR), and specified local agencies to use
the design-build (DB) procurement process, and enacts more
uniform provisions authorizing DGS, CDCR, and most 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, until January 1, 2025.
2)Maintains an existing exception to the cost threshold in 1)
above, that allows transit agencies to use DB for the
acquisition and installation of technology applications or
surveillance equipment designed to enhance safety, disaster
preparedness, and homeland security efforts, regardless of
cost.
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3)Requires specified notification to the State Public Works
Board before DB can be used for DGS or CDCR projects.
4)Prohibits DGS and CDCR from using DB for projects on the state
highway system.
5)Requires the awarding authority to develop guidelines for a
standard organizational conflict-of-interest policy in
connection with DB projects.
6)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,
except that documents may include operations during a
training or transition period but shall not include
long-term operations for any project;
c) Preparation and issuance of a request for qualifications
(RFQ) in order to pre-qualify bidders. The RFQ must
contain specified elements, including (among other things)
a standard template request for statements of
qualifications that requires an acceptable safety record,
which shall be deemed acceptable if:
i) The proposer's 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,
ii) The proposer is a party to an alternative dispute
resolution system as provided for in a specified section
of the Labor Code, which governs workers' compensation
and insurance.
7)Prohibits a DB entity from being prequalified or shortlisted
unless the entity provides an enforceable commitment to the
director of DGS or CDCR or the local agency that the entity
and its subcontractors at every tier will use a skilled and
trained workforce to perform all work on the project or
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contract that falls within an apprenticeable occupation in the
building and construction trades, as specified.
8)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.
9)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.
10)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.
11)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, unless a stipulated sum is specified;
technical design and construction experience; and, life-cycle
costs over 15 or more years.
12)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.
13)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.
14)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.
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15)Requires the DB contract to provide errors and omissions
insurance coverage for the design elements of the project, and
requires the awarding authority to develop a standard form of
payment and performance bond for its DB projects.
16)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.
17)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.
18)Deletes language in existing statutes governing the use of DB
that requires awarding authorities to reimburse the Department
of Industrial Relations (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.
19)Deletes existing laws requiring specified DB reporting to the
Legislative Analyst's Office (LAO).
20)Allows the Marin Healthcare District to use the DB method
established for local agencies under this bill to assign
contracts for the construction of a building or improvements
directly related to construction of a hospital or health
facility building at the Marin General Hospital, until January
1, 2025.
21)Continues to allow the Sonoma Valley Health Care District to
use DB to assign contracts for the construction of a building
or improvements directly related to construction of a hospital
or health facility building at the Sonoma Valley Hospital, but
requires the Sonoma Valley Health Care District to use the DB
procedure this bill establishes for local agencies rather than
the DB procedure that current law allows for counties, as
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specified.
22)Extends the sunset date on provisions of law governing the
use of DB by transit operators, from January 1, 2015, to
January 1, 2017, and provides that those provisions apply only
to transit operators that begin a project solicitation before
January 1, 2015. Transit operators that begin a project
solicitation on or after January 1, 2015, are subject to this
bill's provisions governing the use of DB by local agencies.
23)Allows the San Diego Unified Port District to procure DB
contracts in excess of $1 million for the construction of
buildings and improvements directly related to the
construction of buildings, as specified.
24)Finds and declares that, due to the unique circumstances of,
and the potential costs faced by, the San Diego Unified Port
District, a general statute cannot be made applicable within
the meaning of California Constitution Article IV, Section 16
and that the special legislation contained in 23) above, is
applicable only to the San Diego Unified Port District.
25)Repeals an uncodified section of law that does the following:
a) Requires a specified peer review committee (committee)
established by the California Transportation Commission
(Commission) to operate until it has fulfilled its
reporting requirements, as outlined below;
b) Requires the committee to evaluate all transportation
projects using DB as authorized pursuant to SB 4 X2
(Cogdill), Chapter 2, Statutes of 2009-10 Second
Extraordinary Session, which allowed local transportation
entities to use DB on up to five projects and the
Department of Transportation (Caltrans) to use DB on up to
10 projects, as specified;
c) Requires the committee's evaluation to examine the
procurement method, comparing low bid and best value, and
to consider whether the projects were on time and on
budget. The evaluation must also compare the DB projects
to similar transportation projects that used
design-bid-build procurement; and,
d) Requires the Commission to submit to the Legislature a
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mid-term report of its findings by June 30, 2012, and a
final report by June 30, 2015.
26)Defines "best value" to mean a value determined by evaluation
of objective criteria that may include, but not be limited to,
price, features, functions, life cycle costs, experience, and
past performance. A best value determination may involve the
selection of the lowest cost proposal meeting the interests of
DGS, CDCR, or the local agency and meeting the objectives of
the project, selection of the best proposal for a stipulated
sum established by the procuring agency, or a tradeoff between
price and other specified factors.
27)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.
28)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.
29)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
contracting, architectural, and engineering services as needed
pursuant to a DB contract.
30)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.
31)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
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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.
32)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 and 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.
33)Defines, for special districts, "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.
34)Defines, for transit agencies, "project" to mean a transit
capital project that begins project solicitation on or after
January 1, 2015. A project that begins the solicitation
process before January 1, 2015, is subject to current law
governing the use of DB by transit operators. "Project" does
not include state highway construction or local street and
road projects.
35)Makes findings and declarations regarding the DB method of
project delivery.
36)Makes additional technical and conforming changes.
