BILL ANALYSIS                                                                                                                                                                                                    



                                                                     AB 975


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          Date of Hearing:  April 22, 2015


                       ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT


                              Brian Maienschein, Chair


          AB 975  
          (Frazier) - As Amended March 26, 2015


          SUBJECT:  Local Agency Public Construction Act:  bid criteria.


          SUMMARY:  Prohibits local public agencies and school districts  
          from disqualifying prospective bidders on public works contracts  
          based on a bidder's involvement in a claim filed by either the  
          bidder or the project owner.  Specifically, this bill:  


          1)Prohibits any public agency or school district requiring  
            prospective bidders to complete and submit pre-qualification  
            questionnaires from disqualifying or otherwise penalizing a  
            prospective bidder through its uniform system of rating  
            bidders based on either of the following:



             a)   A prospective bidder is or has been involved in an  
               affirmative claim filed by a project owner through the  
               courts, mediation, or arbitration; or,



             b)   A prospective bidder has filed a claim through the  
               courts, mediation, or arbitration against a project owner.









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          2)Specifies that "affirmative claim" or "claim" does not include  
            any claim based on a violation of the Labor Code.



          3)Specifies that nothing in this bill precludes a public agency  
            or school district from including in its uniform system of  
            rating bidders criteria related to affirmative claims that  
            have been finally adjudicated or settled, provided the  
            settlement or final judgment or award on the affirmative claim  
            is greater than 20% of the adjusted contract amount against  
            the prospective bidder.



          4)Provides that, if the Commission on State Mandates determines  
            that this bill contains costs mandated by the state,  
            reimbursement to local agencies and school districts for those  
            costs shall be made pursuant to current law governing state  
            mandated local costs.



          EXISTING LAW:  


          1)States that the objective of the Public Contract Code (PCC) is  
            to provide all qualified bidders with a fair opportunity to  
            enter the bidding process, thereby stimulating competition,  
            and to eliminate favoritism, fraud, and corruption in the  
            awarding of public contracts, among other provisions.



          2)Provides the following definitions under the PCC:










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             a)   Defines public works contract as "an agreement for the  
               erection, construction, alteration, repair, or improvement  
               of any public structure, building, road, or other public  
               improvement of any kind;"



             b)   Defines "public entity" to mean the state, county, city,  
               city and county, district, public authority, public agency,  
               municipal corporation, or any other political subdivision  
               or public corporation in the state; and,



             c)   Defines the term "responsible bidder" to mean a bidder  
               who has demonstrated the attribute of trustworthiness, as  
               well as quality, fitness, capacity, and experience to  
               satisfactorily perform the public works contract.



          3)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.



          4)Allows, pursuant to the LAPC Act, public entities to require  
            prospective bidders to complete standardized questionnaires  
            and financial statements with specified information for the  
            purpose of pre-qualifying bidders.





          5)Requires the State Department of Industrial Relations (DIR) to  








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            develop model guidelines for rating bidders.



          6)Requires any public entity electing to make bidders complete a  
            questionnaire and financial statement to adopt and apply a  
            uniform system of rating bidders based on objective criteria.
            


          7)Requires public entities that require questionnaires and  
            statements to establish a process that will allow prospective  
            bidders to dispute the proposed qualification rating before  
            the closing time for receipt of bids.



          8)Allows school districts to require prospective bidders on  
            specified contracts that school districts must put out to bid  
            to complete and submit standardized questionnaires and  
            financial statements.  School districts must adopt a uniform  
            system for rating bidders based on the questionnaires and  
            statements.



          9)Requires, until January 1, 2019, school districts entering  
            into lease/leaseback or lease-to-own contracts to comply with  
            specified pre-qualification requirements, if the project is  
            funded with state bond funds, the expenditure of the project  
            is $1 million or more, and the average daily attendance (ADA)  
            of the school district is more than 2,500.



          FISCAL EFFECT:  This bill is keyed fiscal and contains a  
          state-mandated local program.










