Tag Archive for Design-Build

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

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

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.

Little-Known Facts About the Contract for the First Construction Segment of California High-Speed Rail

As reported by John Hrabe in the January 27, 2014 www.CalNewsroom.com article High-Speed Rail Critics Question Timing Of Rail Firm’s Contribution To Brown Campaign, Governor Jerry Brown’s 2014 re-election campaign committee received the maximum possible contribution of $27,200 on January 21, 2014 from the construction company Tutor Perini.

Tutor Perini is part of the Tutor Perini/Zachry/Parsons joint venture that won the design-build contract for the first construction segment of California High-Speed Rail, a 29-mile stretch from Madera to Fresno. (For detailed information on design-build procurement in California, see Why Lowest Responsible Bidders Don’t Necessarily Win Rail Construction Contracts: Explaining Design-Build Procurement and Best Value Criteria in California Law.)

Three days after the $27,200 contribution was made – and on the day it was recorded by the California Secretary of State – California Attorney General Kamala Harris submitted an extraordinary request to the California Supreme Court on behalf of Gov. Brown, the California High-Speed Rail Authority, and other interested parties. They want the court to grant relief to allow the project to continue, even though a Sacramento County Superior Court judge decided in 2013 that the California High-Speed Rail Authority failed to comply with the law established by Proposition 1A in 2008 and therefore could not sell any of the $9.95 billion in bonds authorized by voters under that statewide ballot measure.

Tutor Perini Contribution to Brown for Governor 2014 Campaign Committee

Tutor Perini Contribution to Brown for Governor 2014 Campaign Committee

As this brazen campaign contribution begins to gain public attention, here is some little-known information about the contract and cost for the first construction segment.

1. Tutor Perini Contract Amount Is Higher Than People Think

An April 12, 2013 press release showed California High-Speed Rail Authority officials were pleased when the low bid for the design-build contract came in under $1 billion.

The Authority had estimated the cost for the design-build contract to be between $1.2 billion and $1.8 billion. The Authority determined that Tutor Perini/Zachry/Parsons, a California-based Joint Venture, who bid $985,142,530, was the “apparent best value.”

But the amount announced to the public is deceptive.

At its June 6, 2013 meeting, the California High-Speed Rail Authority awarded a design-build contract to Tutor Perini/Zachry/Parsons, a Joint Venture, for their fixed bid price of $969,988,000 and hazardous material unit bid price of $15,154,530 for a total bid price of $985,152,530 on “Construction Package 1” (CP-1). This is the 29-mile segment between Madera and Fresno.

There was an additional $53 million included for contingencies, for a total of $1,022,988,000. See this information here:

Approval to Award Contract for Design/Build Services for Construction Package 1 – June 6, 2013

EXECUTION VERSION – Agreement No.: HSR13-06 – Book 2, Part A, Subpart 1 – Signature Document (see Attachment B – Prices)

Since then, a $160 million contingency fund was created for the project, including $20 million for compliance with Buy American provisions for utility relocation.

Approval of Contingency Fund for Construction Package 1 – September 10, 2013

Resolution #HSRA 13-21 – Approval of Contingency Fund for Construction Package 1 – September 10, 2013

This means that the Madera to Fresno construction segment is authorized to cost taxpayers as much as $1,182,988,000.

This amount does not include all of the consulting work beforehand. Pre-construction costs from Merced to Bakersfield are $160 million through September 30, 2013 and authorized for a total of $241 million. (A more specific amount for the Madera to Fresno first construction segment is not available.)

California High-Speed Rail Authority Project Update Report to the California State Legislature – November 15, 2013

Yes, this 29-mile segment is a billion-dollar segment, and that does not include interest to be paid on borrowed money obtained through bond sales.

2. Potential Windfall for Tutor Perini Because of California High-Speed Rail Authority’s “Strange Lack of Competency in Procurement Strategy”

The California High-Speed Rail Authority has completed the environmental review of the Merced to Fresno segment. It is in the process of environmental review for the Fresno to Bakersfield segment.

Construction Package 1 has 25 miles in the approved Merced to Fresno segment and 4 miles in the not-approved Fresno to Bakersfield segment. If the California High-Speed Rail Authority can’t conclude environmental review of the Fresno to Bakersfield segment by July 12, 2014, the Authority has to renegotiate the contract for Construction Package 1 with Tutor Perini/Zachry/Parsons.

This is why the California High-Speed Rail Authority quietly asked the federal Surface Transportation Board for an environmental exemption, which the board has refused to grant while it extends the time period for comment until February 14, 2014. The September 26, 2013 Petition for Exemption from the California High-Speed Rail Authority to the Surface Transportation Board states the following:

The Authority has entered into a design-build contract to construct a 29-mile segment of the HST System, comprised or approximately 5 miles of track and facilities within the boundaries of the Fresno to Bakersfield HST Section in the vicinity of Fresno and approximately 24 miles of track and facilities covered by the exemption granted in the Merced to Fresno Decision. The Authority’s design-build contract requires the Authority to give the contractor separate notices to proceed with construction of the 5-mile and 24-mile segments. The notice to proceed for the 5 miles of track and facilities must be issued by July 12, 2014. If the Authority cannot issue the notice on the 5-mile segment by July 12th, it will be removed from the contract and the Authority will need to re-negotiate the price for the construction of the 24-mile segment and the price and timetable for the 5-mile segment. Since the construction contract does not contain a separate price for the 5-mile and 24-mile segments, this could result in a substantial aggregate increase in the cost of construction of the two segments. There is a possibility that the Board will have a vacancy as of January 1, 2014. Given the Authority’s July 12th notice to proceed deadline, the possibility of a Board vacancy is of concern to the Authority. However, the Board has authority to grant conditional approval of construction exemptions. Although the Board does not do so absent compelling circumstances, there would be compelling circumstances in this case because conditional approval would avoid circumstances which could require the Authority to pay a higher price for the construction of the initial segment of the HST System. Accordingly, if a Board vacancy becomes imminent, the Authority respectfully requests that the Board conditionally grunt this Petition subject to the completion of the environmental review process, and issue a decision effective by December 31, 2013.

