The Local Agency Public Construction Act authorizes the governing board of any school district, without advertising for bids, to authorize any public corporation or agency, including any county, city, town, or district, to lease data-processing equipment, and to purchase materials, supplies, equipment, automotive vehicles, tractors, and other personal property for the district, as provided. sets forth the requirements for competitive bidding on various types of contracts awarded by state and local agencies, including a school district. The act requires authorizes a public entity or school district to require prospective bidders for a construction contract to complete and submit to the governing board a prequalification questionnaire and financial statement, and requires the board to adopt and apply a uniform system of rating bidders on the basis of completed questionnaires and financial statements.

This bill would also prohibit a public agency, agency or school district under the act, from disqualifying or penalizing a prospective bidder based on the bidders involvement in an affirmative solely on whether the prospective bidder filed a claim filed by the project owner or the fact that the bidder has filed a claim against a project owner, unless the claim is based upon a violation of the Labor Code or has been finally adjudicated and the settlement or award provided on the final judgment or settlement is greater than 20% of the adjusted contract amount against the prospective bidder. against a project owner.

Because this bill would impose new requirements on the governing body of a local school board, it would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to these statutory provisions.

The existing California State University Contract Law sets forth a process through which contracts for projects, as defined, that are entered into with respect to the California State University may be competitively bid, entered into, and executed.

This bill would make nonsubstantive changes to these provisions.

SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION

Senator Isadore Hall, III

Chair

2015 - 2016 Regular

Bill No: AB 975 Hearing Date: 6/29/2015

SUBJECT: Local Agency Public Construction Act: bid criteria

DIGEST: This bill prohibits local public agencies and school districts from disqualifying prospective bidders on public works contracts 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.

ANALYSIS:

Existing law:

1. Sets, under the Local Agency Public Construction Act (LAPCA), the requirements for competitive bidding on various types of contracts awarded by state and local agencies, including a school district.

2. Authorizes, under the LAPCA, a public entity or school district to require prospective bidders for a construction contract to complete and submit to the governing board a prequalification questionnaire and financial statement, and requires the board to adopt and apply a uniform system of rating bidders on the basis of completed questionnaires and financial statements.

This bill prohibits local public agencies and school districts from disqualifying prospective bidders on public works contracts 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

Background

Purpose of the bill. According to the author, “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 14^th 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 Local Agency Public Construction Act (LAPCA). The LAPCA allows, but does not require, public agencies to establish a process to evaluate and pre-qualify prospective bidders on public works projects. An agency may choose to require prospective bidders to submit a standardized questionnaire and a financial statement, which includes the prospective bidder's experience in performing public works. If the agency selects this procedure, it must adopt a uniform rating system to determine the minimum requirements permitted for qualification to bid and the type and size of contracts for which each bidder is eligible to bid. It also must offer an appeals process to allow prospective bidders to dispute their proposed pre-qualification rating.

The LAPCA directs the Department of Industrial Relations (DIR) to develop a model questionnaire and guidelines for a uniform rating system that can be used by public agencies. The DIR questionnaire requires 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 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. A rating system assigns points according to a bidder's answers to the questionnaire and enables a local agency to exclude bids from companies that do not meet a minimum number of points.

The LAPCA applies to all cities, counties and special districts, but does not apply to school districts, which have separate code sections pertaining to pre-qualification.

Prior/Related Legislation

AB 566 (O’Donnell, 2015) requires, until January 1, 2019, school districts to require prospective bidders on public contracts to submit a pre-qualification questionnaire and financial statement, if the expenditure of the project is $1 million or more, regardless of the funding source, and the average daily attendance (ADA) of the school district is more than 2,500. (Pending in Senate Appropriations Committee)

AB 1581 (Buchanan, Chapter 408, Statutes of 2014) required, until January 1 2019, school districts entering into lease/leaseback or lease-to-own contracts to required prospective bidders to submit a pre-qualification questionnaire and financial statement, 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,) required, beginning with contracts awarded on or after January 1, 2014 and until January 1, 2019 school districts to require prospective bidders on public contracts to submit a pre-qualification questionnaire and financial statement, 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 281 (Bermudez, 2003) would have prohibited the bidder pre-qualification form that is required under the LAPCA from disqualifying a bidder solely based on the bidder’s financial capacity, provided that the bidder otherwise qualifies for the public works contract. (Never heard in Assembly Local Government Committee)