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          COMMENTS:  


          1)Bill Summary.  This bill prohibits public agencies and school  
            districts that require prospective bidders to complete and  
            submit pre-qualification questionnaires from disqualifying or  
            otherwise penalizing a prospective bidder through their  
            uniform system 
          of rating bidders based on either of the following:



             a)   A prospective bidder is or has been involved in an  
               affirmative claim filed by a project owner through the  
               courts, mediation, or arbitration; or,



             b)   A prospective bidder has filed a claim through the  
               courts, mediation, or arbitration against a project owner.



            The bill exempts claims based on a violation of the Labor  
            Code, and specifies that it doesn't preclude a public agency  
            or a school district from including in its uniform system of  
            rating bidders criteria related to affirmative claims that  
            have been finally adjudicated or settled, provided the  
            settlement or final judgment or award on the affirmative claim  
            is greater than 20% of the adjusted contract amount against  
            the prospective bidder.  This bill is sponsored by the  
            Construction Employers' Association.





          2)Author's Statement.  According to the author, "AB 975 is  
            intended to address a troubling trend involving public works  








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            construction pre-qualification questionnaires.  Specifically,  
            a number of public agencies have begun disqualifying, or  
            significantly penalizing through their pre-qualification  
            process, any contractor who has been involved, or is involved,  
            in any claim with a public agency, whether initiated by the  
            contractor or the public agency. 



            "These pre-qualification questions represent a fundamental  
            denial of a contractor's basic due process rights.  The  
            automatic disqualification ignores the specific circumstances  
            surrounding a claim, the severity of the claim, the outcome of  
            the claim, whether the contractor prevailed, whether the claim  
            was the result of a subcontractor, architect or engineer or  
            whether the claim was simply erroneous.  Also, because of  
            privity of contract, claims related to subcontractors are  
            attributed to general contractors so the claim itself may have  
            nothing to do with the general contractor."





          3)Background.  The LAPC Act allows, but does not require, public  
            agencies to establish a process to evaluate and pre-qualify  
            prospective bidders on public works projects.  An agency may  
            choose to require prospective bidders to submit a standardized  
            questionnaire and a financial statement, which includes the  
            prospective bidder's experience in performing public works.   
            If the agency selects this procedure, it must adopt a uniform  
            rating system to determine the minimum requirements permitted  
            for qualification to bid and the type and size of contracts  
            for which each bidder is eligible to bid.  It also must offer  
            an appeals process to allow prospective bidders to dispute  
            their proposed pre-qualification rating.  











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            The LAPC Act directs DIR to develop a model questionnaire and  
            guidelines for a uniform rating system that can be used by  
            public agencies.  The DIR questionnaire requires contractors  
            to provide detailed information regarding the company and its  
            financial status, including whether the company has been in  
            bankruptcy or involved in a civil lawsuit, licensing  
            information, prior contracting experience (whether the  
            contractor has completed other public works projects), whether  
            the contractor has been involved or been found to have  
            violated any federal, state or local laws, and whether the  
            contractor has violated any labor and health and safety laws,  
            including prevailing wage.  





            A rating system assigns points according to a bidder's answers  
            to the questionnaire and enables a local agency to exclude  
            bids from companies that do not meet a minimum number of  
            points.  According to DIR, "Each public agency?is free to  
            devise its own 'uniform system of rating prospective bidders .  
            . . based on objective criteria.'  That is, each public agency  
            may determine its own scoring system and its own passing  
            scores for different portions of the questionnaire..."  





            The Local Agency Public Construction Act applies to all  
            cities, counties and special districts, but does not apply to  
            school districts, which have separate code sections pertaining  
            to pre-qualification.  (This analysis is limited to the  
            jurisdiction of the Local Government Committee, which does not  
            include the provisions of this bill pertaining to school  
            districts.)