Petition for Exemption from the California High-Speed Rail Authority to the Surface Transportation Board – September 26, 2013, and subsequent correspondence

Californians Advocating Responsible Rail Design (CARRD) is harshly critical of what it calls “serious mistakes made by the Authority and its consultants” and “the strange lack of competency in procurement strategy.”

July 12, 2014: What Is the Big Deal?Californians Advocating Responsible Rail Design (CARRD) – December 4, 2013

Justified or not, Tutor Perini and its predecessor firms have a reputation for looking at big urban infrastructure projects and figuring out weaknesses and mistakes that can be exploited later for financial advantage. An April 19, 2013 article in the Los Angeles Times about the low bid for California High-Speed Rail (Bullet Train Bid Rules Altered) hints at that reputation:

Critics have complained that the firm tends to bid low to win contracts and then seeks change orders and contract amendments that increase costs. The firm has handled many major construction projects successfully. But it also has been embroiled in controversies involving accusations of overbilling, fraud and shoddy workmanship related to the Los Angeles subway, San Francisco International Airport and public works projects in New York. Those matters have cost the builder tens of millions of dollars in legal judgments, settlements and penalties.

This reputation for Tutor Perini is also addressed in the UT San Diego April 15, 2013 article Bullet Train Bidder Had Overruns and its April 16, 2013 article ‘Change-Order Artist’ Fights Back.

Anyone who has closely followed the business of the California High-Speed Rail Authority recognizes how it could be a sitting duck. Taxpayers will end up paying the bill.

2013 Annual Conference of California League of Bond Oversight Committees Highlights Current Controversies on Municipal Bond Sales for Schools (and High-Speed Rail)

I’m on the Advisory Board of the California League of Bond Oversight Committees (CalBOC), which held its annual conference today (May 10, 2013) in Sacramento. To improve public accountability for California K-12 and community college construction programs funded by money borrowed through bond sales, this non-partisan organization improves the training and resources available to bond oversight committees; educates the state legislature, local school boards, and the public about the oversight and reporting authority of bond oversight committees; and advocates on a state level, where appropriate, on issues of common concern to bond oversight committees.

California League of Bond Oversight Committees Logo 2013

Citizens’ Bond Oversight Committees were established through a section of Proposition 39 in 2000 that became California Education Code Sections 15278-15282Michael Day, president and co-founder of the California League of Bond Oversight Committees, said that attendees should “go with the knowledge that you’re doing good things” as ordinary California citizens. Day kicked off the 2013 conference by asserting that “spending wisely shouldn’t be a partisan issue.” (I would have added that spending foolishly doesn’t seem to be a partisan issue.)

Presenting first at the conference were two finance and business administrators from the Santa Ana Unified School District, which is getting criticized for borrowing $35 million in 2009 by selling Capital Appreciation Bonds at an almost 10:1 debt-service-to-principal ratio. In addition to suggesting that Capital Appreciation Bond sales can be a valid business decision under certain conditions, they insinuated that school districts know best how to sell their bonds, and perhaps the state legislature is needlessly interfering in their own local affairs. To boost their case, they asked two rhetorical questions to show the arbitrary nature of the provisions in Assembly Bill 182 that would restrict school district sales of Capital Appreciation Bonds:

1. What’s the proper maximum maturity period for school bonds?

(AB 182 proposes 25 years)

2. What’s the proper maximum ratio of debt-service-to-principal on school bonds?

(AB 182 proposes 4:1)

Following their presentation was Assemblywoman Joan Buchanan (D-San Ramon), who introduced Assembly Bill 182 to restrict the sale of Capital Appreciation Bonds. (The bill passed the Assembly on April 8, 2013 with a 75-0 vote.) Catching my attention during her speech was her assertion that the legislature should expand state-mandated performance reviews for school bond measures to include such items as an examination of the school district’s labor compliance program. Knowing how the old labor compliance program laws and regulations had changed starting in 2009, I asked what she meant. Assemblywoman Buchanan said that the State Allocation Board had discovered that some school districts had applied for and received state reimbursement for labor compliance program expenses but weren’t actually following the state requirements and didn’t deserve the reimbursement.

California State Treasurer Bill Lockyer Speaks at 2013 California League of Bond Oversight Committees Conference

California State Treasurer Bill Lockyer speaks at the 2013 California League of Bond Oversight Committees annual conference.

California State Treasurer Bill Lockyer was the keynote speaker. He declared that the Poway Unified School District officials who engineered its notorious 2009 Capital Appreciation Bond sales were “stupid” and should be fired or recalled. Many people in the meeting room clapped in response, although I don’t know what the representatives from the Poway Unified School District did.

Lockyer sees “a whole industry that lives off of this” scheme for Capital Appreciation Bonds and detects “an odor” of underwriters and other financial management firms engaged in “corrupt practices” and taking advantage of school districts through bond sales. He said he heard a story about how an underwriting firm turned down a school district’s request for handling a ill-advised, foolish Capital Appreciation Bond sale, and then the school district asked another firm with fewer scruples, which was pleased to do it for a fee.

Lockyer noted that the 4:1 debt service to principal ratio for school bonds indicated in Assembly Bill 182 was a political compromise among various parties, including some special interests that demanded either absurd ratios (such as 9:1) or no ratio at all. He actually supports an outright ban on Capital Appreciation Bond sales by school districts. (Michigan enacted such a ban in 1994.)

At the March 18, 2013 meeting of the board of the California High-Speed Rail Authority, chairman Dan Richard told me to ask the State Treasurer about the details of the bond sales for the California High-Speed Passenger Train for the 21st Century. So I was ready with the first question for Bill Lockyer: when will the authorized High-Speed Rail bonds be sold, what will be the rate, will they be 35-year bonds as authorized, and will some of them be sold as Capital Appreciation Bonds?

