BILL ANALYSIS �
SB 1433
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Date of Hearing: June 18, 2014
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
K.H. "Katcho" Achadjian, Chair
SB 1433 (Hill) - As Introduced: February 21, 2014
SENATE VOTE : 35-0
SUBJECT : Local Agency Public Construction Act: transit
design-build contracts.
SUMMARY : Repeals the sunset date on transit operators'
authority to use design-build for transit projects, expands the
number of entities eligible to exercise this authority,
eliminates minimum cost thresholds, and deletes reporting
requirements. Specifically, this bill :
1)Changes the definition of "transit operator" to include any
other local or regional agency responsible for the
construction of transit projects, as specified.
2)Eliminates cost thresholds in current law limiting the use of
design-build (DB) to:
a) Contracts for capital maintenance or capacity-enhancing
rail projects that cost more than $25 million; and,
b) Contracts for non-rail transit projects that cost more
than $2.5 million.
3)Repeals a requirement that transit operators report to the
Legislative Analyst's Office (LAO) specified information about
public works projects financed with public funds and procured
through the DB process.
4)Repeals the existing sunset date of January 1, 2015, on
transit operators' authority to use DB, thereby making this
authorization permanent.
EXISTING LAW :
1)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
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system.
2)Authorizes, as an alternative to the LAPC Act, transit
operators to enter into a DB contract for both the design and
construction of a project, and prescribes the process to be
used by transit operators when developing and procuring a DB
project.
3)Requires transit operators who use DB contracting to:
a) Prepare documents describing the project and its
specifications;
b) Prepare a detailed request for proposals that invites
competitive bids;
c) Establish a detailed procedure to pre-qualify DB
entities; and,
d) Establish the procedures to select the DB entity.
4)Requires a transit operator to establish a procedure for final
selection of the DB entity, subject to the following
conditions:
a) 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;
b) 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,
c) 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.
5)Requires, for DB contracts awarded prior to the effective date
of specified regulations adopted by the Department of
Industrial Relations (DIR), a transit operator to establish
and enforce a labor compliance program or contract with a
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third party to operate such a program, as specified. This
requirement does not apply to DB projects if the operator or
the DB entity has entered into a collective bargaining
agreement that binds all contractors performing work on the
contract, or to any other project of the transit operator that
is not DB.
6)Requires, for DB contracts awarded on or after the effective
date of specified regulations adopted by DIR, the transit
operator to reimburse DIR for its reasonable and directly
related costs of performing prevailing wage monitoring and
enforcement on public works projects, as specified. All
moneys collected pursuant to this requirement shall be
deposited in the State Public Works Enforcement Fund to be
used only for enforcement of prevailing wage requirements on
those projects, as specified.
7)Allows a transit operator, in lieu of reimbursing DIR for its
reasonable and directly-related costs of performing monitoring
and enforcement on public works projects, to continue
operating an existing previously approved labor compliance
program to monitor and enforce prevailing wage requirements on
the project if:
a) It has not contracted with a third party to conduct its
labor compliance program and requests and receives approval
from DIR to continue its existing program; or,
b) It enters into a collective bargaining agreement that
binds all of the contractors performing work on the project
and that includes a mechanism for resolving disputes about
the payment of wages.
8)Requires a transit operator that uses DB contracting to submit
a report to the LAO within certain timeframes that contains
specified information about all of its public works projects
financed with public funds and procured through the DB
process.
9)Excludes construction projects on state highways or local
streets and roads from transit operators' authority to use DB.
10)Defines "transit operator" to mean any transit district,
included transit district, municipal operator, included
municipal operator, transit development board, or a
consolidated agency, as specified, or any joint powers
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authority formed to provide transit service.
11)Defines "design-build" as a procurement process in which both
the design and construction of a project are procured from a
single entity.
12)Defines "best-value" as a value determined by objective
criteria related to price, features, functions, and life cycle
costs.
13)Sunsets the DB authority for transit operators on January 1,
2015.
FISCAL EFFECT : According to the Senate Appropriations
Committee:
1)Unknown overall contracting costs or savings to transit
operators. By extending DB authority indefinitely and
deleting cost thresholds for which DB 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 DB, 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).
2)Likely minor fiscal impacts on DIR 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.
3)Minor cost savings to the LAO by deleting requirements that
transit operators submit reports on the use of DB (General
Fund).
COMMENTS :
1)Purpose of this bill . This bill repeals the sunset date on
transit operators' authority to use DB for transit projects,
expands the number of entities eligible to exercise this
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authority, eliminates minimum cost thresholds, and deletes
reporting requirements. This bill is sponsored by the
California Transit Association.
2)Author's statement . According to the author, "SB 1433 would
eliminate the sunset date on the design-build authority for
transit operators, thereby maintaining an innovative and
valuable tool transit operators can use to deliver critical
capital projects and removing the need to come back to the
Legislature periodically to extend the date. Additionally, SB
1433 would clarify that a county transportation commission or
a regional transportation planning agency, not generally
considered a "transit operator," can utilize design-build to
construct a transit project, as well as remove cost thresholds
for the use of design-build."
