Archive for Single-Source Construction Procurement

“Uncancel the Meeting!” First California Bill to Mandate Project Labor Agreement Was Backroom Deal: Public Discussion Needed

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Here’s an email I sent this morning (June 23, 2014) to the Monterey County Board of Supervisors about the need for openness and transparency concerning the state-mandated Project Labor Agreement provision in Assembly Bill 155, which authorizes the Monterey County Water Resources Authority to use design-build procurement for the interlake pipeline project. I propose that the board’s Legislative Committee “uncancel” its June 30 meeting to discuss AB 155.


From: Kevin Dayton
Subject: Board of Supervisors: Request to “Uncancel” and Convene 6/30 Legislative Committee Meeting – AB 155 and Project Labor Agreement
Date: June 23, 2014 at 12:19:22 PM PDT
To: Monterey County Board of Supervisors

Dear Monterey County Board of Supervisors:

Assemblyman Luis Alejo has gutted and amended Assembly Bill 155 to become an “urgency” bill to authorize the Monterey County Water Resources Agency to use the design-build procurement procedure in bidding the interlake pipeline project. That bill includes a provision never-before included in a design-build authorization bill that requires the design-build entity to enter into a project labor agreement with construction trade unions that will “bind all of the contractors performing work on the project.”

See June 19, 2014 report: Monterey County Water Resources Agency: Target of First State-Mandated Project Labor Agreement

A Project Labor Agreement requires a construction company to pay employee fringe benefits into union-affiliated trust funds, obtain most or all journeymen and apprentice workers through the applicable union hiring hall dispatching system, and requires workers to pay union dues and initiation fees. Government-mandated Project Labor Agreements institute favoritism for unions and unionized contractors. Project Labor Agreements are an unnecessary bid specification that discourages bid competition and increases costs of public works construction for taxpayers.

Your Legislative Committee has not discussed design-build authorization for the Monterey County Water Resources Agency, nor Assembly Bill 155, nor the government-mandated Project Labor Agreement. And inexplicably, the next meeting of the Legislative Committee scheduled for June 30 is now cancelled!

June 30 Legislative Committee Cancellation Notice

May 19 Legislative Committee Agenda (no reference to design-build authorization for MCWRA)

On behalf of the Western Electrical Contractors Association (WECA) and other construction companies and trade associations, I ask you to convene a Legislative Committee meeting on June 30 with AB 155 on the agenda for discussion.

Do you believe your constituents should have the opportunity to comment on AB 155 in a public forum in Monterey County? Surely representatives of construction trade associations, unions, and water customers should be able to provide remarks on this highly-controversial issue in a public forum, so that the Board of Supervisors is able to deliberate adequately and make an informed decision on AB 155 and a government-mandated Project Labor Agreement.

Right now the People of Monterey County have no idea what led to the inclusion of the first government-mandated Project Labor Agreement in a California legislative bill meant to benefit them. Shouldn’t the justification be out in the open?

See Monterey County Legislative Committee Role, Responsibilities & Policies

Let’s bring this state government mandate out into the open, so the People and their representatives on the Board of Supervisors can evaluate whether or not it provides the best quality work at the best price. Please convene your Legislative Committee on June 30 to discuss the Project Labor Agreement mandate in AB 155

Kevin Dayton
President and CEO
Labor Issues Solutions, LLC

Monterey County Water Resources Agency: Target of First State-Mandated Project Labor Agreement

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On June 3, 2014, the Monterey County Board of Supervisors voted to proceed with a plan and $500,000 in funding to construct a $25 million pipeline between the Lake Nacimiento and Lake San Antonio reservoirs that will allow more storage of water for the Salinas Valley. A few days later, Assemblyman Luis Alejo, who represents the Salinas Valley, gutted the contents of his Assembly Bill 155 and inserted language that authorized the Monterey County Water Resources Agency to use the design-build procurement method for bidding the interlake pipeline project.

Because of the drought, AB 155 is designated as an “urgency” bill that will take effect immediately when the Governor signs it. A two-thirds vote in the Assembly and Senate is required to pass an urgency bill.

But what immediately attracted attention was this provision in AB 155:

(2) If the agency does award a design-build contract as authorized under paragraph (1), it shall do the following:

(C) Ensure that the design-build entity selected for the project enters into a project labor agreement that will bind all of the contractors performing work on the project.

