Significant New Developer Fee Cases

October 2019
Number 44

As part of an uptick of cases in recent years regarding school impact fees, two recent cases argued by Lozano Smith on behalf of school districts have been decided by the California Sixth District Court of Appeal, with mixed results. The court ruled in relation to an “adults only” agricultural worker housing project that, when imposing prospective developer fees on development projects, school districts need not establish a reasonable relationship between the fee and the specific project in question. Instead, districts are merely required to establish a nexus between the fee and the general type of project that is at issue (e.g. residential, commercial, industrial). This favorable outcome came after the same appellate court, straying from prior precedent that supported deference to local agencies, issued a published decision invalidating a school district’s developer fee justification study. The court held that the study in question was invalid because it did not provide sufficient analysis to demonstrate that the school district would have to house new students generated from development in new facilities. Both cases are part of a trend toward greater judicial scrutiny of school districts’ imposition of developer fees.

School districts in California are authorized by law to impose fees on development projects, referred to as “developer fees” or “school impact fees.” There are three separate levels of fees that can be charged, each of which are subject to different legal requirements. The first case below addresses whether a school district must analyze the potential residential population of a particular development, as projected by the developer, before imposing fees on that particular development. The second case addresses the legal requirements for preparing a Level I fee justification study.

The Tanimura Case

Tanimura & Antle Fresh Foods v. Salinas Union High School District, 34 Cal.App.5th 775, addressed a dispute regarding Level 2 developer fees. The Salinas Union High School District (Salinas) had imposed a developer fee on a 100-unit agricultural employee housing complex commissioned by Tanimura & Antle Fresh Foods, Inc. (Tanimura) within Salinas. The complex, per the terms of its development permit issued by the Monterey County Board of Supervisors, was designed to house only agricultural workers, without dependents.

In recent years, many school districts have contended with developers who argue that fees should not be imposed on their projects because the developers expect that few or no potential school age students will live in the finished project. These arguments have been made, for instance, regarding housing intended for agricultural workers, college students, or young professionals. This case affirms that a school district need not consider the developer’s intended residents for a particular project, and can instead analyze the impact of residential housing projects across the district when imposing developer fees on residential projects.

In relation to its agricultural worker housing project, Tanimura sued for a refund of its fees, alleging that the developer fees imposed by Salinas were not reasonably related to a need for school facilities, as required by statute. Tanimura cited the project’s prohibition on dependents, arguing that, as no children would reside in the complex, its construction would not generate an increased burden on the district’s facilities. The Government Code requires a public agency, before imposing prospective developer fees, to establish the purpose of the fee, the agency’s use for the funds, a reasonable relationship between the fee’s use and the type of development project on which it will be imposed, and a reasonable relationship between the need for public facilities and the type of development project on which the fee is imposed. The trial court held in favor of Tanimura, reasoning that “case law-and common sense-preclude the application of an overbroad label in a fee study that does not account for a project’s actual impact.” The court opined that Salinas was required to account for the fact that no children would be permitted to live at the complex, and in failing to do so had not met the nexus requirement of the Government Code.

In a victory for school districts, and following argument by Lozano Smith (acting as co-counsel in this matter), the Court of Appeal reversed. The court held that, when establishing a nexus between developer fees and a development project, a public agency need not consider the specific project in question; its calculus is limited to the general type of project at issue (e.g., residential, commercial, or industrial). As applied here, Salinas was not required to consider the complex’s prohibition on dependents in its fee analysis. The district’s treatment of the complex as a generic, residential development was lawful.

The court asserted that its interpretation was the only “commonsense” reading of the statute that avoided practical absurdities. To adopt Tanimura’s position, the court held, “would have the practical effect of requiring a school district to expand its needs analysis to address the projected impact on school facilities of undefined, variant subtypes of residential construction not contemplated in the statute.” The court found such an effect to be contrary with the purpose of the statutes. Further, the law contains exceptions from developer fees for certain types of developments, including government-financed agricultural migrant worker housing. However, the Legislature has created no such exception for privately-financed farmworker housing. This indicates that the Legislature did not intend for projects such as the complex to be exempted from developer fees.

The Summerhill Case

In Summerhill Winchester, LLC, v. Campbell Union School District 30 Cal.App.5th 545, the Appellate Court invalidated the Level 1 developer fees adopted by Campbell Union School District (Campbell). In doing so, the court applied the rule laid out in a prior case, Shapell Industries, Inc. v. Governing Board of the Milpitas Unified School District (1991) 1 Cal.App.4th 218, that a Level 1 fee study must include an analysis of the following three factors: (1) the projection of the total amount of housing to be constructed within the school district; (2) estimation of the number of new students that are expected to result from the new development; and (3) estimation of what it will cost to provide the necessary school facilities for that approximate number of new students.

Regarding the first Shapell element, Campbell’s fee study stated that there were “in excess of 133” residential units that could be constructed over the next five years. The court took issue with the fact that these projections were not based on data from all of the planning departments within Campbell’s boundaries. The court also held that the study’s projection was too vague to support the imposition of fees. According to the court, a projection based on consultation with only some of the local jurisdictions within Campbell’s boundaries and using a phrase such as “in excess of” is “little better than saying that ‘some’ development is anticipated.” This was found to be inadequate because the study did not provide sufficient guidance for Campbell’s Board to determine whether or not new school facilities would be needed due to anticipated development. The court found it irrelevant that the district was already over capacity at all of its schools, and essentially rejected Campbell’s argument that new facilities would be needed to house students generated from development, regardless of the number of such students.

The court also found that the fee study was invalid because it did not provide sufficient evidence for the district’s Board to determine what type of school facilities would be needed to accommodate students generated by development, if any. The court based its decision on a narrow reading of the applicable statutes.

Developers may argue that the court’s decision means that a fee study must now establish what “type” of facilities a school district will construct to house students generated by development. However, prior case law, includingGarrick Development Co. v. Hayward Unified School District (1992) 3 Cal.App.4th 320, held that specific improvement plans or building proposals were not necessary. The court acknowledged that, underGarrick, “the Board did not have to identify specific facilities that would be built or make concrete construction plans.” At the same time, however, the court concluded that “the key missing element in the fee study was what new facilities would be necessary for the new students generated by new development.” These two statements are difficult to reconcile, and create a challenge when school districts decide how specifically their fee studies must describe student housing needs. However, it remains clear that specific school construction projects need not be identified.

The court’s opinion is likely to cause confusion and possibly to disrupt established law. As a result, school districts may wish to review the adequacy of their fee justification studies.

Lozano Smith represented the school district in the litigation and appeal, and requested, on behalf of the district, that the California Supreme Court depublish the case. The request for depublication was supported by CASBO, CASH, and CSBA, and not opposed, but the request was nevertheless denied by the Supreme Court.

Takeaways

Tanimura clarifies that public agencies, when imposing prospective developer fees, need not consider the specific development project, but only the type of development project at issue. The case should also help school districts resist the claims of developers who assert that they should be relieved of fees because few or no students will allegedly be generated by a specific project.

While some may argue for a broader application, the Summerhill decision can be viewed as the court’s application of the three-factorShapell test to a particular fee study. In this regard, the case simply calls for a fact-specific analysis based on already-established precedent. The following are some best practices following the Summerhill case:

  • Avoid use of imprecise language like “at least” when describing projected development.
  • If at all possible, consult with all planning departments within the school district’s jurisdiction.
  • If at all possible, identify the general types of school facility projects that may be constructed to accommodate students (e.g., new school construction, portable additions, a mix of both, etc.). We note that such identification in the fee study is not necessarily binding on the school district when it later implements its facilities plans.

If you have any questions about the Tanimura orSummerhill cases or about developer fees in general, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. Copies of Lozano Smith’s Developer Fee Handbook are available for purchase from Lozano Smith’s Client Services Department; you can submit your request to clientservices@lozanosmith.com. You can also subscribe to our podcast, follow us on Facebook, Twitter, and LinkedIn or download our mobile app.

Written by:

Harold M. Freiman

Partner

Devon B. Lincoln

Partner

Kelly M. Rem

Partner

Benjamin Brown

Associate

©2019 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Know Your Role, Know Your Risk

June 2019
Number 28

A Civic Center Act provision that allocates liability between a school district and the users of school facilities means what it says, according to a recent decision by the California Court of Appeal. In Grossman v. Santa Monica-Malibu Unified School District, the court found the district was not liable for injuries suffered by a parent-attendee at a carnival held by a booster group at one of the district’s schools. The court also highlighted the statute’s intent that school districts and users of school facilities bear their own costs in insuring against risk and liability resulting from use of those facilities.

Facilities Use and Liability Under the Civic Center Act

Education Code section 38130 et seq., also known as the Civic Center Act, requires school districts to allow community groups to use district-owned facilities under certain conditions and allocates liability between the school district and the user of those facilities. Under Education Code section 38134(i)(1), “an entity using school facilities or grounds . . . is liable for an injury resulting from the negligence of that entity during the use of the school facilities or grounds,” while a school district “is liable for an injury resulting from the negligence of the school district in the ownership and maintenance of the school facilities or grounds.” The same section also requires school districts and users to “each bear the cost of insuring against its respective risks,” as well as the cost of defense for “claims arising from those risks.”

