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A recent Court of Appeal decision upheld Proposition 35, which allows state and local governments to contract with private entities for architectural and engineering services on public works projects. An organization representing private contractors successfully relied on Proposition 35 to challenge legislation that compelled the use of state employees to provide architectural and engineering services for a local agency's design-build highway project. In upholding the trial court's decision, the Court of Appeal found that Proposition 35's flexibility in contracting is the clear intent of the voters. The decision eliminates the potential for a major loophole in Proposition 35 that would have allowed the Legislature to require the use of civil service employees on design-build public works projects. The result is the latest in a string of appellate cases that uphold Proposition 35 and provide the State of California and local governments with additional flexibility in contracting for architectural and engineering services. 

Background

Article VII of California's Constitution provides for a civil service system but does not expressly address the issue of contracting with private entities for public works projects. Courts traditionally have interpreted the civil service provisions as an implied limitation on the state's authority to contract with private entities for work that the state itself can perform "adequately or competently." (See State Compensation Ins. Fund v. Riley (1937) 9 Cal.2d 126, 135.) Proposition 35, enacted in November 2000, restricts that interpretation with respect to public works projects by amending the Constitution to provide that the State of California and other governmental entities "shall be allowed to contract with qualified private entities for architectural and engineering services for all public works of improvement."[1] (Art. XXII, §1.)

In 2006, the Legislature enacted Senate Bill 1026,[2] authorizing the Los Angeles County Metropolitan Transportation Authority (LACMTA) to construct a high-occupancy vehicle lane using a design-build process. In apparent conflict with Proposition 35, the new law compelled the use of California Department of Transportation (Caltrans) civil service employees to prepare architectural and engineering documents for the project, including "…performance specifications…preliminary engineering, environmental documents, prebid services and project reports." (Pub. Contract Code, § 20209.26(a).) The Consulting Engineers and Land Surveyors of California (CELSOC), a trade group, successfully challenged the law. The trial court ruled that the compulsory civil service provisions were unconstitutional under Proposition 35 and enjoined Caltrans from implementing them. Caltrans did not contest CELSOC's position, but the Professional Engineers in California Government (PECG), the union representing Caltrans engineers, did intervene to oppose CELSOC.

The Court of Appeal Decision

PECG appealed the trial court decision on the grounds that Proposition 35 expressly authorizes the Legislature to use a different procurement method for design-build projects. PECG relied on Government Code § 4529.13, also enacted as part of Proposition 35, which states "[n]othing contained in this act [Proposition 35] shall be construed….to prohibit or restrict the authority of the Legislature to statutorily provide different procurement methods for design-build projects or design-build-and-operate projects." (Gov. Code, § 4529.13, emphasis added.) Since the LACMTA project authorized by Senate Bill 1026 would utilize design-build, PECG argued that requiring the use of state employees to perform certain architectural and engineering services for the project was a "different procurement method" within the scope of the Legislature's authority under Government Code §4529.13.

In a decision issued October 30, 2008, the Court of Appeal for the Third District rejected PECG's interpretation of Government Code § 4529.13, primarily on the grounds that both the intent and the language of Proposition 35 are unambiguous. (California Engineers and Land Surveyors of California v. Professional Engineers in California Government (October 30, 2008, C056422) ___ Cal. App. 4th ____.) The court reasoned that the voters clearly intended (1) to remove then-existing restrictions on contracting out for architectural and engineering services and (2) to promote fair competition in order to obtain the best quality and value for California taxpayers. Accordingly, Proposition 35 clearly provides that governmental entities "shall be allowed to contract with qualified entities for architectural and engineering services for all public works of improvement" and "services shall be procured pursuant to a fair, competitive selection process…" (Art. XXII, §1; Gov. Code, § 4529.13.) Government Code § 4529.13, on which PECG relied, gives no indication that Proposition 35's "grant of freedom" to contract with private architects and engineers does not apply to design-build projects. As the court indicated, "such an expansive exclusion from the purpose of Proposition 35 would have been set forth plainly in the initiative if that had been its intention." In addition, the court noted that PECG's interpretation of "procurement method" was overly broad. Typically a "procurement method" refers to the method of selecting the private contractor responsible for design and construction services (i.e. low-bid, best-value or qualifications based). Indeed, a mandate to use state employees, as required by Government Code § 4529.13, seems contrary to any procurement method in that it avoids the selection process entirely.

Final Remarks

If the Court of Appeal had upheld the civil service employees requirement of the 2006 legislation, the Legislature would have been able to avoid the strictures of Proposition 35 whenever it authorizes the use of design-build for public works projects. The court concluded that allowing such an "escape hatch" would be unreasonable and would negate the primary purpose of the constitutional amendment. Instead, the decision is consistent with the prior decisions supporting Proposition 35. (See Professional Engineers in California Government v. Department of Transportation (1997) 15 Cal.4th 543; Professional Engineers in California Government v. Kempton (2007) 40 Cal.4th 1016.) Further, the decision makes it clear that Caltrans and local governments have the flexibility to use private contractors for engineering and architectural services for design-build infrastructure projects.

Ashley Jacobson is an Associate in the Infrastructure Practice Group. She works on transactional matters and has conducted legal research and drafted documents relating to design-build, concession agreements and public-private partnerships. She can be reached at 213.612.7819 or ajacobson@nossman.com.