This is the first state mandate for a California local government to require its construction contractors to sign a Project Labor Agreement with unions, and whoever arranged the plot was able to keep it unnoticed until AB 155 was amended. Reportedly the phrase “Project Labor Agreement” was uttered once during discussion of the pipeline project at the June 3, 2014 Monterey County Board of Supervisors meeting, to the visible satisfaction of the head of the Monterey/Santa Cruz Building and Construction Trades Council, who was in the audience.

I went to the June 18, 2014 meeting of the Salinas River Basin Management Planning Committee of the Monterey County Water Resources Agency to ask the committee to seek the removal of the Project Labor Agreement mandate from AB 155. (The meeting agenda included a report from the agency’s general manager on the status of the interlake pipeline project.)

By this time, the business community in the Salinas Valley was aware of the state-mandated Project Labor Agreement as a condition of design-build procurement. A representative of the Salinas Valley Water Coalition complained that the Project Labor Agreement in AB 155 was never discussed in a public forum despite changing the Agency’s bidding process. A representative of the Monterey County Farm Bureau also expressed concern that the mandate was never discussed in a transparent manner. He said “politics is changing this” and the agency was “taking what Sacramento dishes out.”

The committee discussed the Project Labor Agreement at length. Some committee members objected to the language and noted that it had been inserted without local deliberation or even knowledge. One board member asked staff what other special interests in Sacramento were planning to “latch onto the bill” and said “We shouldn’t just roll over on this one despite the threat.”

Staff acknowledged that the Project Labor Agreement mandate was added to the bill to neutralize opposition to AB 155 from the State Building and Construction Trades Council of California. One board member who seemed to be fully aware of what happened claimed the union mandate was necessary in order to fast track the bill and the project. He said the agency would lose seven to twelve months and would not be “shovel-ready” for grants: “Without union support, we can’t do it. It’s too late to push back; it really is.” He also reported that the head of the Monterey/Santa Cruz Building and Construction Trades Council said unions would oppose the bill unless a Project Labor Agreement was in it. He also claimed that Republicans would vote for AB 155 even with the Project Labor Agreement in it, so the threat of derailing passage of the bill with one-third opposition was not real.

The committee did not take action because the Project Labor Agreement was not on the agenda, and it did not schedule a special meeting to take action. The committee will discuss the Project Labor Agreement at its July 9 meeting, at which time the committee will know if AB 155 will fail or be signed into law. The Monterey County Board of Supervisors is supposed to vote again on the pipeline project on July 29, 2014.

The Reason for Murky Bidding on California High-Speed Rail: A Law Enacted in 1996, When the Bullet Train Was Just a Twinkle in California’s Eye

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On January 15, 2013, the Bay Area News Group (San Jose Mercury-News) reported in California High-Speed Rail Cost Figures Coming In, but No One Will See Them Yet that the chairman of the California State Senate Transportation and Housing Committee was upset about the sealed bids for the first segment of the California High-Speed Rail project.

…sealed envelopes containing the actual cost for the first leg of the high-speed rail line will finally be hand-delivered to state offices this week. But you won’t see the bid prices yet – and neither will the officials planning the project. They’ll be filed away in sealed containers, with the supporting documents locked up in fireproof cabinets…

But some outsiders are questioning why the state is taking so long to look at the price, particularly with so many taxpayer dollars on the line and a groundbreaking just months away.

“The process is supposed to be transparent,” said state Sen. Mark DeSaulnier, D-Concord, chairman of the Senate’s transportation committee. “Once the bid is in, it’s in the public domain, and the public needs to (be able to see) what the bids look like, especially on a project like this.”

Actually, the process is NOT supposed to be transparent. And Jeff Morales, CEO of the California High-Speed Rail Authority, is correct to point out that this practice is common for big projects around the nation and state. “It is the industry standard in design-build projects to open bid prices following initial evaluations as not to skew the process,” Morales stated.

