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The most common method of public works construction is known as “design-bid-build”, in which the owner accepts competitive bids from contractors based on a completed design of the project. The owner then awards the contract to the lowest responsive and responsible bidder, and that prime contractor may enter subcontracts with trade contractors for portions of the work.

However, other delivery methods are available that may better meet a school district’s needs for a particular project:

1. Multiple Prime.

Instead of competitively bidding the entire design of a project for a contract with one prime contractor, a school district may split the design into multiple “bid packages” and competitively bid each bid package separately. Thus, the district would have multiple prime contracts with contractors who typically are subcontractors to a single prime contract. This delivery method allows a district to put the design for early stages of construction out for bid before the design for the entire project is complete, thus “fast tracking” the construction. It also eliminates the cost of overhead and profit from a single prime contractor. However, this delivery method shifts the burden to the district for coordination and scheduling of the multiple prime contractors, thus increasing its construction management costs and the risk for any mistakes in the coordination and scheduling.

2. Design-Build Contract for School Facility Exceeding $2,500,000.

Since 2002, the Legislature has authorized school districts to use a design-build contract project delivery system as an optional, alternative procedure for bidding and building school construction projects. Educ. Code §§ 17250.10-17250.50. Section 17250.35 specifies that the Project inspection must be under the direction of the Department of General Services or a competent qualified agent of the District. Until 2008, design-build was authorized only for projects over $10,000,000. In 2007, that number was reduced to $2,500,000, effective January 1, 2008. The authorization for design build is currently set to sunset on January 1, 2020. (Educ. Code, §§ 17250.10, et seq.)

The term "design-build" means a procurement process in which both the design and construction of a project are procured from a single entity. The design-build entity must be able to provide appropriately licensed contracting, architectural, and engineering services as needed. The ostensible benefits of a design-build project delivery system include an accelerated completion of the project, cost containment, reduction for construction complexity, and reduced exposure for the school district by shifting the liability and risk for cost containment and project completion to the design-build entity.

In order to authorize use of a design-build contract the governing board of a school district must evaluate the traditional design, bid, and build process and the design-build process in a public meeting and make written findings that use of the design-build process on the specific project will reduce comparable project costs, expedite the project's completion, or provide features not achievable through the traditional design-bid-build method.

Statutory provisions (and guidelines being developed by the Superintendent of Public Instruction), contain specific requirements with respect to the request for proposals, prequalifications of design-build entities, the procedure to be used for selection of a design-build entity, and other matters. Educ. Code §§ 17250.25, 17250.30.

3. Lease-Leaseback Contracts.

Lease-leaseback contracts were commonly referred to as “design-build” contracts prior to the enactment of the Design Build law discussed above. The two are similar because like design- build, lease-leaseback projects provide for the design and construction of the project from a

single entity. The basic authority for a lease-leaseback project is Education Code section 17406, which states in part that “the governing board of a school district, without advertising for bids, may let . . . to any person, firm, or corporation any real property that belongs to the district if the instrument by which such property is let requires the lessee to construct on the demised premises, or provide for the construction thereon of, a building or buildings for the use of the school district during the term thereof, and provides that title to that building shall vest in the school district at the expiration of that term. . . .” Lease-leaseback avoids competitive bidding because it is intended to be a financing vehicle. In order to enter into a lease-leaseback contract, the district should articulate some reason to avoid competitive bidding and utilize this method of financing. The basic documents required to enter into a lease-leaseback typically consist of a resolution authorizing the contract, a site lease, a sublease agreement, and a lease- leaseback agreement.

Lease-leasebacks have become increasingly popular in recent years because they avoid competitive bidding and can be structured as a lump sum or a guaranteed maximum price (“GMP”) for completion of the project, which ostensibly puts more of the risk of cost overruns on the contractor. Because lease-leaseback avoids competitive bidding, however, these types of contracts should be approached cautiously and only with the assistance of legal counsel. In 2005 the Legislature passed a bill (AB 1097) requiring that competitive proposals be obtained (similar to the design build discussed above) in order for districts to enter into lease-leaseback contracts. The bill, however, was vetoed by the Governor. In his veto message, the Governor stated that while he was “generally supportive of using a competitive process for public works projects . . . this bill imposes restrictions on lease-leaseback contracts that could limit competition, inadvertently limit flexibility for schools, and drive higher administrative costs, thereby potentially increasing the overall cost of building school facilities.” Some think the Governor's veto essentially validated lease-leaseback financings and there is also a prior Attorney General opinion recognizing the validity of the lease-leaseback model. Districts can also seek a judicial validation of the lease-leaseback agreement pursuant to Code of Civil Procedure section 860 to protect both the district and the contractor should this financing method be employed.

4. Construction Management at Risk (CMAR).

Occasionally, a CM will assume the responsibilities of a general contractor by accepting the risk for a project finishing on time and under budget, which is known as a Construction Manager At Risk (CMAR). The general rule is that a CMAR agreement must be competitively bid, so this delivery method is usually seen on school district projects under the design-build or lease- leaseback delivery method which are exempt from competitive bidding. The CMAR agreement typically is structured with a GMP, and sometimes includes contingencies and/or allowances, although it can be structured as a lump sum. The CMAR entity typically identifies various trade contractors to perform the work, and the trade contractors either enter contracts with the CMAR or the district directly.

There is no specific statute or regulation that expressly allows or forbids public school districts from entering into CMAR agreements without competitive bidding. Because there is no specific statutory authorization or prohibition of CMAR projects, the legality of CMAR projects likely hinges on whether a CMAR will act more like a contractor or a construction manager. If a CMAR is fundamentally comparable to a contractor, the project may have to be bid; if a CMAR is more comparable to a construction manager, then the project can be awarded based upon a competitive process that does not include

bidding. (See, City of Inglewood-Los Angeles County Civic Center Authority v. Superior Court (1972) 7 Cal.3d 861.)