A school district’s liability for “ownership and maintenance” of its facilities and grounds only arises when the district would be liable under Government Code section 835 for “a dangerous condition of public property.” That form of liability arises from (1) negligent acts of a school district employee, or (2) notice of the dangerous condition with time to mitigate the danger.

The Grossman Case

In Grossman, the school district approved a booster group’s plans for a carnival on school grounds, but did not otherwise involve itself in the planning, set up, or oversight of the carnival. At the event, the plaintiff, a carnival attendee, was injured when an inflatable slide collapsed and he fell over 20 feet onto the concrete below. Similar slides were used at prior carnivals without incident.

The plaintiff sued the district, the booster group, and party rental and event companies for negligence. The plaintiff alleged that the slide was improperly set up, and was not secured to the ground with stakes. The plaintiff further alleged that the district did not inspect the slide or make sure that the operators properly assembled the slide.

The court ruled that the negligent set-up and operation of the inflatable slide, rather than any dangerous condition of the district’s property, was the cause of the plaintiff’s injuries. The slide was not a condition of the school grounds because it was a temporary feature that was removed after the event. Moreover, the district did not have notice of any purported dangerous condition because similar slides had been used at the booster group’s carnival in prior years without incident, and no complaints were made about the slide being improperly set up before the incident. Because the plaintiff’s claim was based on negligent set-up and operation of the slide, and not on a dangerous condition of the property, the court held that the district could not be liable for negligence under the Civic Center Act.

In its ruling, the court discussed the legislative history of the Civic Center Act’s liability apportionment statute. In particular, the court noted objections by booster groups and similar organizations to substantial insurance coverage and indemnification obligations required by school districts for use of facilities under the Civic Center Act. The legislation provided that such costs were considered costs of maintenance and management that should be borne by the property owner, rather than the user, however, the legislative history underscored the Legislature’s intent that the Civic Center Act not broaden a school district’s liability beyond that narrow scope. The court emphasizes that the liability apportionment statute requires each party bear its own costs associated with protecting against liability.

Takeaways

The Grossman case serves as a good reminder that liability is apportioned based on a school district or user’s respective role, as are the costs to protect against that liability, and while a school district cannot shift its statutory liability to facility users, it also cannot be held liable for injuries resulting from the user’s negligence, even if the incident occurred on school grounds.

For additional information regarding the Civic Center Act or facilities use and liability, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also subscribe to our podcast, follow us on Facebook, Twitter and LinkedIn or download our mobile app.

Written by:

Claudia P. Weaver

Partner

Wesley L. Carlson

Associate

©2019 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

“Limited Due Process” Appropriate For Subcontractor Substitution Hearings

June 2019
Number 26

The California Court of Appeal recently outlined an appropriate level of due process required for a subcontractor substitution hearing. In JMS Air Conditioning and Appliance Service, Inc. v. Santa Monica Community College District (2018) 30 Cal.App.5th 945, the court found that the hearing process used by the Santa Monica Community College District (College) provided the “limited due process” required for a substitution hearing. The JMS AirConditioning decision provides guidance for school districts, community colleges and cities as to how to conduct these hearings.

Subcontractor Substitution Procedure

The Subletting and Subcontracting Fair Practices Act (Pub. Contract Code, § 4100 et seq.) (Subcontracting Act) identifies the reasons why a contractor may substitute one subcontractor for another, and prescribes the process for the substitution, including a detailed notice procedure that states if the subcontractor files written objections, the awarding authority must hold a hearing and give the subcontractor at least five days’ notice of the hearing. However, the Subcontracting Act does not provide any specific procedures or standards for conducting the hearing.JMS Air Conditioning focused on what was required for conducting the substitution hearing and provides useful guidance for a valid hearing.

Limited Due Process

JMS Air Conditioning held that only “limited due process” is required for a substitution hearing. The court reasoned that, because the Subcontracting Act created only limited rights for the subcontractor, a lesser degree of due process protections are needed compared to other proceedings. The formalities of a trial are not required and the substitution hearing is “informal [in] nature, narrow [in] scope.” This can be contrasted with, for example, a public employee dismissal hearing where a higher degree of due process is required to protect the public employee’s fundamental right to employment. In this regard, the court stated that the College “is an educational institution, and the primary purpose of its governing board is thus to educate-not to referee construction disputes.”

The College’s Hearing Process

The characteristics of the College’s substitution hearing included the following:

Neutral Hearing Officer. The hearing was conducted by the College’s facilities manager, who was “generally knowledgeable about the project.” The subcontractor argued that instead the hearing should have been conducted by the college’s governing board. The court found that the Subcontracting Act did not require the governing board to conduct the hearing itself, noting that it would be an inefficient allocation of public resources and that the governing board “does not necessarily have any background in construction.” The subcontractor had the opportunity to present its case to a neutral decision maker, which the court found to be sufficient.

Advanced Notice of Grounds for Substitution. The subcontractor received a detailed description of the reasons for the substitution request prior to the substitution hearing. Written position statements (discussed below) were also submitted before the hearing. This permitted the subcontractor to prepare and respond to the general contractor’s allegations and legal arguments at the hearing.

Presenting Written Evidence and Argument. Both the general contractor and subcontractor were permitted to submit written statements detailing their positions. No page limits were set on these statements and no limits were placed on the number of exhibits or written witness statements the parties could submit. The subcontractor had an unlimited opportunity to present documents, written witness statements and argument. Witness statements were not sworn, but were accepted by the hearing officer.

Examining Witnesses. The subcontractor had the opportunity to present in-person witnesses and oral argument at the hearing. The witnesses were not examined under oath. Cross-examination of witnesses was not permitted, but the court found this did not deprive the subcontractor of due process.

Length of Hearing. The hearing officer limited the length of the hearing to two hours. The parties were advised of this in advance. The court held that “[n]othing in [the Subcontracting Act] requires a hearing of a particular length or the opportunity to cross-examine witnesses.”

Conclusion

The court found these characteristics of the College’s hearing process satisfied the due process requirements of the Subcontracting Act. Fundamentally, due process requires affording the subcontractor an opportunity to “meaningfully defend itself.” The court held that the College’s hearing afforded the subcontractor that opportunity.

Takeaways

The Subcontracting Act requires only “limited due process” for substitution hearings. The College’s hearing in JMS Air Conditioning satisfied that requirement and can be used as an example for other public entity’s substitution hearings. Though not an issue considered by this court, best practices generally also include presenting a hearing officer’s decision to the governing board for approval of the substitution decision. This case was followed by another subcontractor substitution case that also strengthened a public entity’s rights regarding substitution. (See 2019 Client News Brief No. 25.)

If you would like more information about this case or have any questions related to public works projects generally, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also subscribe to our podcast, follow us on Facebook, Twitter and LinkedIn or download our mobile app.

Written by:

Ruth E. Mendyk

Partner

Wesley L. Carlson

Associate

©2019 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Appellate Court Concludes That Public Entities May Initiate Substitution Of A Subcontractor

June 2019
Number 25

In Synergy Project Management, Inc. v. City and County of San Francisco, certified for publication on March 14, 2019, the California Court of Appeal concluded that awarding agencies, like prime contractors, have the power to request substitution of a subcontractor under Public Contract Code section 4107 (hereafter referred to as Section 4107).

Background

The City and County of San Francisco (City) had awarded a contract to Ghilotti Bros., Inc. (Ghilotti) for a major renovation of Haight Street. Ghilotti had listed Synergy Project Management, Inc. (Synergy) as the subcontractor for excavation and utilities work. Unfortunately, during the project, Synergy broke five gas lines and engaged in numerous other unsafe practices. As a result, the City, pursuant to Section 4107 and a specific provision in the construction contract, directed Ghilotti to remove Synergy from the project and substitute a new subcontractor to perform the remaining excavation and utilities work.

Under protest, Ghilotti removed Synergy from the project and proposed two potential replacement contractors. Synergy objected to its replacement and a hearing was held pursuant to Section 4107. At the conclusion of the hearing, the hearing officer determined that Synergy’s unsafe practices rendered its work “substantially unsatisfactory and not in substantial accordance with the plans and specifications,” which established a ground for substitution. Synergy and Ghilotti challenged this determination at the trial court, arguing that the hearing officer’s determination was invalid because Section 4107 does not authorize an owner to remove a subcontractor, except upon a request initiated by the prime contractor. The trial court agreed based on the plain language of Section 4107, and the City filed an appeal.

The Court’s Decision

The Court of Appeal disagreed with the trial court and concluded that while Section 4107 “contemplates that the prime contractor will normally be the party to seek substitution, the procedure followed [in this case] ‘complied in substance with every reasonable objective of the statute. [citation omitted.]'” The court reasoned that the intent of the larger statutory framework encompassing Section 4107, the Subletting and Subcontracting Fair Practices Act (the Act), was intended to prevent “bid shopping” and “bid peddling” after the award of a public contract. The court acknowledged that the Act afforded subcontractors certain rights, such as Section 4107, which ensures the listed subcontractor is permitted to perform the subcontract, unless statutory grounds exist for valid substitution.

However, the court also noted that the Act gives owners the power to investigate and approve any subcontractor whether proposed in the original bid or as a substitute. Here, the court concluded there was no risk of bid shopping or bid peddling because the substitution was related to Synergy’s substandard performance of the work, which serves as a valid ground for substitution. Therefore, the City was within its investigatory power to seek substitution and had not violated the rights of Synergy under the Act.

