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California School Fiscal Services

Providing comprehensive business office and consulting services to K-12 traditional schools and charters



Bill would curtail no-bid aspect of lease-leaseback building

Posted on May 11, 2016 at 11:15 AM

This is one of those issues that will never go away and I think that it is likely that this provision of the law will change at some point. This is a something to keep a close eye on if you are in the midst of school construction projects or see them in your future. Sometimes, it’s best to just eliminate the controversy yourself and use the competitive bid process as it was intended. It's really the only way you can ensure that your district won't end up in the center of controversy like some others.


MAY 11, 2016

by Tom Chorneau, Cabinet Report

(Calif.) While the courts continue to debate the legality of a controversial no-bid construction agreement frequently used by schools, a legislative fix of the “lease-leaseback” arrangement appears to be on the way.


AB 2316 by Assemblyman Patrick O’Donnell, D-Long Beach, imposes a variety of new transparency conditions on the popular development agreement but perhaps most important, it would eliminate the ability for schools to use the approach without an open bidding process.


The bill, which has the support of school groups and much of the building industry, won passage from the Assembly Education Committee earlier this month and is pending on the floor of the lower house.


Meanwhile, conflicting court rulings have left the question of the legality of the lease-leaseback process very much in question. Just last week, the Second District Court of Appeal upheld its use by the Torrance School District in contrast to a ruling last summer by the Fifth District Court of Appeal that struck down a similar project undertaken by Fresno Unified.


So far, the California Supreme Court has declined to intervene, which suggests that justices believe it is something the Legislature must deal with.


At issue are long-standing state laws that allow a school district to lease a piece of property to a contractor for a minimum amount of money while a facility is being built or renovated. Under these terms, the contractor would then sublease the facility back to the district when the building is finished and the district begins making payments to cover the cost of the construction.


This system works outside the typical open bidding process most government agencies must follow. Supporters argue that because a contractor knows they would get both the planning and building stages of the project, they can offer better terms to the school.


But the system has also drawn a lot of criticism because of the closed-door nature of the agreements. O’Donnell’s bill would end that freedom and require districts to competitively bid any lease-leaseback project. That means among other things that:


Districts must issue a request for sealed bids from qualified contractors.

The request must identify all criteria the district will use to evaluate the proposals, with a clearly understood scoring system.

Districts must evaluate qualifications of the proposals based solely on the evaluation criteria and ranked based on the best value each would provide.

AB 2316 also protects contractors from being required to pay back the costs they put into existing facilities in the event a current contract is later found to be invalid.


The provisions of the bill would sunset in July, 2022 and would be repealed on Jan.1, 2023 unless later re-adopted.


A similar bill was sent to former Gov. Arnold Schwarzenegger in 2004, which he vetoed saying it might restrict a district’s ability to get the best building deal possible.


Complaints about the no-bid aspect of the lease-leaseback have been raised for years, also spawning many lawsuits – most of which were routinely denied. But the ruling in the Fresno case last summer threw the issue into the air.


A number of the challenges – including both Fresno and Torrance – were filed by attorney Kevin Carlin of San Diego, who has vowed to carry on the fight in the courts.


Carlin – along with the California Taxpayers Association and the Howard Jarvis Taxpayers Association – opposes the bill saying it doesn’t go far enough toward creating a level playing field because price alone isn’t the sole selection criteria. Critics also don’t like the bill’s disgorgement provision, which protects contractors on existing deals from having to pay back the entire cost of the project if the courts rule against them.

Categories: School Facilities

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