AB 611 (Villaraigosa, Chapter 390, Statutes of 1997) allowed school districts to pre-qualify bidders on a quarterly basis and allowed the pre-qualification to be valid for up to one calendar year.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

SUPPORT:

Construction Employers Association (Source)

Air Conditioning Sheet Metal Association

Air-conditioning & Refrigeration Contractors Association

Associated Builders and Contractors of California

Associated General Contractors

California Chapters of the National Electrical Contractors Association

California Concrete Contractors Association

California Legislative Conference of the Plumbing, Heating and Piping Industry

Finishing Contractors Association of Southern California

United Contractors

OPPOSITION:

None received

ARGUMENTS IN SUPPORT: According to the Construction Employer’s Association, “this bill is intended to address a troubling trend involving public works construction prequalification questionnaires. Specifically, a number of public agencies have begun disqualifying, or significantly penalizing through their pre-qualification process, 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.”

CEA further argues that, “These pre-qualification questions represent a fundamental denial of a contractor’s basic due process rights. The automatic disqualification ignores the specific circumstances surrounding a claim, the severity of the claim, the outcome of the claim, whether the contractor prevailed, whether the claim was the result of a subcontractor, architect or engineer or whether the claim was simply erroneous. AB 975 does not preclude public agencies from asking about prior claims, nor does it preclude them from factoring in the disposition of said claims, it simply provides that the existence of a claim cannot be considered a disqualifying factor.”

DUAL REFERRAL: Senate Education Committee

Date of Hearing: May 20, 2015

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Jimmy Gomez, Chair

ABPCA Bill Id:AB 975

Author:(Frazier) – As Amended Ver:May 4, 2015

Urgency: No State Mandated Local Program: Yes Reimbursable: No

SUMMARY:

This bill prohibits local public agencies and school districts from disqualifying prospective bidders on public works contracts 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.

FISCAL EFFECT:

Unknown, likely very minor and non-reimbursable costs to local agencies and school districts to modify an optional prequalification process.

COMMENTS:

1. Purpose. According to the author, "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 through their pre-qualification process, any contractor who has been involved, or is involved, in any claim with a public agency.

2. Background. The Local Agency Public Construction (LAPC) Act applies to all cities, counties and special districts, and allows, but does not require, public agencies to establish a process to evaluate and pre-qualify prospective bidders on public works projects. An agency may choose to require prospective bidders to submit a standardized questionnaire and a financial statement, which includes the prospective bidder's experience in performing public works. If the agency selects this procedure, it must adopt a uniform rating system to determine the minimum requirements permitted for qualification to bid and the type and size of contracts for which each bidder is eligible to bid. It also must offer an appeals process to allow prospective bidders to dispute their proposed pre-qualification rating.

The LAPC Act directs the Department of Industrial Relations (DIR) to develop a model questionnaire and guidelines for a uniform rating system that can be used by public agencies. The DIR questionnaire requires 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.

Like other local agencies, school districts have the option to evaluate and pre-qualify prospective bidders on public works projects. This includes the 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.

3. Related Legislation. AB 566 (O'Donnell), pending referral in the Senate, requires, until January 1, 2019, school districts to require prospective bidders on public contracts to submit a pre-qualification questionnaire and financial statement, if the expenditure of the project is $1 million or more, regardless of the funding source, and the ADA of the school district is more than 2,500 (among other provisions).

4. Previous Legislation. AB 1581 (Buchanan), Chapter 408, Statutes of 2014, required, until January 1, 2019, school districts entering into lease/leaseback or lease-to-own contracts to require prospective bidders to submit a pre-qualification questionnaire and financial statement, 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.

1. AB 1565 (Fuentes), Chapter 808, Statutes of 2012, required, beginning with contracts awarded on or after January 1, 2014 and until January 1, 2019, school districts to require prospective bidders on public contracts to submit a pre-qualification questionnaire and financial statement, 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.