Takeaways

In light of this decision, public agencies can now consider initiating the substitution process for a subcontractor on a public works project, as long as a valid ground for substitution exists under Section 4107. This is the second subcontractor substitution case in the last few months that strengthens a public entity’s rights regarding substitution. (See 2019 Client News Brief No. 26.)

If you would like more information about this case or have any questions related to public works projects generally, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also subscribe to our podcast, follow us on Facebook, Twitter and LinkedIn or download our mobile app.

Written by:

Arne B. Sandberg

Partner

©2019 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Lay Opinions May Trigger The Need For An Environmental Impact Report

February 2019
Number 12

A California appellate court has ruled that lay public opinions on nontechnical issues concerning a project’s size and general appearance can provide substantial evidence of environmental impact, triggering the need to prepare an environmental impact report (EIR) under the California Environmental Quality Act (CEQA).

The California Environmental Quality Act

CEQA generally requires public agencies to identify potentially significant impacts of projects they carry out or approve, and mitigate those impacts where feasible. Unless a project is exempt from CEQA, the public agency must prepare one of three types of documents. A negative declaration (ND) can be prepared where there is no substantial evidence that the project may have a significant effect on the environment, and a mitigated negative declaration (MND) can be prepared where the project has potentially significant environmental effects, but these effects will be reduced to insignificance by mitigation measures. An EIR, however, is required whenever substantial evidence in the record supports a “fair argument” that the project may produce significant impacts or effects. An EIR generally involves more time and often more cost than an ND or MND.

Georgetown Preservation Society v. County of El Dorado

The Third District Court of Appeal filed its decision inGeorgetown Preservation Society v. County of El Dorado (2018) 30 Cal.App5th 358, on December 17, 2018, affirming the trial court’s writ setting aside El Dorado County’s (County) approval of a project based on an MND. The County had prepared an initial study to analyze the environmental impacts of a proposed Dollar General chain discount store (Project) and found that there was no basis to require an EIR. Local residents acting through plaintiff Georgetown Preservation Society (Society) objected, claiming that the Project would impair the aesthetic character of their town. The Project was located in a historic center and several lay opinions were submitted by the local community, which commented that the Project was
too big and too boxy and would damage the look and feel of the town, and would therefore have significant and negative effects related to aesthetics. The County slightly modified the project and ultimately adopted the MND. In part, it found that the project complied with local zoning because the area was zoned for commercial retail, that the Project’s design, architectural treatments, and associated improvements substantially conform to the County’s Historic Design Guide and, that the Project would not substantially detract from the town’s historic commercial district.

The Society filed a lawsuit seeking to require the County to prepare an EIR. The trial court applied prior case law and found that the Society’s evidence supported a fair argument that the Project may have a significant aesthetic effect on the environment. Accordingly, the trial court issued a writ of mandate compelling the County to prepare an EIR.

On appeal, the County relied on the fact that it had applied its Historical Design Guide principles when it found the project met aesthetic standards. In the County’s view, the ensuing finding of compliance with its Historical Design Guide principles could not be disputed by lay opinion evidence. A key issue addressed by the Court of Appeal was whether non-expert factual evidence or lay opinion evidence proffered by area residents can support a “fair argument” that the Project may have a significant aesthetic impact on the environment. In reaching its decision, the Court of Appeal followed the rationale in Pocket Protectors v. City of Sacramento (2004) 124 Cal.App.4th 903, and held that (1) consistency with local design guidelines could not be used to insulate a project from CEQA review; (2) lay opinions can provide substantial evidence to support a “fair argument” that a project may have a significant aesthetic impact on the environment, triggering the need to prepare an EIR; and (3) since the County made no credibility determinations, it could not categorically disregard the
public’s comments.

Takeaways

Georgetown Preservation Society serves as a reminder of the impact public opinion may have on projects approved or carried out by public agencies, and that lead agencies should not disregard public opinion in non-technical areas like aesthetics. Previous court decisions have also considered lay opinions in other impact areas such as noise, traffic safety, and parking. Therefore, lead agencies should not solely rely on its industry experts when evaluating the environmental impacts of a project. If the community members’ opinions on these issues are not properly taken into consideration, project delays and increases costs can result.

If you have any questions about the appellate court’s decision in Georgetown Preservation Society and its impact on CEQA compliance, or about the CEQA in general, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Kelly M. Rem

Partner

Jose Montoya

Associate

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Changes To Skilled And Trained Workforce Requirements For Public Works Projects

January 2019
Number 2

Recent legislation modifies the skilled and trained workforce requirement for certain public works projects, shifting much of the burden for compliance to subcontractors. The new law also authorizes the California Labor Commissioner to investigate suspected violations of the statute and impose civil penalties in specified circumstances.

Background

In recent years, contractors have been required to utilize a “skilled and trained workforce” for “design-build” and “lease-leaseback” public works projects (see 2015 Client News Brief No. 8;2015 Client News Brief No. 71; and 2016 Client News Brief No. 63.) These requirements do not apply to publicly bid projects. Also, the skilled and trained workforce requirements may not apply if the public entity has entered into a project labor agreement covering the project.

These skilled and trained workforce requirements include two elements. First, all of the workers performing work in designated apprenticeable occupations must have “at least as many hours of on-the-job experience as would be required to graduate from an apprenticeship program…;.” Second, a minimum percentage of that workforce must be graduates of an apprenticeable program for the applicable occupation. This minimum threshold was originally set at 30% but is set to increase to 60% by 2020 for some trades. Other trades, including bricklayers, carpenters, drywall installers, plasterers, roofers, and stone masons, will remain at 30%.

Under current law, a contractor is required to provide monthly reports to the project owner that demonstrate compliance with these skilled and trained workforce requirements. In the event the contractor fails to provide the report or the report does not demonstrate compliance with the percentage requirements, the project owner must withhold all further payments until the contractor provides a plan to achieve substantial compliance. As a result, noncompliance by one subcontractor, for even a small portion of work, has had the potential to hold up payment to the contractor for all of the work on the project.

Assembly Bill 3018

Effective January 1, 2019, Assembly Bill (AB) 3018 amends Public Contract Code sections 2601 and 2602, and adds new section 2603, shifting some of the responsibility for skilled and trained workforce compliance to subcontractors. If the general contractor fails to comply with the monthly report requirements as a result of one noncompliant subcontractor, the project owner is required withhold 150% of the value of the monthly billing for that subcontractor only, until that subcontractor demonstrates a plan to achieve substantial compliance, or until the subcontractor is substituted out in accordance with applicable law. The contractor is permitted (but not required) to withhold payment from the subcontractor. However, now the project owner will be permitted to pay the contractor for the other work on the project performed by the contractor or by other subcontractors.

AB 3018 also gives the Labor Commissioner authority to investigate suspected violations of the skilled and trained workforce requirements and impose a separate civil penalty up to $5,000 per month on non-compliant contractors. In situations where the Labor Commissioner finds that violations of the skilled and trained workforce requirements are willful, the contractor or subcontractor may be temporarily disqualified from bidding on public works projects.

Takeaways

These changes to the skilled and trained workforce requirements shift the consequence of noncompliance to the responsible party. As a result, AB 3018 may make design-build and lease-leaseback projects more attractive for prospective general contractors. However, the increased burden on subcontractors to demonstrate compliance and the Labor Commissioner’s oversight may deter subcontractors from participating in such projects. Public entities in regions of the state where there are a limited number of graduates from apprenticeship programs should carefully consider these changes before proceeding with a delivery method subject to skilled and trained workforce requirements.

If you have any questions about the skilled and trained workforce requirements, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Claudia P. Weaver

Partner

Shawn A. VanWagenen

Senior Counsel

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Lawmakers Extend Deadline for Proposition 39 Energy Efficiency Funding and Create New Program

July 2017
Number 42

State lawmakers have extended the deadlines to apply for and encumber money dedicated to energy efficiency projects at schools and community colleges – the program known as Proposition 39 – and have created a new program to fund such projects indefinitely.

Proposition 39 was scheduled to sunset June 30, 2018. Now, Senate Bill (SB) 110 has extended the deadline for encumbering Proposition 39 funds by one year, to June 30, 2019. At the same time, the bill creates the Clean Energy
Job Creation Program, which will administer funds for energy efficiency projects at school districts, charter schools, county offices of education and community colleges. The program opens for business at the start of the
2018-19 fiscal year.

After the bill’s passage, the California Energy Commission sent out a notice extending the deadline for submitting an energy expenditure plan to January 12, 2018. The original deadline had been August 1, 2017. Amendments to an existing energy expenditure plan that request additional funds must also be submitted by January 12, 2018.

Under SB 110, in order to take advantage of Proposition 39, agencies now have until June 30, 2019 to encumber those funds. The California Energy Commission defines “encumbrances” as “obligations in the form of purchase orders, contracts, salaries, and other commitments chargeable to an appropriation for which a part of the appropriation is reserved.”

After March 1, 2018, SB 110 reappropriates the remaining money in the existing Proposition 39 fund based on the number of school districts, charter schools and county offices of education that have not yet submitted energy expenditure plans. The bill devotes $75 million to loans or grants for school bus replacements or retrofits, prioritizing funding to agencies with the oldest school buses or those operating in disadvantaged communities. It also authorizes $100 million for low- and no-interest revolving loans for projects and technical assistance aimed at expanding clean energy generation and improving energy efficiency, prioritizing funding based on diversity in geographic and agency size, energy savings and the percentage of low-income students served.

