BILL ANALYSIS                                                                                                                                                                                                    



                                                                     AB 975


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          Date of Hearing:  April 29, 2015


                           ASSEMBLY COMMITTEE ON EDUCATION


                              Patrick O'Donnell, Chair


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


             [Note: This bill was doubled referred to the Assembly Local  
             Government Committee and was heard by that Committee as it  
                     relates to issues under its jurisdiction.]
          


          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,








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



          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.


          EXISTING LAW: 


          1)Requires the governing board of a school district to  
            competitively bid and award to the lowest bidder contracts  
            involving the following:

             a)   An expenditure of $50,000 or more for the purchase of  
               equipment, materials, or supplies, services (except for  
               construction services), and repairs.

             b)   An expenditure of $15,000 or more for a public contract  
               project defined as construction, reconstruction, erection,  
               alteration, renovation, improvement, demolition, repair,  
               painting or repainting of any publicly owned, leased, or  
               operated facility.  (Public Contract Code (PCC) Sections  
               20111 and 22002)








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          2)Requires, until January 1, 2019, a school district with an  
            average daily attendance (ADA) of more than 2,500 using state  
            school facility bond funds for a public project with an  
            expenditure of $1 million or more to require prospective  
            bidders, and if utilized, all electrical, mechanical, and  
            plumbing subcontractors, to complete and submit a standardized  
            prequalification questionnaire and financial statement.  (PCC  
            Section 20111.6(a)(i)(l))

          3)Requires a school district to adopt and apply a uniform system  
            of rating bidders on the basis of the completed questionnaires  
            and financial statements that cover, at a minimum, the issues  
            covered by the standardized questionnaire and model guidelines  
            for rating bidders developed by the Department of Industrial  
            Relations (DIR).  (PCC Section 20111.6(c)(d))

          4)Authorizes the governing board of a school district to  
            establish a process for prequalifying prospective bidders on a  
            quarterly or annual basis and specifies that the  
            prequalification shall be valid for one calendar year  
            following the date of initial prequalification.  (PCC Section  
            20111.6(g))

          5)Requires the Director of Industrial Relations to submit a  
            report to the Legislature, on or before January 1, 2018,  
            evaluating whether, during the years prequalification applied  
            to contracts, violations of the Labor Code on school district  
            projects have decreased as compared to the same number of  
            years immediately preceding prequalification, and any  
            recommended improvements on the prequalification system.  (PCC  
            Section 20111.6(n))
           


          FISCAL EFFECT:  The Legislative Counsel has keyed this bill as a  
          state-mandated local program.










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          COMMENTS:  Prequalification.  AB 1565 (Fuentes), Chapter 808,  
          Statutes of 2012, requires, until January 1, 2019, school  
          districts under 2,500 ADA using state school facilities bond  
          funds to establish a prequalification process whereby a  
          prospective bidder, and any electrical, mechanical and plumbing  
          subcontractors, of a public works contract with a projected  
          expenditure of $1 million or more, is required to complete a  
          standardized questionnaire provided by the district and submit a  
          financial statement.  


          A prequalification process is beneficial under a system where a  
          school district must accept the lowest responsible bidder for  
          public works contracts.  The questionnaire may require  
          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.  


          The questionnaire is rated and a local agency can exclude bids  
          from contractors that do not meet minimum points/standards.   
          While there is no guarantee that a contractor that meets minimum  
          points may not have financial problems or provide substandard  
          work, this process reduces the risk when selecting a contractor  
          with the lowest bid.  A contractor that goes bankrupt before  
          completion of a project or completes a project with faulty  
          construction will result in increased costs to complete the  
          project or to redo the project and potential litigation to  
          recoup funds a contractor had already received.


          What does this bill do?  This bill prohibits any public agency  
          or school district requiring prospective bidders to complete and  








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          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:


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



             2)   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.   



          Purpose of the bill.  The author states, "AB 975 is intended to  
          address a troubling trend involving public works construction  
          pre-qualification questionnaires.  Specifically, a number of  
          public agencies have begun disqualifying, or significantly  
          penalizing, 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.  Arguably, these clauses  
          stand in violation of the 14th Amendment as they deem parties  
          guilty, thus denying them the opportunity to bid, regardless of  
          whether or not the parties have actually been found guilty."


          The sponsor of the bill, the Construction Employers'  








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          Association, provided an example of a bid request from a local  
          government that states the following:  "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."





          Amendments from the Assembly Local Government Committee.  This  
          bill was heard in the Assembly Local Government Committee on  
          April 22, 2015.  The bill passed the Committee on an 8-0 vote,  
          with the author agreeing to accept an amendment to strike the  
          provisions of the bill and instead, insert the following  
          language:


          "Any public agency requiring prospective bidders to complete and  
          submit questionnaires shall not disqualify a prospective bidder  
          through its uniform system of rating bidders based solely on  
          whether a prospective bidder has filed a claim against a project  
          owner through the courts, mediation, or arbitration."