2. AB 281 (Burmudez) of 2003 would have prohibited the bidder pre-qualification form that is required under the LAPC Act from disqualifying a bidder solely based on the bidder's financial capacity, provided that the bidder otherwise qualifies for the public works contract. This bill was referred to the Assembly Local Government Committee, but was never heard.

3. AB 574 (Hertzberg), Chapter 972, Statutes of 1999, defined the term "responsible bidder" as it relates to public contracts, authorized public entities to require prospective bidders to complete pre-qualification questionnaires and financial statements, and required DIR to develop a model questionnaire and guidelines for rating bidders.

4. AB 611 (Villaraigosa), Chapter 390, Statutes of 1997, allowed school districts to pre-qualify bidders on a quarterly basis and allowed the pre-qualification to be valid for up to one calendar year.

Analysis Prepared by: Jennifer Swenson / APPR. / (916) 319-2081

Date of Hearing: April 29, 2015

ASSEMBLY COMMITTEE ON EDUCATION

Patrick O'Donnell, Chair

ABPCA Bill Id:AB 975

Author:(Frazier) – As Amended Ver: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:

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.

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:

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

2. 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)

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.

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 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' 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 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.

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 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

United Contractors

Opposition

None on file

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

Date of Hearing: April 22, 2015

ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT

Brian Maienschein, Chair

ABPCA Bill Id:AB 975

Author:(Frazier) – As Amended Ver:March 26, 2015

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:

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.

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.

4. Provides that, if the Commission on State Mandates determines that this bill contains costs mandated by the state, reimbursement to local agencies and school districts for those costs shall be made pursuant to current law governing state mandated local costs.

EXISTING LAW:

1. States that the objective of the Public Contract Code (PCC) is to provide all qualified bidders with a fair opportunity to enter the bidding process, thereby stimulating competition, and to eliminate favoritism, fraud, and corruption in the awarding of public contracts, among other provisions.

2. Provides the following definitions under the PCC:

1. Defines public works contract as "an agreement for the erection, construction, alteration, repair, or improvement of any public structure, building, road, or other public improvement of any kind;"

2. Defines "public entity” to mean the state, county, city, city and county, district, public authority, public agency, municipal corporation, or any other political subdivision or public corporation in the state; and,

3. Defines the term "responsible bidder" to mean a bidder who has demonstrated the attribute of trustworthiness, as well as quality, fitness, capacity, and experience to satisfactorily perform the public works contract.

3. Requires local officials, under the Local Agency Public Construction Act (LAPC Act), to invite bids for construction projects and then award contracts to the lowest responsible bidder.

4. Allows, pursuant to the LAPC Act, public entities to require prospective bidders to complete standardized questionnaires and financial statements with specified information for the purpose of pre-qualifying bidders.

5. Requires the State Department of Industrial Relations (DIR) to develop model guidelines for rating bidders.

6. Requires any public entity electing to make bidders complete a questionnaire and financial statement to adopt and apply a uniform system of rating bidders based on objective criteria.

7. Requires public entities that require questionnaires and statements to establish a process that will allow prospective bidders to dispute the proposed qualification rating before the closing time for receipt of bids.

8. Allows school districts to require prospective bidders on specified contracts that school districts must put out to bid to complete and submit standardized questionnaires and financial statements. School districts must adopt a uniform system for rating bidders based on the questionnaires and statements.

9. Requires, until January 1, 2019, school districts entering into lease/leaseback or lease-to-own contracts to comply with specified pre-qualification requirements, if the project is funded with state bond funds, the expenditure of the project is $1 million or more, and the average daily attendance (ADA) of the school district is more than 2,500.

FISCAL EFFECT: This bill is keyed fiscal and contains a state-mandated local program.

COMMENTS:

1. Bill Summary. This bill prohibits public agencies and school districts that require prospective bidders to complete and submit pre-qualification questionnaires from disqualifying or otherwise penalizing a prospective bidder through their 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. This bill is sponsored by the Construction Employers’ Association.

