Major Step Forward for California Design-Build: SB 785 Signed September 30, 2014

With the enactment of Senate Bill 785, the State of California has taken a major step forward in authorizing state and local agencies to use design-build.  Although many California agencies have the ability to use design-build without the need for specific enabling legislation, other agencies require specific design-build legislation in order to be able to use design-build effectively, either because they are precluded by law from using a best value selection process for design-build or do not have the ability to bundle design and construction into a single contract.

The new statute consolidates and amends existing laws allowing state and local agencies to use design-build, resolving various problems and inconsistencies with prior legislation.  The bill grants authority to the following agencies (and repeals their existing design-build authorization):

1. State agencies:  The Department of General Services and the Department of Corrections and Rehabilitation, for public works projects in excess of $1,000,000 (Public Contract Code 10187 et seq., article entitled State Agency Design-Build Projects).

2. Local agencies:

a) The following agencies, for public works projects in excess of $1,000,000 (Public Contract Code §22160 et seq., chapter entitled Local Agency Design-Build Projects):

(1) A city, county, or city and county.

(2) A special district that operates wastewater facilities, solid waste management facilities, water recycling facilities, or fire protection facilities.

(3) Any transit district, included transit district, municipal operator, included municipal operator, any consolidated agency, as described in Section 132353.1 of the Public Utilities Code, any joint powers authority formed to provide transit service, any county transportation commission created pursuant to Section 130050 of the Public Utilities Code, or any other local or regional agency, responsible for the construction of transit projects.  (Existing authorization remains effective until 2017 for solicitations already underway as of January 1, 2015.)

b) Sonoma Valley Health Care District and the Marin Healthcare District, for hospital or health facility buildings and related improvements (Health and Safety Code §32132.5).

c) San Diego Unified Port District, for buildings and related improvements in excess of $1,000,000 (SB 785 § 15).

The legislation specifically states that it does not affect affect, expand, alter, or limit any rights or remedies otherwise available at law—making it clear that agencies using design-build based on other authority will not be affected by passage of SB 785.

Why SB 785 Was Needed.  The first bills passed in California authorizing design-build project delivery were adopted in 1993, more than 20 years ago.  Since then, the California legislature has passed numerous design-build statutes, many of which include limitations that have proved problematic in practice.  Furthermore, each statute used different language, creating inconsistencies and inefficiencies for agencies and industry practitioners trying to effectively utilize the project delivery process.

History of SB 785.  California Senate Bill 785 was introduced by Senators Wolk and Hill, with Assembly Member Levine as principal coauthor.  It passed both houses in August 2014 and was signed by the Governor at the end of September.  The new law will become effective on January 1, 2015, with a January 1, 2025 sunset.  Certain of the existing California design-build statutes are not repealed by this bill and will therefore remain in effect, including the Transportation Design-Build Program (Public Contract Code §6820 et seq., which sunsets at the end of 2023) and enabling legislation for school districts and community colleges (Education Code §17250.10 et seq. and §81700 et seq., both of which sunset at the end of 2019).

Limitations under SB 785.  Subject to specified limitations, the authority granted by SB 785 is generally available for all projects developed by the agencies identified in the law, other than projects on the state highway system.  However, cities and counties may not use design-build authority under this law for streets and highways, public rail transit, or water resources facilities and infrastructure, and transit operators may not use it for local street and road projects.  If the legislature wishes to expand the list of agencies authorized to use design-build in the future, the process will involve a simple amendment either to the definition of department in Section 10187.5(c) of the Public Contract Code or the definition of local agency in Section 22160(f).

Differences Between SB 785 and Prior Legislation. The following chart identifies some of the notable differences between the new statute and prior legislation.