EXISTING LAW :
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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;
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;
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d) Allows specified special districts to construct projects
using the DB method; and,
e) Allows transit agencies to use DB and requires them to
establish a procedure for final selection of the DB entity,
subject to the following conditions:
i) In no case shall the transit operator award a
contract to a DB entity for a capital maintenance or
capacity-enhancing rail project unless that project
exceeds $25 million in cost;
ii) For non-rail transit projects that exceed $2.5
million, the transit operator may award the project to
the lowest responsible bidder or by using the best value
method; and,
iii) For the acquisition and installation of technology
applications or surveillance equipment designed to
enhance safety, disaster preparedness, and homeland
security efforts, there shall be no cost threshold and
the transit operator may award the contract to the lowest
responsible bidder or by using the best value 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
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the Labor Code.
9)Requires, pursuant to SB 4 X2, the following:
a) The Commission to establish a committee for the purposes
outlined below;
b) The committee to evaluate all transportation projects
using DB as authorized pursuant to SB 4 X2, which allowed
local transportation entities to use DB on up to five
projects and Caltrans to use DB on up to 10 projects, as
specified;
c) The committee's evaluation to examine the procurement
method, comparing low bid and best value, and to consider
whether the projects were on time and on budget. The
evaluation must also compare the DB projects to similar
transportation projects that used design-bid-build
procurement;
d) The committee to operate until it has fulfilled its
reporting requirements; and,
e) The Commission to submit to the Legislature a mid-term
report of its findings by June 30, 2012, and a final report
by June 30, 2015.
FISCAL EFFECT : According to the Assembly Appropriations
Committee:
1)Updated information from CDCR indicates increased project
costs to CDCR of approximately 10% to 25% due to the limits on
subcontractor competition. This equates to a $75 million to
$187.5 million increase on two current projects of $750
million had this bill been in effect.
2)Unknown impact on DGS and CDCR contracting costs as a result
of revised thresholds for which a design-build contract may be
used, and awarding of contracts on a "best value" rather than
"lowest responsible bidder" basis for more projects (General
Fund (GF) and various special funds). To the extent that more
contracts 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
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efficiencies are gained by using the design-build method on
more projects.
3)Unknown, but likely minor costs to DGS to ensure compliance
with labor requirements.
4)Minor savings (GF) to the LAO by deleting reporting
requirements.
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 more uniform provisions
authorizing DGS, CDCR, and local agencies to utilize the DB
procurement process for specified public works projects
costing more than $1 million, with a limited cost threshold
exception for specified local transit agency public safety
projects. This bill applies primarily to DGS, CDCR, and most
local agencies. It does not authorize the use of DB for
projects on the state highway system, local street and road
projects, or school construction projects.
This bill allows the use of DB for the Marin Health Care
District and the San Diego Unified Port District, as
specified. It also repeals provisions of law requiring
specified reporting to the Legislature on the use of DB as
authorized by SB 4 X2, which allowed local transportation
entities to use DB on up to five projects and Caltrans to use
DB on up to 10 projects. This bill includes a sunset date of
January 1, 2025, thereby retaining a degree of legislative
oversight over the use of DB by these state and local
agencies. 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
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completion to the design-build entity.
"Current design build authorization is based on a compromise
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
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DB can deliver public works faster and cheaper.
Detractors of DB contend that it eliminates competitive
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. This bill raises some questions the
Legislature may wish to consider:
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. It also creates a statute that
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applies to transit operators that is in addition to, and
inconsistent with, the provisions of SB 1433 (Hill) of the
current legislative session, which makes a number of
changes to transit operators' existing authority to use DB
(see "Related legislation," below). In addition, this bill
provides an exception to the DB rules it mandates for local
agencies by waiving the cost threshold for transit agencies
when they use DB to acquire and install technology
applications or surveillance equipment designed to enhance
safety, disaster preparedness, and homeland security
efforts. While this language exists in current law and
this bill merely maintains this authority, this provision
and remaining untouched statutes appear to present an
inconsistency with the stated intent of this bill. The
Legislature may wish to consider whether this bill achieves
an objective of uniformity.
b) LAO reporting. This bill also repeals statutes
requiring specified DB reporting to the LAO. The
Legislature may wish to consider whether continued LAO
reporting is prudent, or whether it is no longer necessary.
6)Related legislation. SB 1433 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.
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
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overall time required for project delivery, reduction in
costs, enhanced quality, and dramatic reductions in
litigation.
"California legislation allowing design-build project delivery
was first adopted in 1993 with the passage of AB 896 [(Brown),
Chapter 429] and SB 772 [(Petris), Chapter 430] (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 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 [ABC] of California, in opposition, write, "SB
785, as currently written, seeks to change Public Contract
Code Section 10191 (b)(2)(G) and Section 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
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modification rate and other safety standards in the section to
meet the requirements of Section 10191 (b)(2)(G) and Section
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.
"(In addition,) (p)olicymakers 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? Our apprentice
training programs are recognized and approved by California's
Department of Industrial Relations? and the U.S. [United
States] Department of Labor and cover a wide variety of
skilled trades. SB 785 seeks to bar apprenticeship programs
approved by the federal DOL [Department of Labor] if those
programs are located within California. This provision raises
the core question as to why legislators believe it is
appropriate to bar skilled, trained, hardworking
California-based apprentices with the same skill set as those
dispatched from union programs from working on projects funded
with their tax dollars."
Analysis Prepared by : Angela Mapp / L. GOV. / (916) 319-3958
FN: 0005366