Assembly Bill 2316 (“AB 2316”), signed into law by Governor
Brown in September, will change school districts’ lease-leaseback
("LLB") project delivery method effective January 1, 2017. The following highlights some key provisions
of AB 2316, which amends Education Code sections 17400 and 17406, and
summarizes some of the practical implications of the new law for districts:
Selection. Schools now have a
statutory “roadmap’ for procuring LLB contractors on the basis of “best value” through
a competitive selection process. AB 2316
will require development and publication of a request for proposals (“RFP’)
with transparent scoring criteria. As
part of the scoring criteria, schools can require contractors to provide a
price “proposal” either on a lump sum or percentage fee basis. AB 2316 answers concerns of unfairness raised
in the past by dissatisfied contractors who were not awarded LLB
- Timing. Selecting an LLB contractor will now require
more “front end” time. Publishing notice
of the RFP must occur in the same manner as a hard bid (once per week for two
weeks). Notice also must be published in a trade journal (which are often only
published once per week). Additionally,
the last publication must be at least 10 days before the deadline for submitting
proposals. In many cases, this will mean
at least a three-week publication period will be required.
Agreements and Conflicts of Interest.
AB 2316 will allow schools to enter into LLB agreements before plan
approval by the Department of General Services’ Division of the State Architect
(“DSA”), thereby allowing preconstruction services to be built into the LLB
agreement itself. The law contemplates
development of a final guaranteed maximum price (“GMP”) after the parties enter
into the LLB contract, and after the parties have had an opportunity to perform
traditional preconstruction activities.
Under this rubric, the final GMP will need to be approved by the school
board. This should reduce concerns about
conflicts of interest raised in prior court decisions where contractors
performed preconstruction services before being awarded the LLB contract.
- Subcontracting. If a general contractor lists a subcontractor
in a successful proposal, that subcontractor must be used unless sufficient
grounds exist for substitution under the Subcontracting Fair Practices
Act. If the general contractor does not
list a subcontractor in its proposal, the general contractor must procure its
subcontractors through its own best value process, or by conducting a bid in
the manner that a school district would conduct such bid.
- Financing. AB 2316 does not address the disagreement
among appellate decisions regarding whether a lease must be genuine or whether “financing”
is required. However, most districts
will not find this to be an impediment, so long as their agreements are
structured in a way that meets the requirements of Davis v. Fresno Unified
- Prequalification. All general, mechanical, electrical and
plumbing contractors/subcontractors must be prequalified prior to submitting a
proposal. It is important to budget
sufficient front-end time for prequalification.
Now. Districts with LLB projects that
will not have DSA approval before January 1, 2017 should plan to implement the
provisions of AB 2316. Current law will
prevent such districts from entering into a LLB contract until after AB 2316
If you have any questions regarding AB 2316 or
any other related issue, please call one of our six offices.
F3 NewsFlash prepared by Paul G. Thompson, James R. Traber and John W. Norlin.
Paul and Jim are Partners in the
F3 Sacramento office.
John is Special Counsel in the F3 San Diego
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