Lockyer answered by revealing that California High-Speed Rail bonds will not be issued separately but will be “mixed in” with general state bond sales (such as the state bond sales in mid-April 2013). Then to my surprise, he said that a small amount of the high-speed rail bonds had already been sold! I sent out a tweet that’s now getting some attention:

California Treasurer Bill Lockyer says small amount of bonds for California High-Speed Rail have been sold already. Did anyone know this?

He also told me that the market sets the rates – a clever answer from an experienced politician who knows how to evade the tough questions.

Regarding state K-12 school bonds, Lockyer said about $2 billion was left from the state school bond measures approved in the 2000s and that it was likely that the state legislature would put another school construction bond measure on the November 2014 ballot. (Three school bond measures approved by California voters in 2002, 2004, and 2006 authorized the state to borrow $35.8 billion by selling bonds. The State Allocation Board disperses the grants.)

Finally, in response to an excellent question from Kern County Taxpayers Association executive director Mike Turnipseed, Lockyer said that perhaps some of very old voter authorizations for bond sales that never happened in the end could be “erased” or cancelled, thus eliminating the state’s liability for repaying the principal on those bonds.

Kevin Carlin of the Carlin Law Group in San Diego made a presentation about single-source alternative construction procurement methods, including design-build and lease-leaseback. The presentation was routine until he began advancing his view that there’s a “proliferation of illegal lease-leaseback school contracting” in California and cited the Sweetwater Unified School District in Chula Vista as an example. A vocal faction in the audience – primarily school district officials and an attorney for school districts – disputed these claims. During the question-and-answer session, I told Carlin that his only ally in the state legislature was the self-interested Professional Engineers in California Government union and that his best chance for addressing the problem was to add provisions to law that ensure better public access to bidding and contract documents on design-build and lease-leaseback projects. (See California Public Contract Code Section 20133 (g).) Supporters of lease-leaseback complained that I wasn’t asking a question.

Joel Thurtell Speaks on Capital Appreciation Bonds at 2013 California League of Bond Oversight Committees Conference

Joel Thurtell speaks on Capital Appreciation Bonds at the 2013 California League of Bond Oversight Committees annual conference.

Retired Detroit Free Press reporter Joel Thurtell, now a blogger at www.JoelontheRoad.com, was the last speaker at the conference. His investigative report “Michigan Schools Load the Future with Debt” was the headline story in the April 5, 1993 Detroit Free Press, and it led to a 1994 state law banning Michigan school districts from selling Capital Appreciation Bonds.

One of the reasons why the article was effective in changing public policy was the directive of a Detroit Free Press editor to Thurtell to produce a “Big Graphic” showing the extent of Capital Appreciation Bond sales by Michigan school districts. Thurtell had to perform many days of tedious paper-based research at the state treasurer’s office in Lansing, but the result was stunning. (Likewise, I believe that the graphic elements of the www.VoiceofSanDiego.org articles on Capital Appreciation Bond sales by California school districts was a major factor in finally bringing state and national attention to the issue.)

In January 2009, Thurtell posted the text of his old Detroit Free Press articles on his web site. Nothing more happened with them until March 2012, when Alicia Minyen, a member of the Board of Directors of the California League of Bond Oversight Committees (CalBOC), found his articles with a web search using the terms “Capital Appreciation Bonds” and “ban.” At this time the word was beginning to spread about the astonishing 10:1 debt service to principal ratio for bonds sold in 2009 by the Poway Unified School District, and the Los Angeles County Treasurer was publicly warning against Capital Appreciation Bond sales.

Joel Thurtell and Alicia Minyen

Champions of fiscal responsibility: Joel Thurtell from Michigan and Alicia Minyen from California.

Minyen contacted Thurtell and then reported on what she learned at the 2012 California League of Bond Oversight Committees. I heard Minyen’s presentation on Capital Appreciation Bonds and then reported it on my blog on May 11, 2012 as Please Read This, Even If You Think Municipal Bonds Are Really BORING: We’re Setting Up the Next Generation of Californians to Pay Staggering Property Taxes, apparently being the first Californian to post a journalistic report on the web about this practice in California.

Thurtell noted today that the worst abuse of Capital Appreciation Bonds in Michigan was at a school district that even used bond proceeds to buy personal computers. I immediate thought about how California school districts are using bond proceeds to buy electronic tablets, with Los Angeles Unified School District and San Diego Unified School District being two prominent examples.

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

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.

Analysis of the Phony Community Benefits and Other Provisions in the Union Project Labor Agreement for the First Segment of California’s High-Speed Rail

At the link immediately below is a copy of the DRAFT Project Labor Agreement (aka Community Benefits Agreement) between the California High-Speed Rail Authority and the State Building and Construction Trades Council of California and the Signatory Craft Councils and Local Unions. It was Addendum 8, issued on December 26, 2012, for the Request for Proposal for Design-Build Services for the first construction segment between Madera and Fresno. Tutor Perini/Zachry/Parsons, a Joint Venture, won the contract.

California High-Speed Rail Authority Addendum 8 Community Benefits Agreement

At the link immediately below is the FINAL executed version of the Project Labor Agreement for California High-Speed Rail, signed by the CEO of the California High-Speed Rail Authority on August 13, 2013.

California High-Speed Rail Authority Executed Community Benefits Agreement

A draft Project Labor Agreement for the first segment of the California High-Speed Rail is now included as Addendum 8 in the Request for Proposal (RFP) to the five pre-qualified design-build consortiums. These entities have a January 18, 2013 deadline to bid on design and construction of the first 28-mile segment of the high-speed rail line in the San Joaquin Valley, from Madera through Fresno.