Any remaining money from Proposition 39 will be used to provide competitive grants to school districts, charter schools and county offices of education for energy efficiency and generation projects, with 10 percent going to education agencies with 1,000 or fewer students, 10 percent going to agencies with between 1,001 and 2,000 students and the rest going to larger education agencies.

Under the new Clean Energy Job Creation Program beginning in 2018-19, 11 percent of available funds will be allocated to the Chancellor of the California Community Colleges for distribution to community college districts for energy efficiency projects, and the California Energy Commission will distribute the rest to school districts, charter schools and county offices of education.

Projects will be selected based on in-state job creation and energy benefits. Priority for grants made through the new program will be given based on the number of students eligible for free and reduced-price meals, geographic diversity, school type and local area workforce needs. Funding will be available as appropriated in the annual budget act. Both the reallocated funds and money provided to local education agencies under the new program must be encumbered within nine months of allocation to those agencies.

Lozano Smith will provide additional details about the new program as they emerge. If you have any questions about SB 110, Proposition 39 or energy efficiency projects in general, please contact the author of this Client News Brief or an attorney at one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

©2017 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

School District Bid Threshold Raised for 2017

December 2016
Number 88

According to the California Department of Education Office of Financial Accountability and Information Services, pursuant to Public Contract Code section 20111(a), the bid threshold for K-12 school districts’ purchases of equipment, materials, supplies and services (except construction services) has been adjusted to $88,300, effective January 1, 2017. This represents an increase of 0.626 percent over the 2016 bid limit. The notice may be viewed here.

The California Community Colleges Chancellor’s Office is expected to announce a similar adjustment to the bid threshold for community college districts’ purchases of equipment, materials, supplies and services (except construction services), pursuant to Public Contracts Code section 20651(a), sometime in the next few days. Once released, that information will be availablehere.

The bid limit for construction projects remains at $15,000.

The bid thresholds for cities, counties and special districts are not affected by the bid limits discussed here.

For more information on how the new law impacts your agency, please contact the authors of this Client News Brief or an attorney at one of our nine offices located statewide. You can also visit ourwebsite, follow us on Facebook or Twitter or download our Client News Brief App.
Written By:

Devon Lincoln

Partner

©2016 Lozano Smith
As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Legislature Imposes New Procedures for Selection of Lease-Leaseback Contractors

September 2016
Number 63

Scrutiny regarding school districts’ use of lease-leaseback (LLB) construction contracts has prompted the Legislature to impose additional contracting requirements that will make the use of LLB more complicated, and will limit a school district’s discretion in selecting the LLB contractor. Assembly Bill (AB) 2316, which the Governor signed on September 23, 2016, will require school districts to use a comprehensive “best value” selection process for LLB contractors. AB 2316 also grants specific financial protection to contractors who were awarded LLB contracts prior to July 1, 2015. The bill goes into effect on January 1, 2017.

What is Lease-Leaseback?

Education Code section 17406 permits a school district to lease a site to a contractor for $1 per year for the purpose of the contractor performing construction on that site. The contractor typically leases the site back to the school district in exchange for payments to compensate the contractor for the cost of construction. Until now, section 17406 has specifically permitted selection of the LLB contractor without advertising for bids and without requiring any selection process.

Recent History of Lease-Leaseback

The law related to LLB contracts has changed significantly over the last two years. Effective January 1, 2015, AB 1581 required prequalification for contractors on LLB projects that were over $1 million, funded by the state and for districts with an average daily attendance (ADA) of 2,500 or more. (Ed. Code, § 17406; Pub. Contract Code, § 20111.6; see 2014 Client News Brief No. 71.) Though not a model of clarity, effective January 1, 2016, AB 566 appears to have extended prequalification to all LLB projects for districts with ADA of 2,500 or more, regardless of funding source and regardless of price. AB 566 also required use of a “skilled and trained workforce.” (See Ed. Code, §§ 17406, 17407.5; and 2015 Client News Brief No. 51.)

On June 1, 2015, an appellate court held that an LLB contract must contain provisions that reflect contractor financing and post-construction tenancy by the school district, and that an LLB contract with an entity that provided preconstruction services under a separate contract could be subject to legal challenge for a potential conflict of interest under Government Code section 1090. (Davis v. Fresno Unified School District (2015) 237 Cal.App.4th 261; see 2015 Client News Brief No. 30.)

On April 12, 2016, an appellate court agreed with the Davis court about the potential for a conflict of interest in an LLB contractor’s performance of preconstruction services under an earlier contract, but disagreed with the Davis court regarding terms required for LLB contracts, ruling that an LLB contract need not include provisions about contractor financing and post-construction tenancy. (McGee v. Balfour Beatty Construction (2016) 247 Cal.App.4th 235; see 2016 Client News Brief No. 25.) A conflict therefore exists in California courts as to what must be contained in an LLB contract.

New Procedures for Selection of Lease-Leaseback Contractor

Beginning on January 1, 2017, AB 2316 requires selection of the LLB contractor through a “best value” procedure specifically laid out in statute. Proposals submitted in response to a request for proposals (RFP) will be ranked by their best value scores and the Board must award to the contractor that submitted the sealed proposal determined by the Board to be the best value. In other words, aside from developing a scoring system for ranking the proposals, a school district will now have limited discretion in selecting its LLB contractor.

Beneficially, the bill expressly permits a school district to award a single LLB contract that includes preconstruction services, thus avoiding any potential conflict of interest issue under Davis and McGee resulting from the award of multiple contracts to the same contractor. AB 2316 also permits a school district to award the LLB contract for an agreed-upon lump sum or a fee for performing the services.

Protection for Pre-Davis Lease-Leaseback Contractors

Another significant aspect of AB 2316 is that it provides protection for contractors that entered into an LLB contract prior to July 1, 2015. For these contracts, if a court declares the contract award invalid due to a lack of competitive bidding, the contractor would be allowed to recover its reasonable costs incurred in performing the project, but not its profit. To recover such costs, the contractor must meet several requirements, such as establishing that it had a good faith belief that the LLB contract was valid.

Effect of AB 2316 on Recent Lease-Leaseback Law

The bill does not change existing statutory requirements that contractors be prequalified prior to award of an LLB contract and that they use a skilled and trained workforce. In addition, AB 2316 does not provide any guidance on what lease and payment terms are required in the LLB contract, and does not eliminate the risk of a conflict of interest caused by multiple contracts with the same contractor. (See Davis and McGee, above.)

Given the new requirements and the remaining unresolved legal issues concerning LLB, school districts considering this delivery method should consult closely with their legal counsel to evaluate the use of LLB as an alternative delivery method for construction projects.

If you have any questions about the new LLB contractor selection procedures or the legality of LLB contracts under the Davis and McGee cases, or about public works issues in general, please contact the authors of this Client News Brief or an attorney at one of our 10 offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.

Written by:

Devon Lincoln

Partner

Arne Sandberg

Senior Counsel

 

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

California Energy Commission Makes Project-Friendly Changes to Proposition 39 Program Guidelines

July 2016
Number 40

On June 27, 2016, the California Energy Commission (CEC) issued a new set of proposed Proposition 39 Program Implementation Guidelines (guidelines). The proposed guidelines include a number of project-friendly changes, including a reduction in the Savings-to-Investment Ratio (SIR). These proposed guidelines are expected to be approved at the CEC’s general business meeting on July 13, 2016.

The California Clean Energy Jobs Act, commonly referred to as the Proposition 39 program, provides funds to all local educational agencies in the State of California for a variety of energy projects. The guidelines are intended to define how the state will implement the Proposition 39 program, and to provide direction to potential applicants on the types of awards and required proposals, describe the standards to be used to evaluate project proposals and outline the award process. The revisions to the guidelines should create additional flexibility for local educational agencies and increase the availability of Proposition 39 energy projects and funding.

Savings-to-Investment Ratio

Any local educational agency seeking Proposition 39 funding must show that its proposed energy project is “cost effective.” To be cost effective, the current guidelines require local educational agencies to achieve a minimum SIR of 1.05. The proposed guidelines reduce the SIR to 1.01, meaning that for every dollar invested on the project, the local agency must only accrue $1.01 in savings. This new minimum SIR applies to projects that include only one school site, and also applies cumulatively to projects involving multiple school sites.

Zero Net Energy

As an alternative option to satisfying the minimum SIR, the current guidelines allow local educational agencies to submit a narrative describing how a proposed energy project would be cost effective if the local agency can show that each school site benefiting from a Proposition 39 grant has zero-dollar utility bills, referred to as “Zero Net Energy.” Because very few local educational agencies are completely zero net energy, local educational agencies generally cannot take advantage of this option. The proposed guidelines allow the zero net energy option for any school site, i.e., on a per school site basis. This change opens the door for more local educational agencies to utilize the zero net energy option in lieu of satisfying the minimum SIR, even if the entire educational agency is not zero net energy.

The proposed guidelines also increase the maintenance savings assumption from 2 percent to 3 percent of project costs, remove certain size limitations to solar systems under power purchase arrangements and provide further clarification to other areas in the existing guidelines.

