By signing Senate Bill 4 ("SBX2 4") into law on February 20, 2009, Governor Schwarzenegger took a significant step towards bringing public agency procurements in California into the 21st Century. SBX2 4, which was vigorously supported by the Governor's office, includes broad authority for state and local agencies to use the design-build delivery method for courts, correction and state office facilities and redevelopment agency projects.[1] The bill authorizes the Director of the Department of General Services, the Secretary of the Department of Corrections and the Judicial Council[2] to use design-build procurement methods for up to five state office, prison and court facilities and gives redevelopment agencies authority to use design-build procurements for up to ten projects. While the Department of General Services has had limited design-build authority in the past,[3] SBX2 4 is otherwise the first use of the design-build procurement method for these types of facilities in California. Due to the limited number of authorized projects, however, selection of projects will be a key component to the proper utilization of SBX2 4 in California.
SBX2 4 also permits design-build and allows the use of public-private partnerships for certain transportation projects.[4]
Authority for State Offices, Prisons and Court Facilities
Under new California Government Code sections 14661.1 and 70391.7,[5] the Department is authorized to use design-build procurement methods to design and construct "not more that five state office facilities, prison facilities or court facilities."
As a preliminary step in developing a design-build project, the Director or Secretary of the Department or the Judicial Council must submit a request to the Department of Finance. The Department of Finance is responsible for determining whether to approve or deny such a request. The Secretary, Director or Judicial Council may enter into a design-build contract (under their respective provisions) only after the Department of Finance has provided notice of its approval and the Legislature has appropriated funds for the project.
In addition, on or before January 1, 2014, the Department must submit a report describing every public works project procured using this authority that is completed between January 1, 2009 and December 31, 2013.
Procurement Process
Government Code sections 14661.1 and 70391.7 obligate the Director or the Secretary of the Department and the Judicial Council, respectively, to prepare a program setting forth the performance criteria for design-build projects and to establish a competitive prequalification and selection process as the first stage of the procurement . While the criteria for consideration in the prequalification process are fairly standard (i.e. possession of required licenses, experience with comparable projects, etc.), it appears the competitive prequalification process could result in a shortlist rather than in a list of all prequalified design-build entities that meet the minimum requirements.
At least 30 days prior to issuing the design-build solicitation package, the Director, Secretary or Judicial Council must determine which method to use in selecting the winning design-build entity from among the prequalified proposers, and to report the decision to the State Public Works Board. The three options include:
1. Competition based on performance, price and other criteria set forth by the Department. The award must be made to the design-build entity whose proposal is judged as providing the "best value" to the State.[6] This selection option is limited to projects with an approved budget of $10 million or more;
2. Competition based on performance and other criteria (including design approach, life-cycle costs, project features and functions) set forth in the design-build solicitation package. The award must be made to the design-build entity whose proposal provides best value, "for the lowest price" and meets the interests of the Department. This selection option is limited to projects with an approved budget of $10 million or more;
3. Competition based on program requirements and a detailed scope of work, including performance criteria and concept drawings set forth in the solicitation package. The award will be based on the lowest responsive bid. This provision can be used for any project with an approved budget of $250,000 or more.
While similar, each option contains key features that sets it apart from the others. The "lowest price" language in option 2 and "lowest responsive bid" language in option 3 resemble the traditional design-bid-build methodology for selection, whereas option 1 more accurately reflects a typical design-build selection based on best value.
Subcontract Listing Law and Bonding Requirements
Because the design-build methodology contemplates award of a contract prior to completion of design, SBX2 4 recognizes the impracticability of requiring the design-build entity to identify all subcontractors at the time of award (as otherwise required by Public Contract Code sections 4100 et seq. ("Subcontractor Listing Law")). SBX2 4 provides that the Department will identify types of subcontractors to be listed by license classification in the design-build entity's proposal, rather than identifying specific subcontractors. The design-build entity may also list two additional license classifications at its discretion. Subcontractors listed by classification in this manner will be entitled to the protections afforded by the Subcontractor Listing Law. Subcontractor classifications not listed at the time of bid must be competitively bid by the selected design-build entity in accordance with the design-build process set forth in the design-build solicitation package. Once listed, a subcontractor classification cannot be substituted without compliance with the procedures set forth in the Subcontractor Listing Law.
Also, a design-build entity selected to design and construct a project must possess or obtain sufficient bonding consistent with applicable provisions of the Public Contract Code.
Redevelopment Agency Facilities Authority
Under new California Public Contract Code section 20688.6, redevelopment agencies may utilize design-build methods on projects in excess of $1 million and may award the projects using either "lowest responsible bidder" or "best value" selection criteria. The authorized redevelopment projects primarily consist of the installation or construction of streets, utilities, parks, playgrounds and other public improvements necessary for carrying out a redevelopment plan[7] The authority under this section is limited to ten projects.
An agency interested in using the new authority must apply to the State Public Works Board in writing and the application must contain information specified by the Board. Applications will be approved or denied in writing within 90 days of submission. If an agency that has obtained Board approval of a project decides not to proceed with it under this authority, it must notify the Board within 30 days so that other applicants may be notified of the opportunity to apply for the new authority. The Board must notify the Legislative Analyst's Office (LAO) when ten projects have been approved and the LAO is directed to submit a report to the Legislature on the program by January 1, 2015. The law has a January 1, 2016 repeal date.