Here’s the origin of what’s happening today with the murky High-Speed Rail bids. In 1996, Governor Pete Wilson signed into law Senate Bill 1420, introduced by Senators Quentin Kopp (a former High-Speed Rail Authority board member who has criticized the current manifestation of the project) and Jim Costa (who is now a member of Congress), to create the California High-Speed Rail Authority and “prescribe various powers of the authority relative to planning, contracting for the construction of, financing, and operating, a high-speed rail system.”

California Public Utilities Code Section 185036 (added to law by SB 1420) states the following:

185036. Upon approval by the Legislature, by the enactment of a statute, or approval by the voters of a financial plan providing the necessary funding for the construction of a high-speed network, the authority may do any of the following: (a) Enter into contracts with private or public entities for the design, construction and operation of high-speed trains. The contracts may be separated into individual tasks or segments or may include all tasks and segments, including a design-build or design-build-operate contract.

In the mid-1990s, California was beginning to experiment with the design-build procurement process for public works projects. Instead of using the traditional “design-bid-build” method of designing a project, bidding out contracts for construction, and then building the project, a state or local government would request proposals that combined design and construction for single-source delivery.

The idea is that design-build allows different facets of a project to be coordinated and integrated, and as a result construction is less expensive and completed faster. See the web site of the Design-Build Institute of America for its arguments in support of design-build.

However, there are potential drawbacks to public agencies using design-build procurement for taxpayer-funded construction. With design-build, state and local governments are allowed to award the contract to an entity that is not the lowest responsible bidder. Instead, the government chooses a design-build entity based on “best value” criteria that includes price but can also include other objectives, such as “community benefits.” (In the case of California High-Speed Rail, bidders fulfill the so-called “community benefits” criteria through a commitment defined in Section 7.11.3 to sign a specific union-only Project Labor Agreement with the State Building and Construction Trades Council of California.)

This somewhat subjective scoring system allows the government to avoid awarding a contract to an inexperienced or overreaching entity that submits a low bid, but it also invites temptation for government officials to subtly manipulate the scoring criteria to achieve a desired outcome, such as making sure their favored company wins the contract. In the worst circumstances, it opens up the possibility for outright cronyism, nepotism, and fraud.

Authorizing this kind of alternative procurement and delivery system for public works projects would seem to conform with California Public Contract Code Section 101, which states that “California public contract law should be efficient and the product of the best of modern practice and research.” But it seems to betray the principles in California Public Contract Code Section 100, which declares the intent of the Legislature in enacting the Public Contract Code to achieve the following objectives:

(a) To clarify the law with respect to competitive bidding requirements.

(b) To ensure full compliance with competitive bidding statutes as a means of protecting the public from misuse of public funds.

(c) To provide all qualified bidders with a fair opportunity to enter the bidding process, thereby stimulating competition in a manner conducive to sound fiscal practices.

(d) To eliminate favoritism, fraud, and corruption in the awarding of public contracts.

Obviously, the long-term success of design-build procurement relies on transparent procedures and promptly-accessible public records.

As the 1990s ended, state agencies and local governments throughout California were eager to win authorization in state law to award projects to design-build entities instead of using the design-bid-build method. Laws multiplied from 2000 to 2011 explicitly authorizing and reauthorizing “best value” bid criteria and establishing a methodology for many categories of local government entities. Language for these authorizations expanded from the crude, simple statement authorizing design-build for High-Speed Rail in Public Utilities Code Section 185036.

On January 20, 2011, the California State Senate Local Government Committee held an oversight hearing on design-build, specifically focusing on the authorization for counties (which was about to expire). The report produced from this 90-minute, 19-panelist hearing is probably the best available source for the public and the news media about the actual implementation in California of design-build procurement, as opposed to theory and rhetoric. See Faster, Cheaper, Better? How Counties Use Design-Build Contracting. The Summary Report from the Oversight Hearing – Wednesday, January 20, 2010 – California State Local Government Committee (also still posted on the California State Senate web site).