Consistent with the Community Benefits Agreement resolution approved at the December 6, 2012 meeting of the California High-Speed Rail Authority board of directors, the Project Labor Agreement is disguised under the term “Community Benefits Agreement.” But as you’ll see below, it’s the standard boilerplate language used in most Project Labor Agreements that contractors must sign with unions to work on government projects in California. And a close reading of the specific provisions in the agreement shows that the alleged benefits are nothing but efforts, goals, acknowledgement, an exercise of full support, and even one recognition of a desire!

And a close reading of the specific provisions in the agreement shows that the alleged benefits are nothing but efforts, goals, acknowledgement, an exercise of full support, and even one recognition of a desire!

Here’s a little more, buried deep in the bid documents:

Section 7.11.3 of the Request for Proposal for Design-Build Services for the first segment of the California High-Speed Rail project states that “Proposers are advised that, subject to FRA [Federal Railroad Administration] approval, the Authority intends to develop a Community Benefits Agreement consistent with the Community Benefits Policy adopted by the CHSRA [California High-Speed Rail Authority] Board at its December 6, 2012 meeting with which the Contractor will be required to comply.”

And Section 10.1 of the Request for Proposal states that  “The Authority [that is, the California High-Speed Rail Authority CEO Jeff Morales] will not make a recommendation for award of the Contract [to the California High-Speed Rail Authority Board of Directors] unless the successful selected Proposer has submitted the following: Escrowed Proposal Documents and corrected any deficiencies identified by the examination of the EPDs, and A letter of assent executed by the Proposer agreeing to be bound by the Community Benefits Agreement.” This indicates a government-mandated Project Labor Agreement.California High-Speed Rail Project Labor Agreement Mandate

Obviously the California High-Speed Rail Authority‘s inclusion of this Project Labor Agreement as an addendum in the RFP is also a strong suggestion for pre-qualified design-build entities to commit to signing this agreement in order to fulfill the conditions of the Community Benefit Agreement resolution. A contractor who commits to sign the union agreement will likely receive the full amount of points assigned to this objective in the “best value” scoring criteria used by the California High-Speed Rail Authority as the basis to award the design-build contract.

This long-anticipated union agreement will be signed by Robbie Hunter, new President of the State Building and Construction Trades Council of California, by a representative of the California High-Speed Rail Authority, and by representatives of the design-build entity and its subcontractors.

The Project Labor Agreement’s Phony Community Benefits: Just Nice Words 

Pages 3 and 4 of the draft Project Labor Agreement identifies certain kinds of special workers who will allegedly get the community benefits:

Section 1.15 states that aNational Targeted Worker” means (a) an individual whose primary place of residence is within an Economically Disadvantaged Area or an Extremely Economically Disadvantaged Area in the United States; or (b) a Disadvantaged Worker.

Section 1.9 states that anEconomically Disadvantaged Area” means a zip code that includes a census tract or portion thereof in which the median annual household income is less than $40,000 per year, as measured and reported by the U.S. Census Bureau in the 2010 U.S. Census and as updated by the parties upon the U.S. Census Bureau issuing updated Median Annual Household Income data by census tract in the American Community Survey.

For some reason, this definition does not limit the area to the San Joaquin Valley or even to California. And how many zip codes qualify?

Section 1.10 states that anExtremely Economically Disadvantaged Area” means a zip code that includes a census tract or portion thereof in which the median annual household income is less than $32,000 per year, as measured and reported by the U.S. Census Bureau in the 2010 U.S. Census and as updated by the parties upon the U.S. Census Bureau issuing updated Median Annual Household Income data by census tract in the American Community Survey.

Once again, this definition does not limit the area to the San Joaquin Valley or even to California. And how many zip codes qualify?

Section 1.8 states that aDisadvantaged Worker” means an individual who, prior to commencing work on the project, resides in an Economically Disadvantaged Area or Extremely Economically Disadvantaged Area as defined in Sections 1.9 and 1.10, and faces at least one of the following barriers to employment: (1) being homeless; (2) being a custodial single parent; (3) receiving public assistance; (4) lacking a GED or high school diploma; (5) having a criminal record or other involvement with the criminal justice system; (6) suffering from chronic unemployment; (7) emancipated from the foster care system; (8) being a veteran; or (9) being an apprentice with less than 15% of the apprenticeship hours required to graduate to journey level in a program as described in Section 1.2.

Keep in mind, this definition does not limit the area to the San Joaquin Valley or even to California.

Seven – and possibly eight, depending on the individual veteran – of the nine barriers to employment listed in the definition of “Disadvantaged Worker” are significant liabilities for getting into a state-approved apprenticeship program and more importantly, staying in it. But it’s easy to see that #9 is a loophole for how the contractors and unions could fulfill the goal for a “Disadvantaged Worker” – they’ll simply dispatch apprentices who are in their final 15% of the number of hours needed to qualify to graduate from their union apprenticeship program.

The language in the Project Labor Agreement associated with actually finding and employing National Targeted Workers is vague and sometimes unintentionally humorous in its exaggerated sincerity.

The language in the Project Labor Agreement associated with actually finding and employing National Targeted Workers is vague and sometimes unintentionally humorous in its exaggerated sincerity:

[Page 15] Section 7.1  The Unions will exert their best efforts to recruit and identify individuals, particularly National Targeted Workers, as well as those referred by the Jobs Coordinator, for entrance or reentrance into the labor/management apprenticeship programs, and to assist individuals in qualifying and becoming eligible for such programs.

[Page 17] Section 7.3.1  The C/S/Es [that is, the contractors, not the unions] must document all efforts made to comply with the targeted hiring process to locate and hire National Targeted Workers.

Note that the unions give the responsibility for documenting recruitment and hiring to the contractor, even though it’s the unions that run the hiring halls and dispatch the workers.

[Page 17] Section 7.4  Unions will make their best effort to recruit sufficient numbers of skilled craft persons to fulfill the requirements of the Contractors/Employers.

[Page 17] Section 7.5.1  The Unions will make every effort to recruit National Targeted Workers and to refer and utilize National Targeted Workers on the Project.

