Assembly Bill 2316 (“AB 2316”) has now been signed into law by the Governor in an effort to address uncertainty in the area of lease-leaseback construction projects. Previously, the Court of Appeal decisions in Davis v. Fresno Unified School District (2015) 237 Cal.App.4th 261 and McGee v. Balfour Beatty Construction, LLC, et al. (2016) 247 Cal.App.4th 235 (unpublished), raised significant, conflicting questions about the use of the Education Code’s lease-leaseback statutes for school construction. Among other limitations, the Davis Court held that the school district’s lease was not a “true lease” and as such, was not eligible for exemption from competitive bidding requirements. The Davis Court also held that a potential for conflict of interest under Government Code Section 1090 existed in regard to the contractor’s role on the project including pre-construction services. In the non-binding McGee case, the Court rejected the more stringent Davis finding that competitive bidding was required for a lease-leaseback project. Nevertheless, McGee agreed with Davis on the potential basis for a conflict of interest.
In light of the uncertainty created by these and other court decisions, AB 2316 represents an effort by the Legislature to provide clarification. The Bill does so by amending, deleting and adding several additional requirements to the lease-leaseback statutes of Education Code Sections 17400 through 17429. Although some of the issues have now been resolved, others remain unclear.
Contractor Review and Approval Requirements
AB 2316’s revisions to the Education Code will continue to permit school districts to lease property to third parties by way of a contract providing for construction of buildings on the property. However, under the revisions to Section 17400, any such contract may now be awarded only following a “competitive solicitation process” in an effort to provide “best value to a school district.” In general, the process will require:
The initial drafting, publication and school board approval of procedures and guidelines for evaluating the qualifications of proposers seeking to enter into lease-leaseback contracts. The procedures and guidelines at a minimum must include:
The use of a Request for Proposal (“RFP”) circulated to “qualified proposers.”
The RFP is to be circulated in accordance with Public Contract Code requirements.
In order to be entitled to respond, proposers must be prequalified under the requirements of the Public Contract Code.
The RFP must identify the criteria a school district will consider in evaluating proposals and determining qualifications of proposers.
School districts must identify the rating system applicable to each criteria.
Once the above procedures are established, school districts may seek requests for sealed proposals from qualified contractors that will address the requirements outlined in a school district’s RFP process.
Following a school district’s review of responses generated from the process described above, scores are to be assigned to each proposal which shall then be ranked from “highest best value to lowest best value.” A school board may award the contract to the proposer whose proposal is determined to be the “best value” for the school district. If the school district is unsuccessful in awarding to the best value proposer, the school district may offer the contract to the second proposer, and then to subsequent proposes in descending order until an award is made, or all proposals are rejected.
AB 2316 also contains provisions addressing the Division of the State Architect (“DSA”) approval process for lease-leaseback. School districts may now enter into contracts for preconstruction services as long as DSA review is not applicable to those services. In addition, if DSA approval is required for a project and approval is subsequently obtained following award to a successful proposer, an adjustment to the price for the project may be made to accommodate the additional costs associated with any DSA plan changes that occurred during the approval process.
Subcontractors; Contract Invalidation; Financings; Conflict of Interest
AB 2316 further provides more detailed guidance on several subcontractor issues relating to lease-leaseback. For example, following award of the contract, the successful proposer must meet certain requirements for the selection of subcontractors not identified in the original contract.
The drafters of AB 2316 also addressed the issue of contract invalidation raised by the Davis Court allowing contractors, under certain circumstances, to recover reasonable costs, “excluding profits” for work arising from any contract dated prior to July 1, 2015. To be eligible, a determination must be made that the invalidation resulted from a court’s determination that the contract failed to comply with competitive bidding laws.
The Davis and McGee decisions also raised questions regarding the feasibility of financings for lease-leaseback projects. AB 2316 fails to address these issues. AB 2316 also does not expressly resolve the conflict of interest issues raised by Davis and other cases. It can be argued that the more comprehensive prequalification and RFP procedures are intended to address those conflict of interest issues.
School districts that continue to use lease-leaseback as a construction method should familiarize themselves with the extensive new requirements of AB 2316 (effective January 1, 2017) in the area of prequalification and the awarding of contracts. Although some of these procedures are similar to those already in effect and applicable to design-build contracts, there are also several additional elements contained in the new law.
Should you have any follow-up questions or comments on this information, please feel free to contact either our Southern California office at (714) 573-0900 or our Northern California office at (916) 245-8677 or visit our website at www.parkercovert.com.
http://parkercovert.com/wp-content/uploads/2016/02/logo_large_new-300x94.jpg00Michael Travishttp://parkercovert.com/wp-content/uploads/2016/02/logo_large_new-300x94.jpgMichael Travis2016-09-30 19:02:542017-05-16 19:17:35New Law Revises Lease-Leaseback Procedures For School Districts
On Tuesday, October 4th, 2016, Parker & Covert LLP attorney Meghan Covert Russell will be presenting a roundtable discussion on hot topics surrounding athletic facilities, including health and safety issues.