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          4)DIR's Model Pre-Qualification Questionnaire.  DIR's model  
            questionnaire includes the following questions regarding  
            claims:



             a)   "In the past five years has any claim against your firm  
               concerning your firm's work on a construction project been  
               filed in court or arbitration?  If 'yes,' on separate  
               signed sheets of paper identify the claim(s) by providing  
               the project name, date of the claim, name of the claimant,  
               a brief description of the nature of the claim, the court  
               in which the case was filed and a brief description of the  
               status of the claim (pending or, if resolved, a brief  
               description of the resolution).



             b)   "In the past five years has your firm made any claim  
               against a project owner concerning work on a project or  
               payment for a contract and filed that claim in court or  
               arbitration?  If 'yes,' on separate signed sheets of paper  
               identify the claim by providing the project name, date of  
               the claim, name of the entity (or entities) against whom  
               the claim was filed, a brief description of the nature of  
               the claim, the court in which the case was filed and a  
               brief description of the status of the claim (pending, or  
               if resolved, a brief description of the resolution).



            DIR's model questionnaire or guidelines for rating bids does  
            not contain language disqualifying contractors for affirmative  
            answers to these questions.  It does, however, provide a  
            scoring system for these questions that assigns points based  
            on the firm's gross revenue and number of occurrences.  A  








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            bidder with more claims earns fewer points.





          5)Local Agency Pre-Qualification Questionnaires.  According to  
            the sponsor of this bill, a number of local agencies are  
            disqualifying contractors that have been involved in claims  
            against the contractor by a project owner or filed by a  
            contractor against an owner.  Examples provided include:



             a)   A city contract documents stating, "At the time of  
               submission of this proposal package, the Contractor, or any  
               subsidiary, parent, holding company or affiliate, or any of  
               their respective owners, partners, or officers shall not be  
               a plaintiff in an active lawsuit against a public agency;"



             b)   A city contract that disqualified any firm that answered  
               yes to the following: "In the past five years, has an owner  
               filed, in a court of law or in an arbitration, any claim  
               against your firm concerning your firm's work on a  
               construction project, and either:



               i)     Your firm's average gross revenue for the last three  
                 years was less than $50 million and two or more separate  
                 claims have been filed against your firm; or,



               ii)    Your firm's average gross revenue for the last three  
                 years was more than $50 million and five or more separate  
                 claims have been filed against your firm?"








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          6)Policy Considerations.  The Committee may wish to consider the  
            following:



             a)   No Disqualification, Automatic or Otherwise.  This bill  
               prohibits local agencies and school districts from  
               disqualifying a prospective bidder with current or prior  
               claims as described in the bill.  While automatic  
               disqualification, without considering any of the details or  
               circumstances of a bidder's claims history, might be a  
               practice that should be curtailed, the Committee may wish  
               to consider whether a local agency or school district  
               should no longer have the option of disqualifying a bidder  
               after evaluating that bidder's track record of claims.



             b)   "Penalizing" Prospective Bidders.  This bill prohibits  
               local agencies and school districts from penalizing in  
               their rating systems a prospective bidder that has an  
               involvement in claims as described in the bill.  DIR's  
               model rating system allows this practice.  The Committee  
               may wish to consider retaining the bill's provision that  
               prohibits outright disqualification, but striking the  
               language in the bill that prohibits "penalizing."



             c)   Settlement Amount Limit.  This bill contains language  
               that states, "Nothing in this bill precludes a public  
               agency or school district from including in its uniform  
               system of rating bidders criteria related to affirmative  
               claims that have been finally adjudicated or settled,  
               provided the settlement or final judgment or award on the  








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               affirmative claim is greater than 20% of the adjusted  
               contract amount against the prospective bidder."  This  
               limit on the rating system based on settlement amounts does  
               not appear in DIR guidelines.  The Committee may wish to  
               consider whether this is an appropriate limit to impose on  
               pre-qualification questionnaires.



             d)   Existing Dispute Process.  Current law allows  
               contractors to dispute a local agency's proposed  
               qualification rating.  The Committee may wish to ask the  
               author to explain why the existing dispute process is  
               problematic.



             e)   Prevalence.  It is not clear how many local  
               jurisdictions or school districts are disqualifying  
               contractors based on claims filed by or against them.  The  
               Committee may wish to ask the author if there is any  
               additional evidence of this practice by California local  
               agencies and school districts.



             f)   Affirmative claim.  There is no definition in this bill  
               of the term "affirmative claim."  The Committee may wish to  
               define this term or strike it from the bill. 