This provision also contains a subtle but useful conditional loophole: “National Targeted Workers” will be recruited, referred, and used “as long as they possess the requisite skills and qualifications…” How many National Targeted Workers (such as homeless people) can be reasonably expected to possess these skills and qualifications?

[Page 18] Section 7.5.3 (A)  All Contractors/Employers performing Project Work will every effort [sic] to employ the maximum number of Apprentices allowed by State Law.

[Page 19] Section 7.8.1 The C/S/Es and Unions recognize a desire to facilitate the entry into the building and construction trades of veterans…

How touching!

[Page 2] WHEREAS, the Parties signatory to this Agreement acknowledge the Authority’s Small Business Policy and established overall 30% Small Business Goal, inclusive of microbusinesses, a 10% DBE and a 3% DVBE goal within the 30% overall goal and shall exercise full support of this Policy in the implementation of this Agreement in ensuring maximum utilization of Small Businesses on the project…

The “Jobs Coordinator” is going to be busy.

Section 1.12 defines “Jobs Coordinator” as “the Prime Contractor designee responsible for the facilitation and implementation of the Targeted Hiring Requirements of this Agreement. The Jobs Coordinator must be able to demonstrate or document to the AUTHORITY the requisite qualifications and/or experience to fulfill the duties and responsibilities.”

Section 7.6 states that “Disadvantaged Workers will be referred to the Unions from the Jobs Coordinator qualified to perform construction jobs coordination and related services…” 

It appears that the design-build consortium will need to hire internal staff or an outside firm to handle the Jobs Coordinator responsibilities. Once again, the unions give the responsibility for documenting recruitment and hiring to the contractor, even though it’s the unions that run the hiring halls and dispatch the workers.

Hiring of Veterans: A Lot of Talk, but What Is the Actual Performance?

Section 7.8 of the Project Labor Agreement is a vague summary of Helmets to Hardhats. Unions that are pressuring public officials for Project Labor Agreements focus quite a bit of their lobbying and public relations message on their “Helmets to Hardhats” program, meant to initiate veterans into careers in the construction trades – or more accurately, careers in the unionized construction trades. The program is operated through a union-affiliated program authorized by the Labor-Management Cooperation Act of 1978. The program appears to be a contact point for veterans looking for construction trade work. It refers them to the applicable local union office.

The one case I’ve seen in which someone tried to measure the success of Helmets to Hardhats revealed a stunning 100% failure. See my article www.PublicCEO.com Exposes Empty Promises of Helmets to Hardhats Program Under Project Labor Agreement in Northern California.

Here’s something particularly outrageous in this Project Labor Agreement related to the Helmets to Hardhats program:

[Page 20] Section 7.8.3  In recognition of the work of the Center and the value it will bring to the Project, the Authority shall make a contribution of $2,000 per month to the Center on behalf of itself and all other Employers employing workers under the terms of this Agreement. The contribution shall begin the first month during which Project Work is performed and end upon completion of all Project Work. Section 7.8.5  If the Authority fails to pay contributions owed to the Center within thirty (30) days of the date when such contributions are due, it shall be liable to the Trust for all costs of collection incurred by the Trust, including, attorneys’ fees and court costs. The Trustees are empowered to initiate proceedings at law or equity, and to take any other lawful action necessary to collect contributions due.

These unions are so cheap that they are contractually requiring the taxpayer-funded California High-Speed Rail Authority to pay $2000 per month to their own Helmets to Hardhats program. And they threaten to take the High-Speed Rail Authority to court if it doesn’t pay on time!

Terms and conditions of employment and labor peace procedures are the real meat in this Project Labor Agreement, of course.

Terms and conditions of employment and labor peace procedures are the real meat in this Project Labor Agreement, of course. Here’s my analysis of key provisions:

[Page 1] The purpose of this Community Benefits Agreement (Agreement) is to facilitate careers in the construction industry and to promote employment opportunities during the construction of the High Speed Rail System (Project) awarded by the California High Speed Rail Authority, remove potential barriers small businesses may encounter in participating in this Project…

Comment: The requirement to sign a 29-page union agreement would normally be regarded as a barrier for a small business to participate in a project, rather than the removal of a barrier. Also, the requirement to pay union dues and fees (Article 6.2) and be referred to a job by a union (Article 7.1) would seem to complicate employment opportunities.

[Pages 1-2] The purpose of this Community Benefits Agreement (Agreement) is…to provide for the orderly settlement of labor disputes and grievances without strikes or lockouts…the interests of the general public, the Authority, the Unions, contractors, subcontractors, employers and workers would be best served if the construction work proceeded in an orderly manner without disruption because of strikes, sympathy strikes, work stoppages, picketing, lockout, slowdowns or other interferences with work…

Comment: Do union officials anticipate that there may be strikes and other union work disruption during the construction of the California High-Speed Rail unless all contractors sign the Project Labor Agreement with the unions? Someone needs to ask!

[Page 1] WHEREAS, increasing access to employment opportunities with prevailing wages is one way for the Authority to directly combat poverty and unemployment;

Comment: Contractors are already required by state law to pay state-mandated wage rates (“prevailing wages”) to construction workers on projects of the California High-Speed Rail Authority. And the Project Labor Agreement actually EXEMPTS the project from state monitoring and enforcement compliance programs that would normally apply!

California Labor Code Section 1773.1(b)(3) – enacted through Assembly Bill 436 (2011) and supported by the State Building and Construction Trades Council of California – exempts a project funded by state bonds from making payments to the State Public Works Enforcement Fund of the California Department of Industrial Relations for prevailing wage compliance and enforcement “if the awarding body has entered into a collective bargaining agreement that binds all of the contractors performing work on the project and that includes a mechanism for resolving disputes about the payment of wages.” This is the definition of a Project Labor Agreement.