CategoryPrior Transit DB LawPrior County DB LawLocal Agency DB Law (SB 785)Design-build entity definitionvalue determined by objective criteria related to price, features, functions, and life-cycle costsSame as transit lawDefinition is similar, but clarifies that best value determination may involve lowest cost proposal, best proposal for a stipulated sum, or tradeoff between price and other factors.Design-build entity definitionTerm is defined as the contracting entity but is also used to mean the design-build teamSame as transit lawDistinction made between entity and teamSubcontractsProvisions regarding subcontractors extend to subcontractors not entitled to protection under the Subcontractor Listing LawSimilar to transit lawProvisions regarding subcontractors track the definitions in the Subcontractor Listing Law. Design-builder must follow a specified process for selection of construction subcontractors not listed in the proposal, allowing selection either on a low bid or best value basis.Prerequisites for use of design-build Requires specific findings.Projects must be at least $25 million in cost for rail projects; $2.5 million for non-rail projects; no cost threshold for certain safety-and security-related technology. Does not apply to highway, street or road projects. Sunsets Jan. 1, 2015 (extended to Jan. 1, 2017 by SB 785)Requires approval of Board of Supervisors.Minimum project size is $2.5 million.

Limited to buildings and county sanitation wastewater treatment facilities.

Sunsets July 1, 2016

No findings required.Minimum project size is $1 million, except there is no cost threshold for transit operators for certain safety- and security-related technology.

Statute does not apply to projects on the state highway system. City/ county authority may not be used for streets and highways, public rail transit, or water resources facilities and infrastructure. Transit operator authority may not be used for local street or road projects.

RetentionNo retention allowed for design services, construction management services, or where applicable, for completed operations and maintenance servicesDoes not include transit DB law retention restrictionRetention provisions are consistent with other legislation regarding retention. No limitation regarding retention on specified types of servicesOrganizational conflict of interestFirms and individuals assisting in the procurement may not be on a design-build teamSame as transit lawEach agency is required to develop conflict of interest guidelines for its design-build projectsDesign-build-operateNot specifically addressedNot specifically addressedContract may not include long-term operations. However, it may include operations during a training or transition period.Use of short-listingStatute uses term "prequalification"Statute uses term "prequalification"Short-listing specifically allowedRequest for qualifications requirementsRequirement to use form of questionnaire developed by DIRList of minimum requirements for statements of (qualificationsSOQs)

SOQ required to be verified by oath

County to develop standard template request for SOQsList of minimum requirements.

SOQ required to be verified by oath

Each agency must develop a standard template request for SOQsCertain of the minimum requirements from other laws have been moved to become part of the proposal instead of the SOQ process, added requirement for a commitment to use skilled and trained workforce

SOQ required to be certified under penalty of perjury.

Skilled workforceSpecified minimum requirements for proposalSimilar to transit lawLengthy provision defining skilled workforce requirementsSurety bondsBonds to be on forms developed by Dept of General ServicesBonds to be on forms developed by CountyBonds to be in amount required by the agency, issued by a California admitted surety. The amount of the payment bond shall not be less than the amount of the performance bond. Each agency is required to develop standard bond forms.Selection criteriaAt least 50% weight required to be given to "price, technical expertise, life cycle costs over 15 years or more, skilled labor force availability, and acceptable safety record"Each of the following factors must be given at least 10% weight:Price; technical design, and construction expertise; life-cycle costs; skilled labor force availability; and acceptable safety recordRFP must identify all significant factors and their relative importance or weightsThe following minimum factors are required: price (unless stipulated sum is specified); design and construction expertise; life-cycle costs

Weightings to be set by the agency

PriceStatement that price is subject to the conditions in Section 20209.7(f) [which says nothing about price]If selection is based on low bid, price must be lump sumIf selection is based on low bid, price must be lump sumAnnouncement of awardAward to be announced publicly, with information about price and overall rating of selected firm, as well as price and ranking of other offerors and a summary of the agency’s rationale for awardAward to be announced publicly, identifying the selected firm, along with a written decision stating the basis of award, and identifying the second and third ranked firmsAward to be announced publicly, identifying the design-build entity to which the award is made, along with a statement regarding the basis of the awardReportsReport to be delivered to Legislative Analyst’s Office within 120 days of completion.Report to be delivered to Legislative Analyst’s Office before Sept 1, 2013.

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