2. Author's Statement. According to the author, "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 through their pre-qualification process, 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.

"These pre-qualification questions represent a fundamental denial of a contractor’s basic due process rights. The automatic disqualification ignores the specific circumstances surrounding a claim, the severity of the claim, the outcome of the claim, whether the contractor prevailed, whether the claim was the result of a subcontractor, architect or engineer or whether the claim was simply erroneous. Also, because of privity of contract, claims related to subcontractors are attributed to general contractors so the claim itself may have nothing to do with the general contractor."

3. Background. The LAPC Act allows, but does not require, public agencies to establish a process to evaluate and pre-qualify prospective bidders on public works projects. An agency may choose to require prospective bidders to submit a standardized questionnaire and a financial statement, which includes the prospective bidder's experience in performing public works. If the agency selects this procedure, it must adopt a uniform rating system to determine the minimum requirements permitted for qualification to bid and the type and size of contracts for which each bidder is eligible to bid. It also must offer an appeals process to allow prospective bidders to dispute their proposed pre-qualification rating.

The LAPC Act directs DIR to develop a model questionnaire and guidelines for a uniform rating system that can be used by public agencies. The DIR questionnaire requires 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.

A rating system assigns points according to a bidder's answers to the questionnaire and enables a local agency to exclude bids from companies that do not meet a minimum number of points. According to DIR, "Each public agency…is free to devise its own 'uniform system of rating prospective bidders . . . based on objective criteria.' That is, each public agency may determine its own scoring system and its own passing scores for different portions of the questionnaire..."

The Local Agency Public Construction Act applies to all cities, counties and special districts, but does not apply to school districts, which have separate code sections pertaining to pre-qualification. (This analysis is limited to the jurisdiction of the Local Government Committee, which does not include the provisions of this bill pertaining to school districts.)

4. DIR's Model Pre-Qualification Questionnaire. DIR's model questionnaire includes the following questions regarding claims:

1. "In the past five years has any claim against your firm concerning your firm’s work on a construction project been filed in court or arbitration? If 'yes,' on separate signed sheets of paper identify the claim(s) by providing the project name, date of the claim, name of the claimant, a brief description of the nature of the claim, the court in which the case was filed and a brief description of the status of the claim (pending or, if resolved, a brief description of the resolution).

2. "In the past five years has your firm made any claim against a project owner concerning work on a project or payment for a contract and filed that claim in court or arbitration? If 'yes,' on separate signed sheets of paper identify the claim by providing the project name, date of the claim, name of the entity (or entities) against whom the claim was filed, a brief description of the nature of the claim, the court in which the case was filed and a brief description of the status of the claim (pending, or if resolved, a brief description of the resolution).

DIR's model questionnaire or guidelines for rating bids does not contain language disqualifying contractors for affirmative answers to these questions. It does, however, provide a scoring system for these questions that assigns points based on the firm's gross revenue and number of occurrences. A bidder with more claims earns fewer points.

5. Local Agency Pre-Qualification Questionnaires. According to the sponsor of this bill, a number of local agencies are disqualifying contractors that have been involved in claims against the contractor by a project owner or filed by a contractor against an owner. Examples provided include:

1. A city contract documents stating, "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;"

2. A city contract that disqualified any firm that answered yes to the following: "In the past five years, has an owner filed, in a court of law or in an arbitration, any claim against your firm concerning your firm's work on a construction project, and either:

1. Your firm's average gross revenue for the last three years was less than $50 million and two or more separate claims have been filed against your firm; or,

2. Your firm's average gross revenue for the last three years was more than $50 million and five or more separate claims have been filed against your firm?"

6. Policy Considerations. The Committee may wish to consider the following:

1. No Disqualification, Automatic or Otherwise. This bill prohibits local agencies and school districts from disqualifying a prospective bidder with current or prior claims as described in the bill. While automatic disqualification, without considering any of the details or circumstances of a bidder's claims history, might be a practice that should be curtailed, the Committee may wish to consider whether a local agency or school district should no longer have the option of disqualifying a bidder after evaluating that bidder's track record of claims.