Section 8.3 of the Project Labor Agreement states that “the Authority shall monitor the compliance of all Contractors and Subcontracts with all Federal and state prevailing wage laws and regulations. All complaints regarding potential wage violations shall be referred to the Authority for processing, investigation and resolution.” It appears that unions are using the Project Labor Agreement to compel the California High-Speed Rail Authority to establish a labor compliance program (internally or contracted to an outside firm) for prevailing wage compliance and monitoring (as opposed to using the Department of Industrial Relations Compliance Monitoring Unit). Are the unions too cheap to do it themselves through their own union-affiliated labor compliance programs?

[Page 4-5] Section 1.17 …On-site fabrication work includes work done for the Project in temporary yards or areas near the Project. All fabrication work over which the AUTHORITY possesses the right of control…and which is traditionally claimed as on-site fabrication shall be performed on-site…such work may be performed off-site. In that event, such fabrication work shall be performed in accordance with the union standards established by this Agreement for the appropriate craft Union or a fabrication agreement approved by the craft’s International Union. On-site construction shall also include…

Comment: This long section is meant to prevent a contractor from classifying work covered under union Master Labor Agreements (collective bargaining agreements) as off-site fabrication in order to evade the conditions of the Project Labor Agreement or state-mandated construction wage rate (“prevailing wage”) requirements. The Sheet Metal Workers Union is especially concerned about off-site fabrication of duct work, and the Project Labor Agreement specifically cites coverage of their classifications of work.

[Page 6] Section 2.3  Project Labor Disputes: The provisions of this Agreement, including the Schedule A Agreements, (which are the local collective bargaining agreements of the signatory Unions having jurisdiction over the work on the Project, as such may be changed from time-to-time and which are incorporated herein by reference) shall apply to the work covered by this Agreement. All Project Work shall be performed as provided in the applicable Schedule A Agreement. Where there is a provision in a Schedule A Agreement and not covered by this Agreement, the provision of the Schedule A Agreement shall prevail. Where there is a provision in this Agreement, it shall prevail over any conflicting provision of a Schedule A Agreement. All disputes relating to the interpretation or application of this Agreement shall be subject to resolution by the dispute resolution procedures set forth herein.

Comment: As acknowledged in the section of this provision surrounded by parenthesis, a contractor that signs this Project Labor Agreement is not only bound by its provisions, but is also bound by certain provisions of the standard Master Labor Agreement (collective bargaining agreement) that applies to work classifications within the jurisdiction of the applicable union in that applicable geographical region. Some non-union contractors foolishly sign a Project Labor Agreement without realizing that it extends to provisions in other union agreements.

However, notice that Section 3.1 states that “This Agreement is not intended to supersede collective bargaining agreements between any of the Contractors/Employers performing construction work on the Project and Union Signatory thereto except to the extent the provisions of this Agreement are inconsistent with such collective bargaining agreement, in which event the provisions of this Agreement shall apply.” In other words, the Project Labor Agreement is supreme. Some union contractors and unionized construction associations object to government-mandated Project Labor Agreements because those agreements – often negotiated with deference to the demands of the unions – subvert the collective bargaining agreements they worked hard to negotiate.

[Page 7] Section 2.4.6  Notwithstanding the foregoing, it is understood and agreed that Building/Construction Inspector and Field Soils and Material Testers (inspectors) are a covered craft under this Agreement. This inclusion applies to the scope of work defined in the State of California Wage Determination for that Craft. Every Inspector performing under these classifications pursuant to a professional services agreement or a construction contract shall be bound to all applicable requirements of this Agreement…

Comment: Construction trade unions such as the Operating Engineers continue their efforts to organize workers in construction-related professional services into unions, as if these occupations were traditional building trades. In 2000, Governor Gray Davis signed into law Senate Bill 1999, which added a section to the definition of “public works” in California Labor Code Section 1720(a)(1) to include “design and preconstruction phases of construction including, but not limited to, inspection and land surveying work.” This placed such work under state-mandated construction wage rate (“prevailing wage”) requirements.

[Page 7] Section 3.2  It is understood that this Agreement constitutes a self-contained, stand-alone agreement…[the contractor] will not be obligated to sign any local, area or national collective bargaining agreement as a condition of performing work within the scope of this Agreement…Section 3.3  Contractors not signatory to the established Joint Labor/Management Trust Fund Agreements, as described in the Schedule A Agreement(s) for the craft workers in their employ, shall sign a “subscription agreement” with the appropriate Joint Labor/Management Trust Funds covering the work performed under this agreement before work is commenced on the Project.

Comment: This provision means that if a non-union contractor signs the Project Labor Agreement, it is not bound to the collective bargaining agreement for the applicable union for that trade in that geographic region. However, the contractor WILL have to sign “subscription agreements” binding it to the terms and conditions of the union-affiliated health insurance programs, pension programs, vacation programs, apprenticeship programs, and “other” union-affiliated slush funds used for labor compliance monitoring, contract administration, and a wide variety of vague “industry advancement” programs authorized under the obscure federal Labor-Management Cooperation Act of 1978. (Some of that “other” money is contributed to California state and local campaigns for and against ballot measures – a practice becoming more common each election.) All of these employer payments are incorporated into state prevailing wage determinations.

[Page 8] Section 3.4  So that the public, the Unions and the employees have complete information, the AUTHORITY shall immediately post copies of all executed Letters of Assent on a dedicated page on its website…[the contractor] shall be removed from the Project unless an executed Letter of Assent is posted within 48 hours.

Comment: As the former head of the Los Angeles-Orange County Building and Construction Trades Council, new State Building and Construction Trades Council of California president Robbie Hunter is surely aware of how small contractors sometimes try to slip in and out of construction projects for local governments such as the Los Angeles Unified School District without signing the Project Labor Agreement and making the fringe benefit payments to the union trust funds. There will be extra accountability on the High-Speed Rail project.

