The Evolving And Expanding Landscape Of California’s Design-Build Project Delivery Method In The Public Works Arena

05.24.2019

Proponents of design-build typically applaud the implementation and use of this project delivery method because it allows close and continuous collaboration, communication, and coordination between the architect,  the design engineers and the general contractor — from the very inception of a project through its completion. The project owner, on the other hand, is not administratively burdened with multiple contracts and enjoys the benefits derived from contracting with a single entity (i.e., the design-build team), which assumes full responsibility for the design, coordination, construction, and commissioning of the project.

Additional benefits that are usually realized and shared among all stakeholders under a design-build project delivery method include: (1) fewer change orders during construction; (2) more complete and reliable sets of drawings, plans and specifications which collectively contain fewer conflicts, errors and constructability issues; (3) a more reliable, achievable and coordinated project schedule; (4) cost savings derived from early, and continuous, collaborative value engineering; (5) faster delivery of the completed project; and last, but certainly not least, (6) reduced claims, litigation and legal costs. These benefits are widely believed to flow from a more integrated project delivery methodology that is founded on having the contractor, architect and engineers on the same team, from inception, with constant communication and collaboration regarding the project’s design, schedule, costs and on-time completion.

If one accepts, as true, that the above benefits of design-build delivery are both realistic and achievable, one would likely then also surmise that public, state and local agencies in California would (or should) have unfettered authorization to utilize this project delivery method on public works and infrastructure projects. Strangely, however, this is not – nor has it ever been – the case in California.

In fact, California public contracting law was initially hostile to the design-build project delivery method. Over one hundred years ago, the California Supreme Court rejected the use of design-build delivery within the context of public works, stating:

To permit each bidder to propose the plans and specifications according to which he will construct the building, not only prevents competition in the bidding for the work, but gives to the hoard an opportunity for the exercise of favoritism in awarding the contract, instead of being required to let it to the lowest responsible bidder; for, since neither of the bidders can know of the plans and specifications under which others are making their bids, there is no standard by which the board can determine which is the lowest responsible bidder. Ertle v. Leary (1896) 114 Cal. 238 (“Ertle”).

The Supreme Court’s antagonism toward design-build, as articulated in the Ertle decision, found its way into subsequent statutory provisions governing public contracting by California counties. For example, early versions of the Public Contract Code prevented counties from using design-build [see, e.g., Public Contract Code § 20124, which required that “The board of supervisors shall adopt plans, specifications, strain sheets, and working details for the work;” Public Contract Code § 20127, which provided that “All bidders shall be afforded an opportunity to examine the plans, specifications, strain sheets and working details . . . ;” and Public Contract Code § 20128, which stated that “The board shall award the contract to the lowest responsible bidder . . .”]. All of these statutory mandates were inherently incompatible with design-build delivery and, thus, raised legal barriers to its utilization by public agencies on public works projects.

In the past two decades, however, California has made tremendous strides towards opening design-build project delivery opportunities to the public sector. The passage of Assembly Bill (“AB”) 598 in 2001 marked the first time that California’s legislature approved design-build authority for certain public agencies. AB 598 authorized transit operators to award contracts for transit projects of at least $10 million on a design-build basis. Since 2001, a number of other statutes have followed authorizing other public agencies to utilize design-build. Significantly, however, the passage of Senate Bill (“SB”) 785 in September 2014 was seen as a “game changer” in that it culminated the longtime industry effort to standardize design-build laws in California and, moreover, it was effective in streamlining California’s design-build regulations in a way that made the delivery method much easier to understand and implement.

To this day, the legislature continues to expand opportunities for design-build contracting in the public sector. For example, where there was previously no authority for the County of Orange or Orange County Flood Control District to utilize design-build delivery, AB 2654, which became effective on January 1, 2019, now specifically authorizes the County of Orange to enter into design-build contracts on flood protection improvements, beach and harbor improvements and bikeway improvements (limited to one design-build project exceeding $5 million per year). The same bill authorizes the Orange County Flood Control District to enter into design-build contracts on up to 12 new flood protection improvement projects, each in excess of $5 million, through January 1, 2025.  [See, Public Contract Code §§ 22162.6 and 22162.7.]

Currently introduced and pending legislation also forecasts the expansion of authority, and funding, for design-build delivery in 2019-2020. For example, AB 190 (Budget Act of 2019), would appropriate $1.1 billion for design-build public works projects in California, specifically earmarked for the Department of the California Highway Patrol, the Department of Water Resources, the Department of General Services, and the Military Department. Similarly, AB 695, which is also currently pending before the legislature, would extend the authorization for community college districts to enter into design-build contracts through January 1, 2030.

In California’s ever-evolving and rapidly expanding public works design-build arena, public agencies, general contractors, and design professionals must adapt, and adapt quickly, in order to reap the benefits of new design-build contracting opportunities. As new bills and legislation become law, expanding design-build delivery into previously uncharted waters, all participants should ensure that they are well-informed concerning their legal rights and obligations, and well-equipped to seize upon new opportunities as they unfold. Whatever questions, concerns or legal obstacles you may encounter on your journey through California’s expanding and ever-evolving design-build arena, we are here to help.

This AALRR publication is intended for informational purposes only and should not be relied upon in reaching a conclusion in a particular area of law. Applicability of the legal principles discussed may differ substantially in individual situations. Receipt of this or any other AALRR presentation/publication does not create an attorney-client relationship. The Firm is not responsible for inadvertent errors that may occur in the publishing process.

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