          "Any school district requiring prospective bidders to complete  
          and submit questionnaires shall not disqualify a prospective  
          bidder through its uniform system of rating bidders based solely  
          on whether a prospective bidder has filed a claim against a  
          project owner through the courts, mediation, or arbitration."


          Staff recommends supporting the amendments.  The current version  
          of the bill makes it difficult to use prequalification  
          effectively.  The purpose of prequalification is to avoid  
          problems.  Understandably, a school district would want to hire  
          a contractor that has not been involved in claims, or avoid  
          rehiring a contractor a school district has had conflicts with  








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          previously.  The current version of the bill prohibits a school  
          district from disqualifying a bidder that has been or is  
          involved in a claim involving the court, arbitration or  
          mediation, even if the bidder may not meet the district's  
          minimum score, or if the district is involved in an active claim  
          with the bidder on a prior project.  


          The sponsor states that this bill is needed because public  
          agencies are disqualifying a potential bidder who has been or is  
          involved in a claim, regardless of the severity or outcome of  
          the claim.  The same could be said about the current version of  
          this bill on the flip side.  A school district would not have  
          the ability to disqualify a potential bidder regardless of the  
          reasons for, the number of, or the severity of claims a  
          potential bidder is involved in.      


          Prequalification questionnaire.  School districts have  
          flexibility to design the prequalification questionnaire as they  
          deem appropriate, as long as the questionnaire covers the issues  
          contained in a model questionnaire designed by the DIR.  The DIR  
          model questionnaire does suggest inquiring whether a potential  
          bidder had been involved in a claim filed in court or  
          arbitration, either by the potential bidder or a project owner,  
          and suggests asking for details of the claim.  The model scoring  
          guide suggests awarding points based on a sliding scale from  
          zero to five depending on the number of instances over the  
          previous five years.  


          The amendment will prohibit a school district from disqualifying  
          a potential bidder solely because the bidder had previously  
          filed a claim against a project owner, thereby giving the bidder  
          a chance to compete, while allowing a school district to take  
          claims into consideration by awarding points accordingly.   
          Concerns remain that the bill, even as amended, will force  
          school districts to accept a bidder the school district may have  
          had disputes with.  








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          Reasons for claims.  A change order is the most common source  
          for disputes leading to claims involving litigation, arbitration  
          or mediation.  Once a contract is signed, any changes, either  
          from the project owner or the contractor, that deviate from the  
          terms of a contract, are done through "change orders."  Change  
          orders can be due to unexpected problems discovered after work  
          had begun (e.g., rot, mold, asbestos), design changes, changes  
          in material, changes in the agreed upon schedule, etc.  Disputes  
          over change orders that cannot be resolved by the contractor and  
          project owner may lead to the filing of a claim by either the  
          contractor or the project owner.  Other types of claims may  
          involve a contractor not completing a project, defective work,  
          or payment owed by a project owner.  


          Related legislation.  AB 566 (O'Donnell), pending in the  
          Assembly Appropriations Committee, requires school districts  
          entering into specified school building lease contracts to use a  
          skilled and trained workforce and comply with the requirement to  
          prequalify and rate prospective bidders regardless of the source  
          of funding.


          Related prior legislation.  AB 1581 (Buchanan), Chapter 408,  
          Statutes of 2014, requires, until January 1, 2019, school  
          districts entering into lease-leaseback or lease-to-own  
          contracts to prequalify and rate prospective bidders, 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, requires,  
          until January 1, 2019, school districts using state school  
          facilities bond funds to establish a prequalification process  
          whereby a prospective bidder, and any electrical, mechanical and  
          plumbing subcontractors, of a public works contract with a  








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          projected expenditure of $1 million or more, is required to  
          complete a standardized questionnaire provided by the district  
          and submit a financial statement.


          SB 600 (Rubio), introduced in 2011, was a similar bill to AB  
          1565.  The bill was held in the Assembly Appropriations  
          Committee suspense file in 2011.  


          REGISTERED SUPPORT / OPPOSITION:




          Support


          Construction Employers' Association (sponsor)


          Air-conditioning & Refrigeration Contractors Association


          Air Conditioning Sheet Metal Association


          Associated General Contractors


          California Chapters of the national Electrical Contractors  
          Association


          California Legislative Conference of the Plumbing, Heating and  
          Piping Industry


          Finishing Contractors Association of Southern California








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          United Contractors 




          Opposition


          None on file




          Analysis Prepared by:Sophia Kwong / ED. / (916) 319-2087