BILL ANALYSIS �
SB 1433
Page 1
SENATE THIRD READING
SB 1433 (Hill)
As Amended August 19, 2014
Majority vote
SENATE VOTE :35-0
LOCAL GOVERNMENT 8-0 TRANSPORTATION 11-0
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|Ayes:|Achadjian, Levine, Alejo, |Ayes:|Lowenthal, Linder, |
| |Bradford, Gordon, | |Achadjian, Bloom, Bonta, |
| |Melendez, Mullin, Rendon | |Daly, Frazier, Gatto, |
| | | |Nazarian, Patterson, |
| | | |Quirk-Silva |
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APPROPRIATIONS 15-2
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|Ayes:|Gatto, Bigelow, | | |
| |Bocanegra, Bradford, Ian | | |
| |Calderon, Campos, Eggman, | | |
| |Gomez, Holden, Linder, | | |
| |Pan, Quirk, | | |
| |Ridley-Thomas, Wagner, | | |
| |Weber | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Donnelly, Jones | | |
| | | | |
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SUMMARY : Extends the sunset date on transit operators'
authority to use design-build (DB) for transit projects, expands
the number of entities eligible to exercise this authority,
reduces the dollar threshold for projects eligible to use DB,
and deletes reporting requirements. Specifically, this bill :
1)Makes the following changes to existing statutes governing
transit operators' authority to use DB:
a) Changes the definition of "transit operator" to include
any other local or regional agency responsible for the
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construction of transit projects, including, but not
limited to, county transportation commissions created in
Los Angeles County, Orange County, Riverside County, and
San Bernardino County, as specified;
b) Reduces the minimum cost threshold for projects that are
eligible to use DB to contracts in excess of $1 million
(current law provides the following thresholds: more than
$25 million for contracts for capital maintenance or
capacity-enhancing rail projects; and, more than $2.5
million for non-rail transit projects);
c) 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; and,
d) Applies statutes governing transit operators' authority
to use DB as amended by these provisions only to transit
operators that begin a project solicitation before January
1, 2015, and provides a sunset date of January 1, 2017, for
statutes governing transit operators' authority to use DB
as amended by these provisions.
2)Establishes, for transit operators that begin a project
solicitation on or after January 1, 2015, new provisions
governing the use of DB that mirror the requirements for the
use of DB by local agencies as established by SB 785 ((Wolk)
of the current legislative session); see "Related
legislation," below). These provisions include the following:
a) Allows transit operators to use DB for their public
works contracts in excess of $1 million using either a low
bid or best value process;
b) Maintains an existing exception to DB cost thresholds,
which allows transit operators 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;
c) Requires the transit operator to develop guidelines for
a standard organizational conflict-of-interest policy in
connection with DB projects, as specified;
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d) Specifies the procurement process that DB projects must
follow, including:
i) Preparation of documents setting forth scope and
estimated price, as specified;
ii) 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; and,
iii) 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:
(1) 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,
(2) 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.
e) Prohibits a DB entity from being prequalified or
shortlisted unless the entity provides an enforceable
commitment to the transit operator that the entity and its
subcontractors at every tier will use a skilled and trained
workforce to perform all work on the project or contract
that falls within an apprenticeable occupation in the
building and construction trades, as specified;
f) Requires the transit operator 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 transit operator;
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g) 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;
h) 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;
i) 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 transit operator: price, unless a
stipulated sum is specified; technical design and
construction experience; and, life-cycle costs over 15 or
more years;
j) Allows the transit operator 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;
aa) 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
transit operator to publicly announce its award, as
specified;
bb) Requires the DB entity to provide payment and
performance bonds for the project in the form and in the
amount required by the transit operator, and issued by a
California admitted surety. The amount of the payment bond
shall not be less than the amount of the performance bond;
cc) Requires the DB contract to provide errors and omissions
insurance coverage for the design elements of the project,
and requires the transit operator to develop a standard
form of payment and performance bond for its DB projects;
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dd) Specifies that a transit operator 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;
ee) Prohibits retention proceeds withheld by a transit
operator 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;
ff) Provides the following definitions:
i) "Best value" means 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 involve
the selection of the lowest cost proposal meeting the
interests of the transit operator 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;
ii) "Construction subcontract" means 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;
iii) "Design-build" means a project delivery process in
which both the design and construction of a project are
procured from a single entity;
iv) "Design-build entity" means a corporation, limited
liability company, partnership, joint venture, or other
legal entity that is able to provide appropriately
licensed contracting, architectural, and engineering
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services as needed pursuant to a DB contract;
v) "Design-build team" means 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;
vi) "Transit operator" means 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;
vii) "Project" means a transit capital project, but does
not include state highway construction or local street
and road projects; and,
gg) Provides a sunset date of January 1, 2024, for the
provisions outlined in 2) a) through p) above.
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
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
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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
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
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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
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,
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2015.
FISCAL EFFECT : According to the Assembly Appropriations
Committee analysis of this bill as amended August 7, 2014:
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 makes a number of changes to
transit operators' authority to use the DB procurement method.
It extends this authority until January 1, 2017, for transit
operators that begin a project solicitation before January 1,
2015, and removes requirements for transit operators to report
information about their use of DB to the LAO, expands the
types of transit-related entities that can use DB, and reduces
the cost threshold for eligible projects to contracts in
excess of $1 million. For transit operators that begin a
project solicitation on or after January 1, 2015, this bill
requires transit operators to follow the DB procedure
established for local agencies by SB 785. This bill sunsets
these provisions on January 1, 2024. This bill is sponsored
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by the California Transit Association.
2)Author's statement. According to the author, "SB 1433 would
extend the sunset date on the design-build authority for
transit operators until 2024, thereby maintaining an
innovative and valuable tool transit operators can use to
deliver critical capital projects. 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 transit projects."
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 RFP 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 also note 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.
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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, the 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
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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 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 the Assembly.
7)Policy considerations. The Assembly may wish to consider the
following:
a) 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
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 Assembly 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 LAO's conclusion 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."
b) Duplication of statutes. This bill creates new statutes
governing the use of DB by transit operators that are
identical to statutes created by SB 785, except for their
numbering. If both this bill and SB 785 are enacted, the
result will be redundant statutes for the use of DB by
transit operators.
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
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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
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."
Analysis Prepared by : Angela Mapp / L. GOV. / (916) 319-3958
FN: 0004936