The informational event, including attorneys and architects discussing issues related to school athletic facilities, will precede a Fiesta Fundraiser presented by CASH and AFE Sports in support of Proposition 51.
School district staff are invited to attend the informational discussion, located in Signal Hill, from 4-5:30, with the Fiesta Fundraiser commencing at 5:30.
http://parkercovert.com/wp-content/uploads/2016/02/logo_large_new-300x94.jpg00Michael Travishttp://parkercovert.com/wp-content/uploads/2016/02/logo_large_new-300x94.jpgMichael Travis2016-09-29 16:22:452017-05-16 19:17:35Attorney Meghan Covert Russell to present at 'Yes on Prop 51' Event
The California Supreme Court handed down its latest California Environmental Quality Act (CEQA) decision, Friends of the College v. San Mateo Community College District, on September 19, 2016. The decision is a major victory for agencies, including K-12 and community college districts, considering changes to a previously approved project that required environmental review.
Friends of the College arose from changes in the San Mateo Community College District’s 10-year-old plan to modernize its campuses by renovating some existing buildings, constructing new ones, and demolishing others. The District had determined, years before the case arose, that the environmental impacts of the original modernization plan could be mitigated to insignificance and adopted a declaration to that effect, i.e., a mitigated negative declaration (MND). Because of funding issues arising years after the District’s adoption of the MND, the District decided to demolish a building originally slated for renovation and renovate two other buildings initially slated for demolition.
The District concluded that these changes to the original plan would have no greater environmental impact than the original plan itself and that the changes did not require the preparation of a supplemental environmental impact report (EIR), which calls for a public review and comment period. Therefore, the District approved an addendum to the original MND, a process that does not require a public review and comment period.
The trial court and the Court of Appeal held that the changes to the original plan constituted a new project under CEQA. The Supreme Court unanimously overturned this conclusion. The Supreme Court ruled that an agency that proposes changes to a previously approved project that required CEQA review must determine whether the previous environmental document retains any relevance in light of the proposed changes and, if so, whether the changes are substantial and will require major revisions to the previous environmental document due to the involvement of new significant environmental effects or a substantial increase in the severity of previously identified significant effects. The agency, and not the courts, makes these determinations. The courts’ job is not to weigh conflicting evidence and determine which party has the better argument. Courts are limited to deciding whether an agency’s determination is supported by substantial evidence.
The California Supreme Court unequivocally stated that it expects occasions when a court finds no substantial evidence to support an agency’s decision to proceed under CEQA’s subsequent review provisions – i.e., occasions when a court finds no substantial evidence to support an agency’s decision that the previous environmental document retains some relevance in light of the proposed changes – will be rare. Finally, the Supreme Court found that CEQA establishes a presumption against requiring supplemental review of a previously approved project, whether that approval is based on an EIR or a negative declaration.
http://parkercovert.com/wp-content/uploads/2016/02/logo_large_new-300x94.jpg00Michael Travishttp://parkercovert.com/wp-content/uploads/2016/02/logo_large_new-300x94.jpgMichael Travis2016-09-19 12:37:452017-05-16 19:17:35Friends of the College v. San Mateo Community College District: A Major CEQA Victory for Districts
On May 25, 2016 the State Allocation Board (“SAB”) voted to authorize Level III Developer Fees, consistent with Government Code section 65995.7. Shortly thereafter the California Building Industry Association (“CBIA”) filed a lawsuit in the Sacramento Superior Court challenging the action of the SAB, in a case entitled California Building Industry Association v. State Allocation Board. The court subsequently issued a temporary restraining order to temporarily halt the action of the SAB, and then later issued a tentative ruling in SAB’s favor. The case was heard on July 22, 2016. On August 22, the Court issued a final ruling denying CBIA’s request for a preliminary injunction. The Court’s conclusion, which mirrors its July tentative ruling in support of Level III Developer Fees, is that CBIA failed to prove any likelihood of success on the merits of its case. In addition to denying the preliminary injunction, the Court also terminated the previously issued temporary restraining order.
SAB argued that when funds are not available for new construction projects, pursuant to Article 5 (commencing with Section 17072.20 of the Education Code), that Level III Developer Fees may then be authorized. Conversely, CBIA argued that there were funds available, including Hardship Application and seismic repair funds, and the fact that any amount was available, however small, meant that funds were still available.