          7)Technical Amendments.  The Committee may wish to amend  
            Sections 2 and 3 of the bill to delete references to "public  
            agency" and replace them with "district," as those sections  
            apply to school districts.











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          8)Related Legislation.  AB 566 (O'Donnell), pending in the  
            Assembly Education Committee, requires, until January 1, 2019,  
            school districts to require prospective bidders on public  
            contracts to submit a pre-qualification questionnaire and  
            financial statement, if the expenditure of the project is $1  
            million or more, regardless of the funding source, and the ADA  
            of the school district is more than 2,500 (among other  
            provisions).






          9)Previous Legislation.  AB 1581 (Buchanan), Chapter 408,  
            Statutes of 2014, required, until January 1, 2019, school  
            districts entering into lease/leaseback or lease-to-own  
            contracts to require prospective bidders to submit a  
            pre-qualification questionnaire and financial statement, if  
            the project is funded with state bond funds, the expenditure  
            of the project is 
          $1 million or more, and the ADA of the school district is more  
            than 2,500.  



            AB 1565 (Fuentes), Chapter 808, Statutes of 2012, required,  
            beginning with contracts awarded on or after January 1, 2014  
            and until January 1, 2019, school districts to require  
            prospective bidders on public contracts to submit a  
            pre-qualification questionnaire and financial statement, if  
            the project is funded with state bond funds, the expenditure  
            of the project is $1 million or more, and the ADA of the  
            school district is more than 2,500.













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            AB 281 (Burmudez) of 2003 would have prohibited the bidder  
            pre-qualification form that is required under the LAPC Act  
            from disqualifying a bidder solely based on the bidder's  
            financial capacity, provided that the bidder otherwise  
            qualifies for the public works contract.  This bill was  
            referred to the Assembly Local Government Committee, but was  
            never heard.





            AB 574 (Hertzberg), Chapter 972, Statutes of 1999, defined the  
            term "responsible bidder" as it relates to public contracts,  
            authorized public entities to require prospective bidders to  
            complete pre-qualification questionnaires and financial  
            statements, and required DIR to develop a model questionnaire  
            and guidelines for rating bidders. 





            AB 611 (Villaraigosa), Chapter 390, Statutes of 1997, allowed  
            school districts to pre-qualify bidders on a quarterly basis  
            and allowed the pre-qualification to be valid for up to one  
            calendar year.





          10)State Mandate.  This bill is keyed a state mandate, which  
            means the state could be required to reimburse local agencies  
            and school districts for implementing the bill's provisions if  
            the Commission on State Mandates determines that the bill  
            contains costs mandated by the state.  










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          11)Arguments in Support.  The Associated General Contractors, in  
            support of this measure, state, ""Proliferation of these types  
            of pre-qualification questionnaires will enable public  
            agencies to renegotiate contract terms because they know that  
            any claim will adversely impact a contractor on a future  
            pre-qualification.  The questions will also have a chilling  
            effect on the filing of otherwise legitimate claims by  
            contractors because of the potential impact on future  
            pre-qualification questionnaires.  Finally, these types of  
            questions will also minimize the pool of otherwise qualified  
            contractors and drive prices up."



          12)Arguments in Opposition.  None on file.



          13)Double-Referral.  This bill is double-referred to the  
            Accountability and Administrative Review Committee.



          






















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          REGISTERED SUPPORT / OPPOSITION:




          Support


          Construction Employers' Association [SPONSOR]


          Air Conditioning Sheet Metal Association


          Air-conditioning & Refrigeration Contractors Association


          Associated General Contractors


          California Chapters of the National Electrical Contractors  
          Association (NECA)


          California Legislative Conference of the Plumbing, Heating and  
          Piping Industry (CLC)


          Finishing Contractors Association of Southern California


          United Contractors












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          Opposition


          None on file




          Analysis Prepared by:Angela Mapp / L. GOV. / (916) 319-3958