BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
SB 1433 (Hill) - Transit operators: design-build procurement
authorization.
Amended: As Introduced Policy Vote: T&H 10-0
Urgency: No Mandate: Yes (non-reimbursable)
Hearing Date: May 5, 2014 Consultant: Mark McKenzie
This bill does not meet the criteria for referral to the
Suspense File.
Bill Summary: SB 1433 would indefinitely extend the authority
for transit operators to enter into design-build contracts for
transit projects, extend design-build procurement authority to
any local or regional agency responsible for transit project
construction, delete specified cost thresholds, and delete
reporting requirements.
Fiscal Impact:
Unknown overall contracting costs or savings to transit
operators. By extending design-build authority indefinitely
and deleting cost thresholds for which design-build
procurement may be used, any future transit project may be
awarded on a "best value" rather than "lowest responsible
bidder" basis. Overall contracting costs may increase, to
the extent contracts are awarded to bidders who may not have
the lowest bid price. On the other hand, overall
contracting costs may be lower to the extent that
efficiencies are gained by using design-build, such as
expedited project delivery. Transit project funding could
be from any combination of local, federal, and state funds
(Public Transportation Account and potentially bond funds).
Likely minor fiscal impacts on the Department of Industrial
Relations related to the department's monitoring and
enforcement of prevailing wage requirements, reimbursed by
transit operators (State Public Works Enforcement Fund).
Staff notes that by extending the deposit of funds into this
continuously appropriated fund, the bill makes an
appropriation.
SB 1433 (Hill)
Page 1
Minor cost savings to the Legislative Analyst's Office by
deleting requirements that transit operators submit reports
on the use of design-build (General Fund).
Background: Most public agency capital projects are constructed
using the traditional design-bid-build approach, whereby
complete plans and specifications are prepared prior to the
advertising, bidding, and awarding of any construction contracts
to the lowest-responsible bidder. Design-build is a procurement
process in which both the design and construction of a project
are procured from a single entity. The selected firm arranges
all architectural, engineering, and construction services. The
design-build entity is responsible for delivering the project at
a guaranteed price and schedule based upon best value
performance criteria set by the public agency. Design-build is
intended to expedite project delivery and achieve efficiencies
through collaboration between the engineering and construction
phases of project delivery.
Existing law authorizes specified transit operators to use
design-build as a procurement method until January 1, 2015. For
capital maintenance and capacity enhancing rail projects,
transit operators may only use design-build for projects that
cost more than $25 million. Transit operators are explicitly
prohibited from using design-build for projects on the state
highway system or local streets and roads. In evaluating bids
for a design-build project to determine the "best value," at
least 50 percent of the total weight in scoring a proposal must
be based on the following collective factors: price, technical
expertise, life cycle costs over 15 years or more, skilled labor
force availability, and acceptable safety record. Existing law
requires transit operators to make a finding at a public meeting
that use of design-build on a particular project will reduce
project costs, expedite completion, or provide features that
cannot be achieved through design-bid-build methods. When a
project involves state funds, the transit operator must include
these findings in its application for funds. Existing law
requires transit operators to report specified information to
the Legislative Analyst's Office (LAO) on the use of
design-build procurement of transit projects.
Proposed Law: SB 1433 would eliminate the repeal date of
statutes authorizing transit operators to enter into
design-build contracts to procure transit projects, and make the
SB 1433 (Hill)
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following changes relative to that authority:
Expand the definition of transit operators authorized to use
design-build to include any local or regional agency
responsible for the construction of transit projects,
including county transportation commissions.
Eliminate the $25 million minimum contract cost threshold for
capital maintenance or capacity-enhancing rail projects.
Delete a provision that authorizes a transit operator to award
a nonrail transit project that exceeds $2.5 million to either
the lowest responsible bidder or by using the best value
method.
Delete requirements for transit operators to report specified
information on the use of design-build procurement to the LAO.
Related Legislation: SB 785 (Wolk), pending referral to policy
committee in the Assembly, would repeal various provisions
authorizing certain state and local entities to use the
design-build contracting method, and recast those provisions in
a uniform statute in the Public Contract Code.
Staff Comments: Transit operator authority to use design-build
was originally granted by AB 958 (Scott), Chap 541/2000, which
also required transit operators to report to the LAO on their
experience using design-build by 2005. The design-build
contracting authority and corresponding reporting requirement
has been extended several times, most recently by AB 729
(Evans), Chap 466/2009, but there has never been a requirement
that the LAO compile information reported by transit operators
and report to the Legislature. The LAO did complete a report on
local government experience with design build in 2005,
concluding that design-build can provide state and local
agencies with a useful alternative to the more commonly used
design-bid-build process to deliver construction projects,
particularly for well-defined projects such as buildings and
directly related infrastructure. The report noted that there
are more complex issues associated with other public works
projects such as transportation, public transit, and water
resources facilities, and that an evaluation of design-build for
these facilities is beyond the scope of their report. More
recent LAO reports on use of design-build by counties recommend
that the Legislature may also wish to consider increasing the
weight of price in best value bid evaluation criteria.
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Although state and local entities authorized to use design-build
procurement have generally reported favorable experiences, staff
notes that there has not been a full evaluation of design-build
as a procurement method for transit agencies that provides data
on whether it is more cost-effective than the traditional
design-bid-build. There could be cost savings to transit
agencies to the extent that risk is transferred from the project
sponsor to the design-build entity chosen to deliver the
project, and to the extent that time savings achieved through
design-build translate into lower project costs due to the
avoidance of construction inflation. Design-build may be more
costly to the extent that project management costs are higher,
and project costs for more complex projects may be less certain.
In addition, less reliance of overall price of a contract when
evaluating bids for design-build contracts, and the availability
of fewer bidders that are capable of performing both design and
construction services could result in higher costs.
Staff notes that authorizing transit operators to continue to
use design build would not result in any direct state costs, and
any indirect cost pressures would only be a result of unforeseen
cost escalations on a design-build project. Since existing law
requires transit operators to demonstrate that cost savings or
time savings would be achieved before using design-build as a
procurement method, staff estimates that any potential savings
from extending design-build authority for transit operators
would likely be collectively greater than any potential cost
pressures.