The Court examined whether funds available for new construction were based solely on Article 5 funds, or whether the SAB should consider alternative sources of funds. The Court concluded that authorization of Level III Developer Fees are appropriate “when Article 5 funds are insufficient to allow for continued apportionment for new construction.” Additionally, the Court concluded that although there are $2.2 million in Article 5 funds remaining, the next project in line for funding was Fresno Unified School District’s approved application for over $15 million, and that project alone would deplete remaining Article 5 funds. The Court found that SAB was “not approving apportionments as the funds provided fall far short of that needed for the ‘next in line’ approved application.”
The Court also noted that “the statute does not require [SAB] to wait for additional funds that may become available at some point in the future.” Although Proposition 51, regarding the statewide school bond, has been placed on the November ballot, SAB is not required to take a “wait-and-see” approach for funding new construction projects in the meantime.
In its August 22 ruling, the Court also directed SAB to prepare a final order incorporating the Court’s ruling to be entered by the Court and to finalize this matter, pending any appeals by CBIA.
SAB’s earlier finding that state funds for new construction are no longer available and that SAB is no longer approving apportionments for new construction due to lack of funds, which led it to authorize the implementation of Level III Developer Fees, has thus far withstood the legal challenge by CBIA.
We have previously covered the authorization of Level III fees and this legal challenge in our May 27 and July 21 Legal Updates, which can be accessed at http://parkercovert.com/blog/, and we will continue to monitor the status of this case. Should you have any follow-up questions or comments on this information, please feel free to contact either our Southern California office at (714) 573-0900 or our Northern California office at (916) 245-8677 or visit our website at http://parkercovert.com/
http://parkercovert.com/wp-content/uploads/2014/09/services1.png4131000Michael Travishttp://parkercovert.com/wp-content/uploads/2016/02/logo_large_new-300x94.jpgMichael Travis2016-08-25 15:20:472017-05-16 19:17:35Court Issues Ruling in Favor of State Allocation Board in Lawsuit Regarding Level III Developer Fees
As you will recall, on May 25, 2016 the State Allocation Board (“SAB”) voted to authorize Level III Developer Fees, consistent with Government Code section 65995.7. Shortly thereafter the California Building Industry Association (“CBIA”) filed a lawsuit in the Sacramento Superior Court challenging the action of the SAB, in a case entitled California Building Industry Association v. State Allocation Board.
Today the Court issued a tentative ruling denying CBIA’s request for a preliminary injunction. The Court’s tentative conclusion, in support of Level III fees, is that SAB may make a finding that state funds for new construction are no longer available and that SAB is no longer approving apportionments for new construction due to lack of funds.
This is a tentative ruling that is scheduled to be argued before the Court tomorrow. A final decision will be issued at a later date.
We will continue to provide ongoing updates on this important case.
Should you have any follow-up questions or comments on this information, please feel free to contact either our Southern California office at (714) 573-0900 or our Northern California office at (916) 245-8677 or visit our website at www.parkercovert.com
http://parkercovert.com/wp-content/uploads/2016/02/logo_large_new-300x94.jpg00Michael Travishttp://parkercovert.com/wp-content/uploads/2016/02/logo_large_new-300x94.jpgMichael Travis2016-07-21 04:00:162017-05-16 19:17:36Sacramento Superior Court Issues Tentative Ruling in Favor of State Allocation Board in Lawsuit Regarding Level III Developer Fees
The Orange County Labor and Employment Relations Association (“OC LERA”) is holding its 34th Annual Labor and Employment Law Conference on July 27, 2016 at the Anaheim Sheraton Park Hotel.
This annual conference is co-sponsored by the National Labor Relations Board, OCLERA, and the Federal Mediation and Conciliation Service.
The conference will provide practical information on current labor and employment law issues and legislation affecting the workplace. It is designed for labor and management representatives in both the private and public sectors, including attorneys, human resource professionals, in-house counsel, business agents, union representatives, mediators, arbitrators, and academics.
Parker & Covert LLP Attorney, Michael T. Travis, will be a panelist at the workshop entitled “Preparing for and Dealing with Violence Issues in the Workplace” from 2:oo p.m. to 3:15 p.m.
Other workshops in the full-day conference include:
Hot Topics in the Workplace – Immigration and Human Trafficking; Pay Equity; and the New Minimum Wage
“Medical Miracles” – How Labor and Management Can Work Together
“Dependent” Contractors and the “Gig” Economy – New Challenges for Employers, Employees, and Unions
Ask the Arbitrators
For further information on the annual conference, please contact Ami Silverman at (213) 894-5223 or at ami.silverman@NLRB.gov. More information about OC LERA can be found on its web site, accessible through this link.
http://parkercovert.com/wp-content/uploads/2016/02/logo_large_new-300x94.jpg00Michael Travishttp://parkercovert.com/wp-content/uploads/2016/02/logo_large_new-300x94.jpgMichael Travis2016-07-08 10:00:492017-05-16 19:17:36Attorney Michael T. Travis to Appear as Panelist at 34th Annual OC LERA Labor and Employment Law Conference