Governor Signs New Law Affecting School District “Lease-Leaseback” Programs

by on October 20, 2016

posted in Legislative Updates, Schools,

On September 23, 2016 Governor Brown signed AB2316 which makes significant changes to the Lease-Leaseback construction program that school districts  have been successfully using for years. The bill arises primarily out of recent litigation in Fresno stemming from allegations of corruption and partiality. These new changes, set to take effect on January 1, 2017, among other revisions, specifically delete the phrase “without advertising for bid” from Education Code §17406 and add a new competitive bidding process to the lease-leaseback procedure. Additionally, it includes a specific provision authorizing contractors used in pre-construction consulting to remain eligible for the award of the project.

Particularly, AB2316 now mandates that each local school board adopt and make public new policies detailing the lease-leaseback solicitation process for bids. Also, the board must adopt criteria that will be used to determine what gives the district the “best value”. By establishing this new best value criterion, the district is not locked into simply using the lowest bidder for the project. Instead, they are still afforded the flexibility of choosing a developer or contractor that brings experience and other intangibles to the job.

More specifically,

  • The school district must solicit sealed bids that include a price estimate, an easy to understand description of any preconstruction services and facilities that may be constructed, a description of the key components of the contract, the format any proposal is required to follow, and how those solicitations will be graded against each other. A timetable for the district’s decision must also be included with the solicitation.
  • The notice for proposals must be published according to the regularly accepted practice of using newspapers of general circulation. This must be done once a week, for two weeks, ending at least 10 days before the proposals are due. Publication on the school district’s website is also allowed.
  • All bids must come from developers, contractors, and sub-contractors that are prequalified under California Public Contract Code section 20116.
  • The school district may allow proposals to include a price as a lump sum or as a fee for services performed, including any pre-construction services or other work that may be performed related to the construction of the facilities.
  • Whatever form of fee is proposed, the entity must provide verifiable justification for the proposed fees and those fees shall only be finalized after all preconstruction services are performed and the Department of the State Architect has accepted all plans and specifications.
  • The district must also detail whether each criterion will be graded on a pass-fail basis or if any minimum score must be attained.
  • Lastly, upon selecting the successful proposal, the school district must inform the successful entity in writing, announce the award publicly (as in at a board meeting), and with the announcement the board must prepare and release a statement relating the basis of the award. This statement, presumably describing, at least in some detail, why the district believes the proposer offers the “best value” on the project must be able to satisfy an external audit.

In an effort to preserve the expediency the lease-leaseback process has provided, the law will also allow a district to contract for preconstruction services before receiving any written approval from the State Architect, provided no work requiring a licensed contractor is performed.

The most controversial portion of AB2316 is meant to deal with the litigation that has surrounded this issue for the last few years. Following the California Supreme Court’s refusal to take up review of the appellate court’s last opinion, there was a wide call for fees deemed excessive to be recovered from developers and contractors and forfeited back to the school districts. This situation most prominently involved the Fresno school district. However, AB 2316 specifically provides that for contracts awarded prior to July 1, 2015, entities found to have acted in good faith may retain payments for services rendered, excluding profits, under the lease-leaseback provisions in place prior to December 31, 2016. By including such a provision, the legislature has eliminated the need to review prior lease-leaseback projects.

Attorneys at Cota Cole, LLP can help guide your district through this new policy making venture to ensure compliance with the new competitive bidding system.

tags: AB 2316, Lease, Lease-back, Pre-constuction, School construction, School Districts,

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