No more than two projects may be authorized for a single redevelopment agency. This restriction may be an important limitation for an agency to consider when determining which projects to submit to the Board. In addition, each redevelopment agency that uses the authority in this new law is required to submit to the LAO prior to December 1, 2014 a report of each project procured between January 1, 2010 and November 1, 2014.
Redevelopment projects that the Board may view with favor include larger projects with short delivery schedules, and projects with unique features that would benefit from innovative design and project delivery methodologies.
Procurement Process
The procurement process for redevelopment agencies differs in several important respects from the procurement process described above relating to state offices, prisons and courts. Here the prequalification requirement does not appear to result in a shortlist. That is, any number of design-build entities could be pre-qualified, whereas in a shortlisting process the number of prequalified entities is typically limited to three or four. In addition, the language regarding the selection process is broader and the agency may have greater flexibility in developing solicitation packages and administering procurements. Section 20688.6 defines a four-step process for procuring a design-build project:
1. The agency must prepare a set of documents establishing the scope of the project, including the desired design characteristics of the public improvement, performance specifications and preliminary plans and layouts.
2. Based on the project documents, the agency must prepare a request for proposals (RFP) that invites interested parties to submit competitive sealed proposals. The request for proposals must identify the scope and basic needs of the project, the expected cost of the project and the methodology for evaluating and selecting a proposal, including significant factors the agency expects to consider and their relative importance.
3. The agency must adopt a procedure to prequalify design-build entities using a standard questionnaire developed by the Department. The questionnaire must require items similar to those set forth in the state office, prison and court facilities' prequalification discussion above (i.e. possession of required licenses, experience with comparable projects, etc.). The information provided in response to the questionnaire must be verified under oath by the design-build entity and its members.
4. The agency must adopt a procedure for final selection of the design-build entity. Selection must be based on either (i) a competitive bid process resulting in a lump sum bid by each of the prequalified design-build entities (under this option, award must be made to the lowest responsible bidder); or (ii) a design-build competition based on best value and other criteria identified in the RFP. Under the best value option, the proposals must be evaluated using only the criteria and selection process identified in the RFP and the award must be made to the responsible bidder whose bid is determined by the agency to be most advantageous.
The law also contains provisions related to subcontractors not individually identified in the design build proposal that are the same as those established for state office, prison and court facilities described above.
Comments and Conclusion
The new design-build authority for court, state office and prison facilities, and for redevelopment projects described above is part of a larger package of new laws that give California pubic agencies broad powers to use innovative procurement methodologies and project delivery systems. Note, however, that SBX2 4 is not without issues and ambiguities. Some of the concerns raised by the new authorizations described in this E-Alert include the following:
- Low price design-build procurements authorized for certain prison, state office building and court facility procurements and for redevelopment agency design-build projects may be inconsistent with best value considerations that are also part of the procurement criteria;
- Bonding requirements tied to current statutory requirements for design-bid-build projects (100 percent of project value) may not be commercially available for large scale design-build projects;
- The authority is limited to five court, state office and corrections facilities (although it's not entirely clear whether the limit is five per category or five total) and ten redevelopment projects; and
- The use of design-build on prison and courthouse projects raises challenges for ensuring the integrity of security systems for these facilities. With more private-sector people potentially having access to sensitive design details regarding these facilities, it is imperative that agencies establish stringent protocols for limiting access to this information while still giving the design-build entity the necessary latitude to perform its design and construction obligations.
None of these concerns poses an insurmountable obstacle, however, and we anticipate that the new authority will be a welcome enhancement to current legal authorization. We congratulate the Legislature and the Administration for taking a strong and important step in the right direction. Agencies interested in evaluating whether their potential projects might be good design-build candidates under the new authority described above are encouraged to contact us.
Stan Taylor is a transactional attorney specializing in local and regional transportation agencies governance and compliance, as well as the funding and financing of transportation projects. He can be reached at staylor@nossaman.com or 415.438.7224.
Patrick Harder has more than 20 years of legal experience in the construction industry and has an in-depth knowledge of successful, large scale construction projects. He can be reached at pdharder@nossaman.com or 213.612.7859.
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 ajacobson@nossman.com or 213.612.7819.
[1] Note that this E-Alert provides only a general analysis and summary of the provisions in SBX2 4 that allow design-build for courts, correction and state office facilities and redevelopment agency projects. For a more detailed discussion of these provisions, click here.
[2] The "Department" will refer collectively to the Department of General Services, the Department of Corrections and Rehabilitation and the Judicial Council unless the context requires otherwise.
[3] See Section 4 of Chapter 252 of the Statutes of 1998, as amended by Section 3 of Chapter 154 of the Statutes of 2007 (authorizing seven design-build projects, two of which must be homes for veterans).
[4] To view Nossaman's E-Alert discussing provisions in SBX2 4 authorizing use of design-build procurements for transportation projects, click here. To view Nossaman's E-Alert regarding authority under SBX2 4 relating to public-private partnerships, click here.
[5] California Government Code section 70391.7 provides that the Judicial Council is authorized to use design-build procurement methods which are substantially identical to those authorized for prison and state office facilities.
[6] "Best value" is defined as a value determined by objective criteria that may include considerations such as price, features, functions, life-cycle costs, experience and other criteria deemed appropriate. (Gov. Code §§ 14661.1(c)(4)(B) and 70391.7(c)(4)(B).)
[7] "Project" means those infrastructure improvements authorized in Health and Safety Code sections 33421 and 33455 and the limitations and conditions on that authority in articles 10 and 11 of chapter 4 of part 1 of division 24 of the Health and Safety Code. (Pub. Contract Code § 29688.6(c)(4).)