In his role of vociferously opposing the privatization of engineering work through design-build, Ted Toppin, Legislative Director of the Professional Engineers in California Government (a public employee union), revealed the weakness of design-build at the oversight hearing:

Taking a self-described “contrary view,” Ted Toppin told legislators that the Professional Engineers in California Government doesn’t support design-build contracting for four reasons: (1) design-build laws favor contractors over taxpayers, (2) design-build contracts avoid competitive bids in favor of best-value lump sum bids, (3) the design-build selection process is highly subjective, and (4) design-build methods eliminate public inspection of the public works projects. His group is neutral on extending the sunset clause for the counties’ design-build statute, provided that the Legislature requires expanded objective reporting. Toppin then specifically alleged that Sonoma County’s report to the LAO incorrectly reported the cost of its design-build contract. Toppin also claimed that Stanislaus County officials ignored state law when awarding their design-build contract for a swimming pool, failing to consider cost, life-cycle costs, and safety records, as required by law. Further, Toppin said that Solano County incorrectly reported contract costs and didn’t consider the cost criterion when awarding the contract. He told legislators that PECG opposes the expansion of design-build contracting to other projects and opposes a standard statute. [Written reactions from Stanislaus County and Solano County appear in the yellow pages.] Senator Price asked Toppin if design-build contracting has “any redeeming social value at all,” to which Toppin replied that state law should follow the approach for state highways that relies on early involvement and inspection.

While generally supporting the concept of design-build procurement on behalf of my former employer – Associated Builders and Contractors (ABC) of California – and addressing some obscure technical issues related to pre-qualification, I also criticized some of the historical problems with design-build procurement that we now see emerging in 2013 with the California High-Speed Rail:

Dayton criticized the project labor agreement signed as part of the design-build process for the San Joaquin County administration building. His group had difficulty in obtaining public records such as the subcontractors’ bid lists and payroll records. Dayton recommended that future design-build laws ensure public access to those documents, and submitted specific draft language. After the hearing, Dayton provided the Committee with six other proposed amendments to the design-build statutes.

As you can see in the final version of Senate Bill 879 (2010), the ABC of California lobbyist Juli Broyles of California Advocates and I succeeded in getting the law amended to included this new public records accessibility language in California Public Contract Code Section 20133 (g):

(g) Lists of subcontractors, bidders, and bid awards relating to the project shall be submitted by the design-build entity to the awarding body within 14 days of the award. These documents are deemed to be public records and shall be available for public inspection pursuant to this chapter and Article 1 (commencing with Section 6250) of Chapter 3.5 of Division 7 of the Government Code.

But such a requirement does not apply to the design-build procurement for California High-Speed Rail. Why? Because the California State Legislature never adopted this recommendation of the California Legislative Analyst’s Office in its February 3, 2005 report Design-Build: An Alternative Construction System:

Instead of separate legislation providing the design-build authority for different time spans for different groups of state and local entities, as currently exist, we recommend that a single statute be adopted that applies to all public entities providing the same authority and limitations, if any.

Nor did the California State Legislature adopt the exact same recommendation five years later from the California Legislative Analyst’s Office in its January 8, 2010 report Counties and Design-Build (also still posted on the LAO web site):

Instead of separate legislation providing the design-build authority for different time spans for different groups of state and local entities, as currently exist, we recommend that a single statute be adopted that applies to all public entities providing the same authority and limitations.

As a result, the California High-Speed Rail Authority has broad authority to develop its own “best value” criteria and scoring system, while keeping the details out of the public eye.

See an American Recovery and Reinvestment Act (ARRA) California High Speed Authority Design Build Program Plan produced by Parsons Brinckerhoff for the California High-Speed Rail Authority. ARRA was the stimulus package enacted by President Obama in 2009.

Does Senator Mark DeSaulnier Read the Legislation He Supports?

Despite his complaining about the murky bidding process for California High-Speed Rail, Senator Mark DeSaulnier has repeatedly voted for bills that authorize or reauthorize design-build procurement or other alternative delivery systems that include “best value” criteria and the same kind of scoring system that California High-Speed Rail is using.

For example, in 2012 he voted for Senate Bill 1509, which reauthorized design-build for K-12 school and community college districts. He also voted for Senate Bill 1549, which authorized design-build for projects of the San Diego Association of Governments (SANDAG). And he supported the use of design-build procurement by Contra Costa County when he served on the Board of Supervisors, and on more than one occasion.

Nevertheless, it’s good to have him pointing out some of the questionable practices of the bidding procedure for the California High-Speed Rail, although he surely won’t be criticizing the Authority’s requirement that contractors sign a Project Labor Agreement.