[Pages 9-14] Article 4  Work Stoppages and Lockouts

[Pages 21-24] Article 9  Dispute Resolution Procedure

[Pages 24-25] Article 11  Jurisdictional Disputes

[Page 25] Article 12  Employee Grievance Procedure

[Page 27] Article 16  Pre-job Conference

Comment: These are the substantial provisions about procedures and arbitrators in Project Labor Agreements that governments and developers hope will prevent strikes and other work disruption directed by top union officials. It doesn’t always work: sometimes workers decide on their own to walk off the job (note the provision in Section 4.4 that No Union shall be liable for independent acts of employees), and sometimes a union is simply determined to make a statement about a grievance during a jurisdictional dispute with another union over work classifications. Nevertheless, Section 4.3 states that “the Union will promptly make good efforts to cease such Project work disruption. (A For Effort.)

[Page 15] Section 6.1  [the contractors] recognize the Unions as the sole and exclusive bargaining representatives of all craft employees working within the scope of this Agreement.

Section 6.2  No employee covered by this Agreement shall be required to join any Union as a condition of being employed, or remaining employed, for the completion of the Project work…employees working on the Construction Contract…comply with the applicable Union’s security provisions for the period during which they are performing on-site Project work to the extent, as permitted by law, of rendering payment of the applicable monthly dues and any working dues…

Comment: Workers don’t have to be full-fledged members of the union, but they have to pay union initiation fees, monthly dues, and working dues as the cost of union representation. California is not a Right-to-Work state, and unions don’t want any “freeloaders” on the job who don’t pay dues and fees.

[Page 15] Section 7.1  [Contractors] recognize that the Unions shall be the primary source of all craft labor employed on the Construction Contract for the Project. For each craft, the local Union with geographic jurisdiction over the work to be performed shall make referrals of employees to the requesting [contractor]. [Contractors] utilizing core employees shall follow the procedures outlined below…

Section 7.2. [Contractors] shall be bound by and utilize the registration facilities and referral systems established or authorized by this Agreement and the signatory Unions…

Comment: Contractors will obtain their workers from the “hiring halls” of the construction trades through the unions’ internal dispatching procedure for workers waiting for a job. Unions have certain rules about who gets priority in the list of workers waiting to be dispatched.

[Page 16] Section 7.1.2  The number of Core Workers on the Project for C/S/Es covered by this Agreement shall be governed by the following procedure: one Core Worker shall be selected and one worker from the hiring hall of the affected trade or craft and this process shall repeat until such C/S/E’s requirements are met or until such C/S/E has hired five (5) such Core Workers for that craft., whichever occurs first. Thereafter, all additional employees in the affected trade or craft shall be hired exclusively from the applicable hiring hall list.

Comment: There is one limited exception in the Project Labor Agreement to the requirement that a contractor obtain workers via the union hiring hall dispatching process. As stated in Section 7.1, a contractor can keep a limited number of “Core Workers” whom the company has employed for 60 of the 100 days immediately before the job is awarded (apparently by the design-build entity) to the contractor. But the contractor has to alternate between using a Core Worker and getting a worker dispatched from the union, and no more than five Core Workers can be used.

[Page 21] Section 8.1  All employees covered by this Agreement (including foremen and general foremen if they are covered by the Schedule A Agreement) shall be classified and paid wages, benefits, and other compensation including but not limited to travel, subsistence, and shift premium pay, and contributions made on their behalf to multi-employer trust funds, all in accordance with the then current multi-employer Schedule A Agreement of the applicable Union. 8.2  Each [contractor] adopts and agrees to be bound by the written terms of the applicable, legally established, trust agreement(s), to the extent said trust agreements are consistent with this Agreement…[contractors] further agree to sign the applicable trust agreement “subscription” agreement(s) if required by the Craft Union on behalf of the Craft employees in order to make the employee contributions to the pension, annuity, health and welfare, vacation, apprenticeship, training trusts, etc.

Comment: Contractors pay fringe benefits (health care, retirement, training, etc.) to the unions. If contractors have their own employee benefit programs (401k, etc.) independent of unions, they are still required to pay their employees’ fringe benefits to the union programs. This can be a supplemental flow of money into underfunded union-affiliated pension plans, as such employees will not enjoy those benefits unless they remain with the union until eligible or vested.

The requirement for non-union contractors to pay fringe benefits to union programs instead of their own benefit plans (unless they want to pay benefits twice) is a major deterrence and competitive disadvantage for non-union contractors that might otherwise consider signing a Project Labor Agreement. Other ramifications of this provision include possible contractor liability for unfunded multi-employer pension plans and exposure of company financial data to union officials for audits.

Is this what 52.5% of California voters wanted in November 2008 when they approved Proposition 1A, the Safe, Reliable High-Speed Passenger Train ballot proposition? Of course not!

Barreling Down the Tracks: Project Labor Agreement for California’s High-Speed Rail – the Biggest, Costliest Union Construction Monopoly in History

Background on Contracts for Construction of the First Section of the California High-Speed Rail, as Based on the Bill Approved by the State Senate Today (July 6, 2012)

This afternoon (July 6, 2012), the California State Senate barely passed a budget trailer bill (Senate Bill 1029) that authorizes $5.85 billion (actually, $5,849,752,000.00) to acquire land and build the “initial operating segment” of the California High-Speed Rail. According to the bill, the project will be reviewed and overseen by the (obscure) State Public Works Board.

In December 2012, the California High-Speed Rail Authority will award several contracts for this first segment through an alternative bidding procedure called design-build. Five entities that are conglomerates of major engineering and heavy construction infrastructure corporations have qualified to bid under this procedure. (This is the Big Time, although there is supposed to be a goal to have 30 percent of the work go to small businesses.)

Instead of awarding contracts to design the project and then awarding contracts to the lowest responsible bidder to build it, the California High-Speed Rail Authority is authorized to award contracts to qualified corporate entities that combine project design AND construction work. The California High-Speed Rail Authority will select the design-build entities using a somewhat subjective list of “best value criteria” that could result in design-build entities winning contracts without being the lowest price. The State Public Works Board and the California Department of Finance will approve the criteria to aware the design-build contract.