3)Background . The LAPC Act generally requires local officials
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)Transit operators' DB authority . AB 958 (Scott), Chapter 541,
Statutes of 2000, authorized transit operators to use DB
procurement until January 1, 2005. SB 1130 (Scott), Chapter
196, Statutes of 2004, extended the sunset date until January
1, 2007. AB 372 (Nation), Chapter 262, Statutes of 2006,
extended the sunset again, to January 1, 2011, and made other
modifications to the authority, including requiring a transit
operator to establish a labor compliance program for a DB
contract if the transit operator does not already have such a
program. AB 729 (Evans), Chapter 466, Statutes of 2009,
extended the sunset date until January 1, 2015.
5)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
(not just transit operators' authority). 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
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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."
6)Related legislation . SB 785 (Wolk) 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 procurement process, and
enacts uniform provisions authorizing DGS, CDCR, and local
agencies to utilize the design-build procurement process for
specified public works projects. SB 785 is pending in this
committee.
7)Policy considerations . The Committee may wish to consider the
following:
a) Elimination of cost thresholds ? This bill eliminates
all cost thresholds limiting the use of DB by transit
operators, which means a transit operator could elect to
use DB for projects of any size or cost. The LAO has
recommended eliminating cost limitations in prior reports
on DB. However, the LAO has also noted, "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." Detractors of DB have
noted that it can disadvantage smaller companies that do
not have the financial resources or expertise to handle
both design and construction.
The sponsor of this bill has not provided any examples of
projects costing less than the current law threshold of $25
million for rail and $2.5 million for non-rail projects.
On the contrary, examples of successful DB projects have
far exceeded these cost limitations. The Committee may
wish to consider if elimination of cost limitations is
justified and
if it achieves policy objectives the Committee wishes to
endorse.
b) Continued LAO reporting ? AB 958 required transit
operators to report to the LAO on their experience using DB
procurement. According to the LAO, only one report has
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been submitted to date. It is not clear if local transit
operators are not complying with this current-law
requirement, or if they are citing different statutory
authorizations to use DB. The Committee may wish to
consider whether LAO reporting requirements should remain
in statute, especially considering this bill's expansion of
DB authority to "any other local or regional agency
responsible for the construction of transit projects" and
the bill's elimination of cost thresholds.
c) Elimination of sunset ? While the authority to use DB
has been available to transit operators for more than a
decade, as noted above, there is little data on how this is
working and whether DB is achieving its intended goals.
The Committee may wish to consider whether it is time to
make this authority permanent, or whether the Legislature
should retain oversight by extending the sunset until more
data is available.
8)Arguments in support . The California Transit Association,
sponsor of this bill, states, "Design-build is one of several
innovative alternative procurement methods to the traditional
design-bid-build approach. Design-build is the most commonly
used alternative for the delivery of public works
projects?Here in California, the Santa Clara Valley
Transportation Authority (VTA) is relying on the authority
provided by this authorization by using design-build
contracting for the first phase of its BART Silicon Valley
Project. Additionally, VTA plans to use design-build for the
second phase of the BART Silicon Valley Project through
downtown San Jose, scheduled to begin in 2017. In addition to
VTA's BART Silicon Valley Project, the Peninsula Corridor
Joint Powers Board (Caltrain) is currently utilizing
design-build for its advanced signaling system (positive train
control) on the corridor and plans to use design-build for the
electrification of the Caltrain system."
9)Arguments in opposition . The Air Conditioning Sheet Metal
Association, the Air-conditioning and Refrigeration
Contractors Association, the California chapters of the
National Electrical Contractors Association, and the
California Legislative Conference of the Plumbing, Heating and
Piping Industry, in opposition, state, "Unlike other
design-build statutes which contain protections for
contractors, subcontractors and construction industry
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journeymen and apprentices, current law pertaining to
design-build authority for transit operators lacks many of the
industry supported boiler plate design-build provisions.
Further, the conversation regarding design-build as a whole is
happening on a wider scale in SB 785 (Wolk). That measure is
aimed at providing uniformity throughout the design-build
statutes?We believe it is imprudent at this time to completely
delete the sunset provision within this section of law while
larger conversations on uniformity for design-build
procurement are ongoing."
10)Double-referral . This bill is double-referred to the
Transportation Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
California Transit Association [SPONSOR]
Associated General Contractors
California Concrete Contractors Association
California Special Districts Association
Monterey-Salinas Transit
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
Opposition
Air Conditioning Sheet Metal Association
Air Conditioning Trade Association
Air-conditioning and Refrigeration Contractors Association
Associated Builders and Contractors - San Diego Chapter
California chapters of the National Electrical Contractors
Association
California Legislative Conference of the Plumbing, Heating and
Piping Industry
Plumbing-Heating-Cooling Contractors Association of California
State Building and Construction Trades Council of California,
AFL-CIO
Western Electrical Contractors Association
Analysis Prepared by : Angela Mapp / L. GOV. / (916) 319-3958
SB 1433
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