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.

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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.