2. "Penalizing" Prospective Bidders. This bill prohibits local agencies and school districts from penalizing in their rating systems a prospective bidder that has an involvement in claims as described in the bill. DIR's model rating system allows this practice. The Committee may wish to consider retaining the bill's provision that prohibits outright disqualification, but striking the language in the bill that prohibits "penalizing."

3. Settlement Amount Limit. This bill contains language that states, "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." This limit on the rating system based on settlement amounts does not appear in DIR guidelines. The Committee may wish to consider whether this is an appropriate limit to impose on pre-qualification questionnaires.

4. Existing Dispute Process. Current law allows contractors to dispute a local agency's proposed qualification rating. The Committee may wish to ask the author to explain why the existing dispute process is problematic.

5. Prevalence. It is not clear how many local jurisdictions or school districts are disqualifying contractors based on claims filed by or against them. The Committee may wish to ask the author if there is any additional evidence of this practice by California local agencies and school districts.

6. Affirmative claim. There is no definition in this bill of the term "affirmative claim." The Committee may wish to define this term or strike it from the bill.

7. Technical Amendments. The Committee may wish to amend Sections 2 and 3 of the bill to delete references to "public agency" and replace them with "district," as those sections apply to school districts.

8. Related Legislation. AB 566 (O'Donnell), pending in the Assembly Education Committee, requires, until January 1, 2019, school districts to require prospective bidders on public contracts to submit a pre-qualification questionnaire and financial statement, if the expenditure of the project is $1 million or more, regardless of the funding source, and the ADA of the school district is more than 2,500 (among other provisions).

9. Previous Legislation. AB 1581 (Buchanan), Chapter 408, Statutes of 2014, required, until January 1, 2019, school districts entering into lease/leaseback or lease-to-own contracts to require prospective bidders to submit a pre-qualification questionnaire and financial statement, 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, required, beginning with contracts awarded on or after January 1, 2014 and until January 1, 2019, school districts to require prospective bidders on public contracts to submit a pre-qualification questionnaire and financial statement, 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 281 (Burmudez) of 2003 would have prohibited the bidder pre-qualification form that is required under the LAPC Act from disqualifying a bidder solely based on the bidder's financial capacity, provided that the bidder otherwise qualifies for the public works contract. This bill was referred to the Assembly Local Government Committee, but was never heard.

AB 574 (Hertzberg), Chapter 972, Statutes of 1999, defined the term "responsible bidder" as it relates to public contracts, authorized public entities to require prospective bidders to complete pre-qualification questionnaires and financial statements, and required DIR to develop a model questionnaire and guidelines for rating bidders.

AB 611 (Villaraigosa), Chapter 390, Statutes of 1997, allowed school districts to pre-qualify bidders on a quarterly basis and allowed the pre-qualification to be valid for up to one calendar year.

10. State Mandate. This bill is keyed a state mandate, which means the state could be required to reimburse local agencies and school districts for implementing the bill's provisions if the Commission on State Mandates determines that the bill contains costs mandated by the state.

11. Arguments in Support. The Associated General Contractors, in support of this measure, state, ""Proliferation of these types of pre-qualification questionnaires will enable public agencies to renegotiate contract terms because they know that any claim will adversely impact a contractor on a future pre-qualification. The questions will also have a chilling effect on the filing of otherwise legitimate claims by contractors because of the potential impact on future pre-qualification questionnaires. Finally, these types of questions will also minimize the pool of otherwise qualified contractors and drive prices up."

12. Arguments in Opposition. None on file.

13. Double-Referral. This bill is double-referred to the Accountability and Administrative Review Committee.

REGISTERED SUPPORT / OPPOSITION:

Support

Construction Employers’ Association [SPONSOR]

Air Conditioning Sheet Metal Association

Air-conditioning & Refrigeration Contractors Association

Associated General Contractors

California Chapters of the National Electrical Contractors Association (NECA)

California Legislative Conference of the Plumbing, Heating and Piping Industry (CLC)

Finishing Contractors Association of Southern California

United Contractors

Opposition

None on file

Analysis Prepared by: Angela Mapp / L. GOV. / (916) 319-3958