BILL ANALYSIS �
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: SB 1433
SENATOR MARK DESAULNIER, CHAIRMAN AUTHOR: Hill
VERSION: 2/21/14
Analysis by: Eric Thronson FISCAL: yes
Hearing date: April 22, 2014
SUBJECT:
Design-build procurement for transit capital projects
DESCRIPTION:
This bill repeals the sunset date on statutory authority for
transit operators to use design-build procurement for transit
projects, expands the number of entities eligible to exercise
this authority, eliminates the minimum cost thresholds, and
deletes reporting requirements.
ANALYSIS:
Generally, design-build (DB) refers to a procurement process in
which both the design and construction of a project are procured
in a single contract from one entity. DB stands in contrast to
the traditional design-bid-build contracting method whereby work
on a project is divided into two separate phases: design and
construction. Under design-bid-build, the government agency is
responsible for the design of the project, either by designing
it itself or by contracting with a private entity to do so.
When designs are completed, the agency solicits bids from the
construction industry and hires the responsible low bidder to
build the project. DB combines these two phases into a single,
comprehensive contract.
Various sections of existing law authorize a number of different
state and local agencies, including transit operators, to
utilize the DB process for procuring capital projects. Further,
existing law prescribes the specific process transit operators
must follow when developing and constructing a transit project
through this procurement method. Existing law defines a transit
operator eligible to utilize DB as any transit district,
municipal operator, transit development board, or joint powers
authority formed to provide transit service. Existing law also
limits eligible capital projects for DB procurement to those
exceeding $25 million in cost. Finally, existing law requires
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transit operators exercising DB procurement to report on the
outcome of the experience to the Legislative Analyst's Office
(LAO). Statutory authority specific to transit operators' use
of DB expires January 1, 2015.
This bill repeals the sunset date on the statutory authority for
transit operators to use DB procurement for transit projects in
California. Further, this bill expands the definition of an
eligible transit operator to include any local or regional
agency responsible for the construction of transit projects and
eliminates the minimum cost thresholds for the use of DB
procurement. Finally, this bill eliminates the requirement for
transit operators to report their experience to the LAO.
COMMENTS:
1.Purpose . Because specific statutory authority for transit
operators to utilize DB sunsets at the end of this year, the
author contends this bill is necessary in order to maintain an
innovative and valuable tool transit operators can use to
deliver critical capital projects. In 2011, Santa Clara
Valley Transportation Authority awarded a $900 million DB
contract to extend the Bay Area Rapid Transit system toward
San Jose. According to bill proponents, this project is
currently 10 months ahead of schedule and $100 million under
budget. Projects experiencing results similar to this suggest
DB can be a successful way to deliver important transportation
infrastructure within limited means. As transit operators
continue to wrestle with the challenge of revenue growth not
keeping pace with increasing costs, the author believes this
tool could help maintain transit ridership and presence in the
state.
2.DB procurement is no longer a new concept . In 2000, the
Legislature passed and the governor signed into law AB 958
(Scott), Chapter 541, which originally authorized transit
operators to use DB procurement. At the time, DB was
relatively new in California, and therefore that initial bill
included reporting requirements and a sunset date of January
1, 2005. AB 372 (Nation), Chapter 262, Statutes of 2006,
extended the original sunset date, and then in 2009 AB 729
(Evans), Chapter 466, extended the sunset date further to
January 1, 2015. Unlike in 2000, the state and many local and
regional agencies today have had significant experience with
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DB procurement. It is now a widely understood method of
procuring large capital projects, and results from using DB
for project delivery across the state have largely been
favorable. For example, in a recent report, the LAO found
that the DB projects reviewed for the report were generally
successful at staying on budget and schedule. It seems
reasonable to no longer include the sunset date in existing
law, and instead grant transit operators unlimited access to
DB procurement.
3.What about project cost minimums ? Due to the nature of DB,
some projects are more suitable than others for DB
procurement. When initially made available, it was unclear
how successful local and regional agencies would be in
utilizing DB. Today, transit operators that are considering
DB for a capital project recognize both the advantages and
limitations of this procurement method, and make their
procurement decisions accordingly. For example, one
limitation to utilizing DB is that the number of bidders
competing for the contract is often smaller than otherwise
might bid on a traditional design-bid-build contract, because
there are fewer entities with the ability to take on the
responsibilities of both design and construction. Less
competition can result in higher overall bids. Transit
operators weigh this potential increased cost when
deliberating whether or not to use DB for any particular
project. This calculation necessarily favors higher-cost
projects over less expensive ones, because the marginal
savings an entity might expect from DB needs to outweigh the
potentially higher cost resulting from fewer bidders. Because
of this, it seems unnecessary to include project cost minimums
in statute; market pressures should influence and ensure the
appropriate application of DB for transit projects.
4.LAO reporting . As previously noted, the Legislature
authorized transit operators to use DB when there was still
some uncertainty about the appropriateness of this procurement
method for transit projects. Therefore, the original
legislation included a requirement that any transit operator
utilizing DB under this authorization report its experience to
the LAO. Since enactment of the original authorization, LAO
staff states that they have received few, if any, reports from
transit operators. This bill eliminates the LAO reporting
requirement from existing law. Since transit operators have
either utilized other legal authorization or failed to comply
with this reporting requirement, there seems to be little
SB 1433 (HILL) Page 4
value in the current reporting requirement. If the committee
is comfortable with local transit operators making their own
decisions regarding capital project procurement methods, then
reporting to the LAO or the Legislature doesn't appear
necessary. If the committee wants to retain an oversight role
over transit operators' use of DB, then it may wish to amend
the bill to retain the LAO reporting requirements in existing
law.
RELATED LEGISLATION:
SB 785 (Wolk) provides DB authority to some state agencies and
local governments, including transit districts. Pending in the
Assembly Rules Committee.
POSITIONS: (Communicated to the committee before noon on
Wednesday, April 16,
2014.)
SUPPORT: California Transit Association (sponsor)
Associated General Contractors
Orange County Transportation Authority
Peninsula Corridor Joint Powers Board (Caltrain)
San Mateo County Transit District
San Mateo County Transportation Authority
Santa Clara Valley Transportation Authority
OPPOSED: None received.