If you have any questions regarding the Proposition 39 guidelines or have any planned or anticipate planning energy projects and would like to discuss Proposition 39 eligibility and funding, please contact the authors of this Client News Brief or an attorney at one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written by:
Devon Lincoln
Partner

Travis Cochran
Associate

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Job Order Contracting for School District Public Works Projects

June 2016
Number 35

As of January 1, California school districts have been authorized to use job order contracts for public works projects greater than $25,000. Approved by Governor Jerry Brown in October of last year, Assembly Bill No. 1431 modified the Local Agency Public Construction Act to authorize job order contracting for school districts until January 1, 2022. This bill comes after a decade-long pilot program of the job order contract project delivery method at Los Angeles Unified School District. At the same time, the new law requires prequalification and project labor agreements, echoing other recent laws.

Job order contracting is an alternative to the traditional lump-sum competitive bidding process used by school districts, and allows a district to assemble a stable of approved “on call” contractors from which the district may select to perform a clearly defined task for a pre-established unit price. This time-and-material contracting procedure is intended to minimize project costs, expedite project completion and reduce construction contracting complexity for school districts. (See Public Contract Code sections 20919.20 et seq. for the entire statutory scheme.)

If a school district wants to utilize job order contracting, it may do so by preparing a set of documents for job order contracts, including a price catalog with various tasks and proposed unit prices for those tasks, job order contract technical specifications, and any other necessary information to describe the school’s needs. The school district’s proposed unit prices must be based on local prevailing wages, but may not include overhead and profit. The school district may prepare a request for bid that invites prequalified job order contractors to submit competitive sealed bids that include “adjustment factors.” In their adjustment factors, bidding contractors increase or decrease the school district’s unit prices in the catalog as part of their bid. The statutes do not provide any specifics regarding the permitted bases for a bidding contractor’s adjustment factors. Awards are then made to the prequalified bidders that the school district determines to be the most qualified based upon criteria established by the school district.

This process enables school districts to enter into “master” contracts with contractors where each contractor may perform multiple projects (or “job orders”) on a time-and-material basis. Each job order may only include work covered by the district’s price catalog; any other work not listed in the catalog must be competitively bid, unless a legal exception to competitive bidding applies. Contractors are also given incentive to provide responsive services, quality work, and accurate proposals because their contracts may be renewed or extended after their initial term.

There are, however, limitations to a school district’s ability to use job order contracts. To take advantage of this process, a school district must prequalify the contractors, and also must have entered into a project labor agreement or agreements that will apply to all public works in excess of $25,000. Additionally, the maximum total dollar amount that may be awarded under a single job order contract may not exceed $5 million for the first term of the job order contract and, if extended or renewed, a maximum of $10 million over the subsequent two terms of the job order contract.

If you have any questions regarding job order contracting, please contact one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written by:

Arne Sandberg
Senior Counsel

Ellen Denham
Associate

 

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Another California Appellate Court Opines On Lease-Leaseback Construction

April 2016
Number 25

An appellate court has ruled that a lease-leaseback (LLB) contract without competitive bidding was legally enforceable. In McGee v. Balfour Beatty Construction, LLC, et al. (Apr. 12, 2016) 2016 Cal.App.Unpub. Lexis 2626, a California appellate court rejected the holding of Davis v. Fresno Unified School District (2015) 237 Cal.App.4th 261, that competitive bidding was required for an LLB contract unless additional non-statutory contract terms were included. However, the McGee decision agreed with Davis that a third party had standing to sue regarding the LLB contractor’s potential conflict of interest. Unfortunately, the McGee court elected not to publish its decision, meaning that it cannot be cited by other courts as legal precedent. Lozano Smith filed an amicus curiae brief with the McGee appellate court on behalf of the California Association of School Business Officials (CASBO).

As in Davis, the plaintiffs in McGee alleged that the LLB contract documents were not genuine leases, but instead were a “subterfuge” to avoid competitive bidding. However, unlike Davis, the appellate court in McGee held that the plain language of the LLB statute (Education Code §17406) only required that the school district own the land, that the lease be for purposes of construction, and that the title vest in the school district at the end of the school term. The court held that the plaintiffs’ “efforts to engraft additional requirements – such as the timing of the lease payments, the duration of the lease, and the financing – are not based on the plain language of the statute.” This in effect repudiates the Davis case.

In short, the McGee court declined to “rewrite the [LLB] statute.” It relied heavily on Los Alamitos Unified School District v. Howard Contracting, Inc. (2014) 229 Cal.App.4th 1222, which held that Education Code section 17406’s exception from competitive bidding was valid.

McGee also focused on whether the taxpayer plaintiff had standing as a third party to allege a cause of action for conflict of interest under Government Code section 1090 (as held in Davis), or did not have such standing (as held in another recent case, San Bernardino County v. Superior Court (2015) 239 Cal.App.4th 679). The appellate court held that the plaintiffs had standing since the present case was a validation action like Davis, and since a prior Supreme Court case (on which Davis relied) implicitly gave standing to third parties. In addition, the appellate court held that the plaintiffs’ allegations that the LLB contractor acted as an officer or employee of the District when performing pre-construction services were sufficient to let the cause of action proceed to trial.

What does the McGee decision mean for school districts? Since it is not binding precedent, it merely provides additional perspective on certain LLB issues, but this perspective highlights the ongoing uncertainty surrounding LLB. The appellate courts have not agreed on LLB and what contract terms are required, or on the standing of third parties to sue regarding an LLB contractor’s conflict of interest and the application of conflict of interest laws to private contractors. The California Supreme Court dodged this issue by denying review of the Davis case. There is yet another LLB case pending in another appellate court (California Taxpayers Action Network v. Taber Construction Inc., et al.), in which Lozano Smith also filed an amicus brief on behalf of CASBO. The hope remains that clarity will yet come out of these divergent cases.

One or more parties may request reconsideration, publication, or Supreme Court review of the McGee decision. If not reconsidered by the appellate court or reviewed by the Supreme Court, the McGee action would move forward in the trial court solely on the conflict of interest cause of action. However, the final judgment cannot be predicted, and may yet be appealed.

If you have any questions about the legality of LLB and which appellate court decisions may apply to your project, or about other project delivery methods, please contact one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written by:
Harold Freiman
Partner

Arne Sandberg
Senior Counsel

Travis Cochran
Associate

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

The Public Private Partnership (P3) Project Delivery Method: What Is It and Is It an Option for Your Project?

April 2016
Number 23

Local public agencies have several options when it comes to choosing a delivery method for a construction project. The public-private partnership method, or P3, is one option that is receiving increased attention. P3 involves a long term partnership between a public agency and private entity, where typically the private entity finances, designs, builds, operates, and/or maintains a fee-producing public project. In exchange, the private entity will be repaid over an extended period of time through the fees generated by the public project or as otherwise permitted by statute. This can involve the private entity’s lease or ownership of the project for an extended period of time during the repayment period.

In order to utilize the P3 method for a public agency’s project, there must be authorizing legislation. The primary P3 law is the California Infrastructure Finance Act (Gov. Code §§ 5956 et seq.), which allows P3 for specific types of fee-producing local government projects through a “competitive negotiation” process. This Act applies to cities, counties, school districts, community college districts, county boards of education, public districts, joint powers authorities, transportation commissions or authorities, and any other public or municipal corporations. The Act covers specified types of projects: irrigation; drainage; energy or power production; water supply, treatment, and distribution; flood control; inland waterways; harbors; municipal improvements; commuter and light rail; highways or bridges; tunnels; airports and runways; purification of water; sewage treatment, disposal, and water recycling; refuse disposal; and structures or buildings, except structures or buildings to be primarily used for sporting or entertainment events.

Other California statutes allow P3 but apply less generally to local public entities. For instance, Government Code section 70371.5 permits public-private partnerships whereby the private entity shares some of the risk of financing, design, construction, or operation of court facilities. Section 143 of the Streets and Highways Code permits CalTrans and regional transportation agencies to partner with private entities for transportation projects.

One notable P3 project that has garnered attention recently is the new city hall, library, park, and port headquarters being built in the City of Long Beach. The City benefited from specific legislation that established its right to utilize the P3 method for these projects. (Gov. Code §§ 5975 et seq.) Since these projects were not fee-producing, existing legislation did not permit use of P3.

A major benefit of the P3 method is the ability to obtain private financing. Additionally, risks and responsibilities of the project design and construction are shifted to the private entity. Of course, the public agency also gives up some control of the project design. Each project is unique and each public agency’s needs are different, so the use of P3 should be evaluated on a case-by-case basis. For additional information about other project delivery methods, read the following: Client News Brief No. 8, February 2015 and Client News Brief No. 71, November 2015.

If you have any questions regarding P3 or other delivery methods for your project, please contact one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written By

David Wolfe
Partner

Arne Sandberg
Senior Counsel


Maryn Oyoung
Associate

 

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

The Department of Industrial Relations Suspends Electronic Submission of Certified Payroll Records by Contractors

March 2016
Number 13

The Department of Industrial Relations (DIR) recently announced that it has temporarily suspended enforcement of its requirement that contractors submit their certified payroll records (CPR) electronically. This electronic system (“eCPR” system) was intended to take the place of contractors submitting paper copies of their records, but the eCPR system is not working as expected. Even though the DIR has suspended the eCPR system for the time being, contractors are still required by Labor Code section 1771.4 to submit their CPR to DIR at least monthly. As a result, questions have been raised as to where and how contractors are to file their CPR.

