Buildings by Design

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By signing Senate Bill 4 into law on Feb. 20, Gov. Schwarzenegger took a significant step toward bringing public agency procurements in California into the 21st century. The bill, 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. Design-build generally allows project owners to get their projects built faster and cheaper than the traditional design-bid-build method.

The bill authorizes the director of the Department of General Services, the secretary of the Department of Corrections and the Judicial Council 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 10 projects. While the Department of General Services has had limited design-build authority in the past, SB 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 the bill.

SB 4 also permits design-build and allows the use of public-private partnerships for certain transportation projects.

Under new California Government Code Sections 14661.1 and 70391.7, the department is authorized to use design-build procurement methods to design and construct "not more than 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 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 Jan. 1, 2014, the department must submit a report describing every public works project procured using this authority that is completed between Jan. 1, 2009, and Dec. 31, 2013.

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 pre-qualified 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 pre-qualified proposers, and to report the decision to the State Public Works Board. The three options include: competition based on performance, price and other criteria set forth by the department; 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 and competition based on program requirements and a detailed scope of work, including performance criteria and concept drawings set forth in the solicitation package.

While similar, price consideration features in the first two options resemble the traditional design-bid-build methodology for selection, whereas the first option, which bases selection on "best value," more accurately reflects a typical design-build selection based on best value.

Because the design-build methodology contemplates award of a contract prior to completion of design, SB 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.). The bill 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.

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. The authority under this section is limited to 10 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 when 10 projects have been approved and the office is directed to submit a report to the Legislature on the program by Jan. 1, 2015. The law has a Jan. 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 Legislative Analyst's Office prior to Dec. 1, 2014, a report of each project procured between Jan. 1, 2010 and Nov. 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.

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 pre-qualification 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 pre-qualified 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.

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.

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 SB 4 is not without issues and ambiguities.

Some of the concerns raised by the new authorizations 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 10 redevelopment projects. Finally, 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, the new authority will likely be a welcome enhancement to current legal authorization.

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