As directed by Assembly Bill 1029, the California High-Speed Rail Authority is now required to issue some reports related to construction:

1. By October 1, 2012, prior to awarding a contract to start construction of the first segment of the California High-Speed Rail, and prior to advertising additional contracts to be awarded in September 2013 and October 2013, the California High-Speed Rail Authority will provide a comprehensive staff management report that includes a list of “proposed steps and procedures that will be employed to ensure adequate oversight and management of contractors involved in the construction contracts funded in this act.” That same report will list “procedures to detect and prevent contract splitting.” The California High-Speed Rail Authority will also need to submit a report with the same content requirements before additional contracts are awarded in March 2017.

3. On or before March 1 and November 15 of each year, the California High-Speed Rail Authority will provide a Project Update Report approved by the Secretary of Business, Transportation and Housing to the budget committees and the appropriate policy committees of the Assembly and Senate on the development and implementation of the California High-Speed Rail.

4. On or before June 30, 2013, the California High-Speed Rail Authority will prepare and submit a report approved by the Secretary of Business, Transportation and Housing that provides an analysis of the net impact of the California High-Speed Rail program on the state’s greenhouse gas emissions. The report shall be submitted to the Assembly and Senate budget committees and transportation committees.

My observations about these provisions in Senate Bill 1029:

1. While it’s unclear how it will be implemented, it’s quite likely there will be a requirement for the design-build entities and their subcontractors to sign a Project Labor Agreement with unions for some or all of the construction work. I provided extensive background information about this Project Labor Agreement threat in my highly-read January 12, 2012 article in www.TheTruthaboutPLAs.com entitled California’s Top Construction Union Officials Love the State’s $100 Billion High-Speed Rail Project.

The eight-member Board of Directors of the California High-Speed Rail Authority includes Bob Balgenorth, head of the State Building and Construction Trades Council of California, and Russ Burns, head of the International Union of Operating Engineers Local No. 3. The Senate Rules Committee appointed Balgenorth, and former Assembly Speaker Karen Bass appointed Burns.

Balgenorth has spoken repeatedly and publicly in support of the California High-Speed Rail even as just about everyone with common sense has mocked the costly, beleaguered project. Surely someone will reward Balgenorth and Burns for their efforts with a requirement for contractors to sign a Project Labor Agreement with unions to work on construction of the California High-Speed Rail. Of particular benefit to the unions, a Project Labor Agreement will kill off what would have been fierce competition from non-union contractors to perform electrical work and build the stations.

2. According to its web site, the State Public Works Board (SPWB) “was created by the Legislature to oversee the fiscal matters associated with construction of projects for state agencies, and to select and acquire real property for state facilities and programs. The SPWB is also the issuer of lease-revenue bonds, which is a form of long term financing that is used to pay for capital projects.” Its five members are officials from the Department of Finance, the Department of General Services, the Department of Transportation, the State Treasurer’s Office, and the State Controller’s Office. Amazingly, there isn’t a representative of organized labor sitting in on this board.

3. According to the May 12, 2012 minutes of the State Public Works Board, the High Speed Rail Authority “anticipates acquiring 1,100 properties from Madera County to Bakersfield County over the next two years as part of the high speed train system.” Perhaps this explains why the California Construction Industry Labor-Management Cooperative Trust and its precedessor (the State Building and Construction Trades Council of California Labor-Management Cooperation Trust) made two huge campaign contributions ($1,000,000 and $250,000) to committees opposing statewide ballot measures to restrict government power to acquire property through eminent domain. (I’ll write more about this issue in a later post – it deserves its own analysis.)

4. It would seem that the report requirement in Senate Bill 1029 to explain oversight and management of the contractors on the California High-Speed Rail project would be fulfilled with implementation of the labor compliance requirements now outlined in California Labor Code Section 1771. This is language enacted in 2011 through union-backed Assembly Bill 436, a bill that also repealed language of California Labor Code 1771.9, which was enacted in 2003 by union-backed Assembly Bill 1506. That original language applied specifically to contractor labor law compliance for the California High-Speed Rail project. Note that the new 2011 law (Assembly Bill 436) allows a government entity to exempt itself from labor compliance requirements if “the awarding body has entered into a collective bargaining agreement that binds all of the contractors performing work on the project and that includes a mechanism for resolving disputes about the payment of wages.” (This is the definition of a Project Labor Agreement.)

5. What is “contract splitting,” and why does Senate Bill 1029 require the California High-Speed Rail Authority to report on its efforts to prevent it? These are interesting questions. Obviously someone somewhere is worried about something!

California Public Contract Code Section 20915 states that “It shall be unlawful to employ any means to evade the provisions of this article requiring contracts to be awarded after advertising and competitive bidding, including the splitting of projects into smaller work orders, the amendment of existing contracts, or the approval of a subcontract or subcontracts let under existing contracts. Every person who willfully violates this section shall be guilty of a misdemeanor.”

6. Senate Bill 1029 requires the California High-Speed Rail Authority to provide “an analysis of the net impact of the high-speed rail program on the state’s greenhouse gas emissions.” Realize that the construction of the California High-Speed Rail will result in significant greenhouse gas emissions from the diesel equipment used to build it. The Teamsters union was so “concerned” about greenhouse gas emissions in the Central Valley area where the first segment will be built that it filed a lawsuit in 2011 challenging the construction of a distribution facility in Visalia (where truck drivers would not necessarily be unionized).

In addition, the draft Environmental Impact Report for this project indicates that the California High-Speed Rail program may use diesel-powered switch locomotives associated with maintenance-of-way activities. See California High-Speed Train Project EIR/EIS – Fresno to Bakersfield Section – 3.3 Air Quality and Global Climate Change. (How could this be? I thought this High-Speed Rail was going to save the planet!)

The home page for California High-Speed Rail declares that “California Is Thinking Big Again.” I’ve only scratched the surface of a few of many issues involving this project, and I’m thinking California Is in Big Trouble if this project continues.