The CPR submittal requirement is part of Senate Bill 854 (SB 854) which introduced this requirement so that the DIR could monitor whether prevailing wages are being paid on public works projects. SB 854 also added the contractor registration requirements and related provisions as described in an earlier Lozano Smith news brief (see Client News Brief No. 43, July 2014). The Labor Commissioner announced last year that contractors would have to submit their CPR to the DIR through the eCPR system.

Although DIR has suspended the eCPR system, it has not provided guidance as to how contractors should submit their CPR to the DIR in the meantime. Nothing in the language of SB 854 or recent DIR notices requires public agencies to accept the CPR from contractors as a substitute for the eCPR system. Instead, contractors remain obligated to maintain CPR and to provide them upon request, as provided in Labor Code section 1776. The DIR reports that the eCPR upgrades should be completed by June 2016. Hopefully, the eCPR system will be back in operation in time for the peak of the summer construction season.

If you have any questions about these CPR issues or other items related to upcoming construction projects, please contact one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written By

Ruth Mendyk
Partner

Arne Sandberg
Senior Counsel

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Recent Appellate Court Ruling Provides Guidance on Contractor’s Delay Damages and on Challenging a Performance Bond Surety’s “Lack Of Notice” Defense

January 2016
Number 3

The appellate court in JMR Construction Corp. v. Environmental Assessment and Remediation Management, Inc. (December 30, 2015, M105497) 2015 Cal.App.Lexis 1172 (JMR Construction), recently affirmed a trial court’s six-figure judgment in favor of a general contractor against its subcontractor and the subcontractor’s performance bond surety arising from a federal works project. The judgment included an award of damages for, among other things, the subcontractor’s delay and deficient work. The ruling addresses the requirement for “proving up” a contractor’s delay claim and recovery for such a claim and also highlights for public works owners a potential avenue of attack against a performance bond surety where the surety contends it has no liability under the performance bond because it was not provided “proper notice” under the performance bond’s terms.

In JMR Construction, the surety argued that it had no liability under the performance bond because the general contractor did not provide the surety notice of the subcontractor’s failure to perform as required under its subcontract. Such a failure would constitute a “default” under the subcontract. The surety argued that “a declaration of default was a condition precedent” to its liability. While it was true that the general contractor neither formally declared the subcontractor in “default under the subcontract” nor requested that the surety complete the bonded work under the subcontract, the court held that the surety’s “receipt of a declaration of default [by the general contractor] is not a condition precedent to triggering [the surety’s] liability under the bond.” This was because (1) the performance bond did not expressly require such notice is a condition precedent to liability, and (2) the underlying subcontract, which the performance bond incorporated by reference, did not contain notice provisions requiring the general contractor to notify the surety of its claims against the subcontractor.

Without an express contractual requirement to provide “notice of default,” the court refused to endorse the surety’s argument that a “declaration” or “notice of default” is a condition precedent implied from the language of the bonds or underlying subcontract. Coupled with the bond and subcontract’s language, the court cited Civil Code sections 2806 and 2807 holding that the surety’s obligation was deemed unconditional unless otherwise agreed to (Civil Code § 2806) and that “a surety who has assumed liability for payment or performance is liable to the creditor immediately upon the default of the principal, and without demand or notice.” (Emphasis in the original.)

The JMR Construction decision highlights for public works owners a potential avenue to overcome a performance bond surety’s technical defense that it was not provided proper notice sufficient to trigger its bonded obligations. Unless the express terms of the bond and/or underlying contract require such notice, a surety cannot simply argue that a “declaration” or “notice of default” is an implied requirement before it can have exposure under the performance bond. For these reasons, it is important that public agencies review the terms of performance bonds on public works projects closely before agreeing to them.

Another notable aspect of this decision for public works owners is that JMR Construction is the first California reported decision recognizing the “Eichleay” formula for calculating a contractor’s home office overhead costs in connection with a delay claim. The Eichleay formula is an established methodology in federal court cases allocating a contractor’s home office overhead costs to a project that has been extended or delayed. The court here held that the Eichleay formula was a legally permissible method of determining the general contractor’s home office overhead damages against the subcontractor and its surety and applies in California state cases. This is important to public works owners in this state because general contractors now have a legally recognized method to calculate home office overhead delay damages against such owners, which could result in an increase in damages against public works owners who are found to be responsible for the contractor’s delay.

For more information on issues arising from public works construction disputes, including surety defenses and contractor delay claims, please contact one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written By

Harold Freiman
Partner

Matthew Hicks
Senior Counsel

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Court of Appeal Highlights the Importance of a Public Agency Complying With its Own Bid Requirements

January 2016
Number 2

The Third District Court of Appeal’s recent decision in DeSilva Gates Construction, L.P. v. Department of Transportation (2015) 242 Cal.App.4th 1409 (DeSilva), confirms the importance of ensuring that bidders on public construction projects comply with the express requirements of an invitation for bids. In DeSilva, the Court of Appeal held that a public entity incorrectly determined a contractor’s bid to be nonresponsive where the contractor had complied with all requirements in the invitation to bid and under applicable statute, despite the contractor adding a new subcontractor after submitting its original bid. The DeSilva court also reaffirmed the longstanding rule that a public entity cannot waive a material error in a bid.

In DeSilva, the California Department of Transportation (Caltrans) issued an invitation for bids on a public construction project. The invitation required each bidder to list, in its bid proposal, all subcontractors performing work in an amount in excess of one-half of one percent of the total bid or $10,000, whichever was greater. Each bidder was also required to provide, in its bid or within twenty-four hours thereafter, the bid items for each subcontractor and the corresponding percentages of those items being subcontracted. These requirements mirrored those in Public Contract Code section 4100, et seq. Caltrans then issued an addendum to the invitation which, in part, instructed bidders that the items declared in the addendum were an “essential part of the contract” and that bids should be submitted “with the understanding and full consideration of [the] addendum.” Caltrans received and opened nine bids for the project. The lowest bid was deemed nonresponsive and was not at issue in the appeal. The second lowest bid was submitted by DeSilva Gates Construction LP (DeSilva), and the third lowest bid submitted by Papich Construction Company, Inc. (Papich).

DeSilva’s bid included the names and appropriate descriptions of work to be performed by all subcontractors slated to perform work exceeding one-half of one percent of the bid amount. After submitting its bid, and within twenty-four hours of bid opening, DeSilva sent Caltrans a second subcontractor list, which provided additional information regarding its subcontractors and also listed an entirely new subcontractor. On the second subcontractor list, the new subcontractor was listed to perform less than one-half of one percent of the work. The next lowest bidder, Papich, challenged the award of the contract to DeSilva. Caltrans then rejected DeSilva’s bid on the grounds that listing the entirely new subcontractor on its second subcontractor list was improper and rendered DeSilva’s bid nonresponsive.

The Court of Appeal disagreed with Caltrans’ determination and held that DeSilva’s bid was not nonresponsive and that Caltrans’ rejection of the bid was improper. Even though DeSilva’s second subcontractor list was not identical to the initial subcontractor list, and listed an entirely new subcontractor, DeSilva’s bid did not run afoul of the invitation for bids or any applicable statute. The only requirement was that DeSilva, in its initial bid, list all subcontractors performing in excess of one-half of one percent of the work. Because the new subcontractor was not slated to perform more than one-half of one percent of the work, DeSilva had no legal requirement to list the new subcontractor in its original bid. As stated by the Court, the listing of the new subcontractor in the second subcontractor list was “accurate, albeit unnecessary.” The Court also noted that DeSilva’s listing of the new subcontractor did not appear deceptive or indicate any attempt to gain an unfair advantage, and showed no attempt by DeSilva to flout the requirements in the bid invitation. Because DeSilva’s bid met the express requirements of the invitation, did not conflict with any applicable statute, and was not otherwise improper, the bid was responsive and should not have been rejected. The Court also rejected arguments that its ruling would allow for improper bid shopping after the initial bid is submitted.

Papich’s bid, on the other hand, failed to acknowledge or accept the addendum to the invitation to bids. Although Caltrans initially determined Papich’s bid nonresponsive for this reason, Caltrans allowed Papich to provide documentary evidence showing that Papich considered and agreed to be bound to the addendum. After receiving this evidence from Papich, Caltrans waived the mistake and determined Papich’s bid to be responsive.

The Court of Appeal again disagreed, holding that Caltrans could not waive the error in Papich’s bid. Under existing case law, a bid error may only be waived if the error or variance in the bid is immaterial in that it does not affect the amount of the bid or give the bidder an advantage or benefit not allowed other bidders, i.e., the error is not material. A material error, on the other hand, cannot be waived. Caltrans’ invitation for bids specifically stated that “a bidder’s failure to acknowledge a material amendment to the contract renders its bid nonresponsive.” The Court therefore concluded that Papich’s failure to acknowledge the addendum in its bid was a material error that Caltrans could not waive, and Papich’s bid should have been rejected as nonresponsive.

The holding in this case boils down to whether or not the contractors’ bids complied with the specific requirements for the invitation for bids. To that end, DeSilva serves as a reminder that public entities, despite their broad discretion in determining responsiveness of bids, must properly and equally enforce the express requirements of a bid request and the numerous California statutes applying thereto. This also emphasizes the need to review bid instructions closely prior to bidding, as the public agency will be afforded limited opportunities to deviate from those instructions once bids are received.

If you have any questions regarding public bidding, or have any planned or anticipated construction projects and would like to discuss the bidding process, please contact one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written By

Harold Freiman
Partner
Walnut Creek Office
hfreiman@lozanosmith.com

Travis Cochran
Associate
Monterey Office
tcochran@lozanosmith.com

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Supreme Court Denies Review of Lease-Leaseback Case

August 2015
Number 48

In a closely watched case, the California Supreme Court has denied petitions for review of the opinion in Davis v. Fresno Unified School District (June 1, 2015) case no. F068477 (5th App. Dist.). The Court has also denied requests for depublication of the case by the school district and various statewide organizations interested in the outcome. This means that a lawsuit will be allowed to proceed against a particular lease-leaseback arrangement that is similar to many in use by school districts in the State, and the trial court will be bound by the guidance provided by the Fifth District Court of Appeal in its decision. The lawsuit will also be allowed to proceed on a civil cause of action for conflict of interest under Government Code section 1090, et seq., seeking to invalidate the contract on the basis of an alleged conflict of interest involving an outside consultant.

As addressed in our recent CNB (See Client News Brief No. 30, June 2015), the appellate court’s decision called into question a number of aspects of many school district lease-leaseback agreements. TheDavis court also addressed conflict of interest in a manner that is applicable to all local agencies. The court allowed further legal action on a claim that the contractor, as a pre-construction consultant to the school district, participated in the making of a contract in which it subsequently became financially interested, and thus potentially violated conflict of interest laws. With today’s action by the Supreme Court, the appellate court’s opinion will remain binding law, although it could be overturned in the future by legislative action or, eventually, by a further appellate ruling if the case is again appealed after the trial court has completed proceedings in this case.

Lozano Smith will be monitoring the Davis case, which will now return to the trial court, and will report on any significant developments. Because of the scrutiny of lease-leaseback agreements that has followed the Davis case, and may continue until the case is finally resolved, school districts may wish to work particularly closely with their legal counsel on lease-leaseback issues and agreements. Similarly, for all public agencies, care should be taken when considering issuing contracts to consultants who have previously advised the agency on a related matter.

If you have any questions regarding this case or lease-leaseback agreements that school districts may have in place or are considering, please contact one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written By

Megan Macy
Partner
Sacramento Office
mmacy@lozanosmith.com

Devon B. Lincoln
Partner
Monterey Office
dlincoln@lozanosmith.com

©2015 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

New Law Consolidates and Amends Design-Build Requirements

February 2015
Number 8

To consolidate and amend the numerous design-build statutes for certain public agencies that have been enacted over many years, the Legislature passed Senate Bill (SB) 785 in 2014, with some elements becoming effective January 1, 2015. This law repealed existing design-build statutes for cities, counties, waste and recycling facilities, the Santa Clara County Transit District, the Los Angeles County Transportation Commission, and redevelopment agencies.

In their stead, SB 785 created a new chapter of the Public Contract Code (PCC) for local agency design-build projects (PCC §§ 22160 et seq.) which remains in effect until January 1, 2025. The new design-build requirements are similar to those of the repealed statutes, but differ in at least a few respects depending on the agency concerned. You may wish to consult with legal counsel regarding the details of the new requirements that may apply to your particular agency and project.

The new design-build requirements apply only to certain types of local agencies and projects:

  • Cities and counties, for projects such as buildings and related improvements, sanitation wastewater treatment facilities, and park and recreation facilities, but not construction of other infrastructure; as well as construction of regional and local wastewater treatment facilities, regional and local solid waste facilities, and regional and local water recycling facilities.
  • Special districts that operate wastewater facilities, solid waste management facilities, water recycling facilities, or fire protection facilities, for projects such as construction of regional and local wastewater treatment facilities, regional and local solid waste facilities, regional and local water recycling facilities, or fire protection facilities.
  • Any transit district, municipal operator, consolidated agency, joint powers authority formed to provide transit service, any county transportation commission, or other agency responsible for the construction of transit projects, for transit capital projects (other than state highway construction or local street or road projects) that begin project solicitation on or after January 1, 2015.

Under the new design-build framework, qualifying projects generally may use design-build if the project is valued at over $1 million, except for projects on the state highway system. The contract may be awarded by on the basis of either the lowest bid or the best value to the agency. However, no cost threshold exists for a transit district project relating to technology and equipment designed to enhance safety, disaster preparedness, and homeland security efforts.

The procurement process remains similar to many of the repealed statutes. The local agency must first prepare a set of documents setting forth the scope and estimated price of the project, after which the agency must prepare and issue a request for qualifications in order to pre-qualify or “”short-list”” the design-build entities. In order to be pre-qualified, a design-build entity must provide an enforceable commitment that the entity and its subcontractors at every tier will use a skilled and trained workforce to perform all work on the project that falls within an apprenticeable occupation.

Based on the previously-prepared set of documents as described above, the agency must then prepare a request for proposals that invites the pre-qualified entities to submit competitive sealed proposals. If the agency is using lowest bid to select a contractor, the contract must be awarded to the lowest responsible bidder. For projects using the best value method of selecting a design-build entity, the statute describes a detailed procedure for evaluating the proposals and negotiating with the entities.

If you have any questions regarding the details of this new law, or design-build construction projects in general, please feel free to contact one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written By

David J. Wolfe
Partner
Fresno Office
dwolfe@lozanosmith.com

Arne Sandberg
Senior Counsel
Walnut Creek Office
asandberg@lozanosmith.com

©2015 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Public Agencies May Recover Costs of Preparing the CEQA Record Even if the Party Suing the Agency Elects to Self-Prepare the Record

September 2014
Number 65

An appellate court has held that a public agency may recover administrative record preparation costs in a lawsuit filed against it under the California Environmental Quality Act (CEQA), even where the petitioner elects to prepare the record. This decision calls into question CEQA petitioners’ tendency to elect to prepare the record themselves in order to avoid paying agency costs.

In CEQA lawsuits, Public Resources Code Section 21167.6 governs the record of proceedings or administrative record. That section states that at the time the action is filed, the petitioner must request that the public agency prepare the record. In the alternative, the petitioners suing the public agency under CEQA may elect to prepare the record themselves, subject to certification of its accuracy by the public agency. The statute also provides that the “parties” shall pay any reasonable costs or fees related to the preparation of the record of proceedings.

Although the cost recovery language refers to the “parties,” thus including both the petitioner and the public agency, petitioners in CEQA lawsuits have long taken the position that the public agency is precluded from recovering record preparation costs after the petitioner elects to prepare the record. CEQA petitioners will typically sue the public agency, elect to prepare the record, and then simply obtain the record documents from the public agency through a Public Records Act request. In such circumstances, the public agency generally incurs the same cost as the agency would have had it prepared the record itself. However, under the Public Records Act, the agency can charge only actual and reasonable copying costs. If the petitioners elect to make the copies themselves, nothing can generally be charged under the Public Records Act.

In Coalition for Adequate Review v. City and County of San Francisco (September 15, 2014) __ Cal.App.4th __ 2014 WL 4537020, the Court of Appeal expressly held that the fact that a petitioner elects to prepare the record does not bar the recovery of record preparation costs by a public agency. The court recognized that the public agency may be required to incur record preparation costs notwithstanding the petitioner’s election. In Coalition for Adequate Review, the record prepared by the petitioner was incomplete because it omitted documents that were statutorily required to be in the record, and had been provided to the petitioners by the City. As a result, the City was required to supplement the record with approximately 12 additional volumes of documents totaling 4,559 pages. The City prevailed in the CEQA lawsuit, and sought costs associated with preparing the supplemental record. The costs were denied by the trial court in their entirety, but the decision was reversed on appeal.

The Court of Appeal held that when a record prepared by the petitioner is incomplete, and an agency is forced to supplement it to ensure completeness, the statute allows the agency to recoup its costs if the agency prevails in the litigation. The court expressly acknowledged that public monies should not be used to fund CEQA challenges brought by private parties, particularly where the private party loses the CEQA challenge on the merits.

This case represents a victory for public agencies, as it challenges the idea that petitioners can elect to prepare the record as a way to avoid paying agency costs. The costs claimed by the public agency must still be reasonable, which is a question of fact for the trial court. In Coalition for Adequate Review, the City’s claim for over $64,000 in costs, including staff and paralegal time, was sent back to the trial court for a consideration of reasonableness. While the case addressed the need for a supplemental record, it is noteworthy that the court indicated a public agency may seek costs even when there is no need to supplement the record and even if the public agency does not prevail in the underlying CEQA case.

If you have any questions regarding this case or CEQA issues in general, please contact one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written By

Harold M. Freiman
Partner
Walnut Creek Office
hfreiman@lozanosmith.com

Kelly M. Rem
Associate
Walnut Creek Office
krem@lozanosmith.com

©2014 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Can School Districts Collect “Level 3” Developer Fees?

September 2014
Number 57

In June 2012, the Legislature suspended school districts’ ability to levy “Level 3” developer fees. This suspension would be lifted if, by August 31, 2014, a statewide facilities bond was not placed on the ballot for the November 4th general election. As a statewide facilities bond was not placed on the ballot, the suspension on collecting Level 3 fees was lifted on September 1, 2014. Despite anticipation that a further extension of the suspension of Level 3 fees might be signed into law, no legislation was introduced during the recent legislative session. School districts may be on the precipice of collecting Level 3 fees for the first time ever, but many questions remain unanswered.

Under Senate Bill (SB) 50, legislation that became effective in 1998, school districts have been able to levy one of three levels of developer fees on new development. SB 50 continued a statutory rate (commonly called a “Level 1” fee), so long as sufficient justification exists to support that fee. The current Level 1 fees are $3.36 for residential development and $0.54 for commercial. For school districts that meet certain criteria, a “Level 2” residential fee may be imposed that can be higher than the Level 1 fee, based on a specific statutory formula. The Level 2 fee is unique to each school district and must be authorized annually. In concept, Level 2 fees are the equivalent of what the state assumes will total 50% of the cost of providing facilities for students from new development.

The passage of SB 50 in 1998 also resulted in the enactment of Government Code section 65995.7. Under this statute, school districts eligible for Level 2 fees may also become eligible for “Level 3” fees if the State Allocation Board (SAB) certifies that state funds for new school facility construction are no longer available. Level 3 fees are intended to be the equivalent of approximately 100% of the cost of school facilities for new development. Following such SAB certification regarding funding, if and when state bond funds again become available for facilities, the difference between the Level 2 and Level 3 amounts is to be refunded either to the state or to developers. Thus, Level 3 fees represent a gap filler for when the state is unable to match its share of the cost of facilities for new development.

SB 50 represented a compromise between school districts and the building industry after a prolonged debate and series of court decisions addressing school districts’ ability to receive more than the statutorily designated school mitigation amount. The industry received limitations on their obligations to pay certain fee amounts, in part in exchange for the opportunity of the school districts to collect additional fees when state funding was not available for school facilities projects. While the building industry has enjoyed the limitations on its obligations for almost 16 years, school districts have not yet been able to access Level 3 fees, even when no state funding has been available to them.

Until now, Government Code section 65995.7 had little effect, either because it has been suspended, or because the SAB has declined to issue the necessary certification that state funding is unavailable. Now that all potential revenue from the existing statewide bond is nearing the point of being fully apportioned, the situation will call for SAB to make the necessary certification in the near future. It would seem that the current situation is precisely the scenario that Level 3 fees were intended to address, but it will remain to be seen whether SAB will actually issue the certification. With the housing market picking up, developers will be less able to argue that Level 3 fees will stop economic recovery from the recession, which is the argument the building industry and Legislature used when Level 3 fees were suspended in 2012. The renewed housing boom supports the need for school districts to implement Level 3 fees to accommodate for more growth.

To the extent that a school district is contemplating levying a Level 3 fee, and all conditions are in place to allow the district to do so, it is important to consider whether the most recent school facilities need analysis and/or developer fee justification study and adopting resolution adequately address the issue of Level 3 fees.

To assist school districts in navigating these and other developer fee issues, Lozano Smith’s Facilities and Business Practice Group publishes and regularly updates its Developer Fee Handbook for School Facilities: A User’s Guide to Qualifying for, Imposing, Increasing, Collecting, Using and Accounting for School Impact Fees in California. The Handbook can be ordered on our website by clicking here. If we can be of assistance regarding Level 3 fees or other developer fee matters, please contact one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written By

Harold M. Freiman
Partner
Walnut Creek Office
hfreiman@lozanosmith.com

Megan Macy
Partner
Sacramento Office
mmacy@lozanosmith.com

©2014 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

New Legislation Revises Monitoring and Enforcement of the Prevailing Wage Law for All Public Works Projects in California

July 2014
Number 43

When the California Legislature completed final action on the annual state budget in June, it passed the main budget bill, Senate Bill (SB) 852, and sixteen budget trailer bills, including SB 854 which makes changes to monitoring and enforcement of the state’s prevailing wage law by the Department of Industrial Relations (DIR). SB 854 took effect immediately but the changes affecting awarding bodies, contractors, and subcontractors are phased in gradually. Effective immediately, all awarding bodies are required to provide notice to the DIR of any public works contract within five days of the award and must post – or require the prime contractor to post – job site notices.

Background

Labor Code sections 1770 et seq. require the payment of prevailing wages to all workers employed on public works projects. The Director of the DIR is generally tasked with monitoring and enforcing compliance with the state’s prevailing wage law for any public works project paid for in whole or in part out of public funds.

In recent years, awarding bodies have been required to directly pay the DIR’s Compliance Monitoring Unit (CMU) for the costs of monitoring and enforcing compliance with the prevailing wage law as a cost of construction. Implementation of this statutory and regulatory scheme was problematic, however, and SB 854 attempts to address the failings of the outgoing monitoring and enforcement mechanism.

Contractors and Subcontractors

SB 854’s new requirements apply to all public works projects, not just those supported by state funds. SB 854 will require all contractors and subcontractors intending to bid or perform work on public works projects to annually register and pay a fee to the DIR for purposes of monitoring and enforcing compliance with the state’s prevailing wage law. Consequently, the Department will no longer directly charge awarding bodies for prevailing wage monitoring and enforcement by the CMU.

The registration program began July 1, 2014, and all contractors and subcontractors submitting bids on public works projects must be registered by March 1, 2015. However, the requirement for awarding bodies to use only registered contractors and subcontractors on public works projects does not take effect until April 1, 2015.

Through registration, the DIR will collect fees from contractors and subcontractors to fund the DIR’s duties, including oversight of the state’s prevailing wage law, compliance monitoring and enforcement, determinations of prevailing wage and public works coverage, and enforcement appeals hearings. The current fee is $300, though the Director of the DIR has the authority to annually adjust the fee. Contractors and subcontractors are also required to meet minimum qualifications to register, allowing them to bid and work on public works projects. The DIR will post a list of registered contractors and subcontractors on its web site.

Awarding Bodies

All awarding bodies should be aware of the following dates for compliance with the new prevailing wage law requirements of SB 854:

  1. Effective immediately, awarding bodies must submit a contract award notice to the DIR within five days of the award on form “PWC 100”;
  2. Effective immediately, awarding bodies must post – or require the prime contractor to post – job site notices;
  3. Beginning January 1, 2015, awarding bodies must specify in the call for bids and contract documents that the public works project is subject to compliance monitoring and enforcement by the DIR;
  4. Beginning March 1, 2015, awarding bodies must ensure that contractors and subcontractors submitting bids on public works contracts are registered with the DIR; and
  5. Beginning April 1, 2015, awarding bodies must ensure that public works contracts are awarded only to contractors and subcontractors registered with the DIR.

For further information regarding the DIR’s new role and how it affects the administration of public works projects, please contact one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written By

Daniel Maruccia
Partner
Sacramento Office
dmaruccia@lozanosmith.com

Gary B. Bell
Associate
Fresno Office
gbell@lozanosmith.com

©2014 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Appellate Court Affirms a Public Agency’s Right to Waive an Inconsequential Bid Defect

April 2014
Number 25

When is a defect in a low bidder’s paperwork too significant for the public entity owner to waive? The Court of Appeal recently added another piece in the patchwork quilt of law addressing this seemingly simple, but sometimes difficult, question. The court concluded that a public agency may waive the omission of a single page of a bid package if exclusion of the page did not affect the bid amount or provide the bidder an advantage.

In Bay Cities Paving & Grading, Inc. v. City of San Leandro (2014) 223 Cal.App.4th 1181, the low bidder, Gallagher & Burk (G&B), omitted the first page of the City’s form bid bond from its bid. G&B did include the second page, which contained the necessary signatures and other information. After the bid opening G&B promptly submitted the missing page, but the second lowest bidder, Bay Cities, protested that the G&B bid was nonresponsive and should be rejected. The City determined that the bid bond was enforceable without the first page, and that it could waive the omission of the first page as “an inconsequential bid defect.” The bid bond surety confirmed that the bond was enforceable and, regardless, the information required by the missing page was stated on the second page. Bay Cities filed suit challenging the award to G&B.

The appellate court affirmed the trial court’s decision rejecting Bay Cities’ challenge. The court of appeal reasoned that under current law, a substantially conforming bid could be accepted if the variance at issue “cannot have affected the amount of the bid or given a bidder an advantage or benefit not allowed other bidders or, in other words, if the variance is inconsequential.” (Ghilotti Construction Co. v. City of Richmond (1996) 45 Cal.App.4th 897, 904.) The question of a defect being inconsequential “is a question of fact,” and must be evaluated “from a practical rather than a hypothetical standpoint.”

The City’s waiver of the defect was proper since no mistake occurred that would have allowed the low bidder to withdraw its bid without penalty. Thus, G&B had no “advantage or benefit not allowed other bidders.”

The complaining bidder, Bay Cities, argued that the City could not go beyond the “four corners” of G&B’s original bid to evaluate responsiveness and should have rejected the bid. However, the appellate court held that while responsiveness often can be determined from the “four corners,” nothing prevented the City from also looking at contract documents that it had prepared for the project.

This decision provides another example of how the law of responsiveness can be practically applied. As questions of responsiveness arise, it is critical to bear in mind that the advantage, or lack thereof, to the low bidder is an important factor when analyzing whether the owner has the right to waive the defect.

If you have any questions regarding the Bay Citiesdecision or other bid protest issues, please feel free to contact one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written By

Megan Macy
Partner
Sacramento Office
mmacy@lozanosmith.com

Arne Sandberg
Senior Counsel
Walnut Creek Office
asandberg@lozanosmith.com

©2014 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.