MINUTES OF THE meeting
of the
ASSEMBLY Committee on Government Affairs
Seventy-First Session
May 9, 2001
The Committee on Government Affairswas called to order at 8:10 a.m., on Wednesday, May 9, 2001. Chairman Douglas Bache presided in Room 3143 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.
COMMITTEE MEMBERS PRESENT:
Mr. Douglas Bache, Chairman
Mr. John J. Lee, Vice Chairman
Ms. Merle Berman
Mr. David Brown
Mrs. Dawn Gibbons
Mr. David Humke
Mr. Harry Mortenson
Mr. Roy Neighbors
Ms. Bonnie Parnell
Mr. Bob Price
Mrs. Debbie Smith
Ms. Kathy Von Tobel
Mr. Wendell Williams
COMMITTEE MEMBERS EXCUSED:
Mrs. Vivian Freeman
STAFF MEMBERS PRESENT:
Eileen O’Grady, Committee Counsel
Dave Ziegler, Committee Policy Analyst
Glenda Jacques, Committee Secretary
OTHERS PRESENT:
Steve Holloway, Executive Vice President, Associated General Contractors
Mary Walker, Lobbyist, Carson City, Douglas and Lyon Counties, and Carson Tahoe Hospital
Jan Christopherson, Administrative Officer, Department of Transportation
Robin Keith, President, Nevada Rural Hospital Project
Daniel K. O’Brien, Manager, State Public Works Board
Tom Metcalf, Board Chairman, Carson Tahoe Hospital Trustees
Scott Morgan, Director, Douglas County Parks and Recreation
Warren Hardy, Lobbyist, Associated Builders and Contractors
Margi Grein, Lobbyist, State Contractor’s Board
Danny Thompson, Lobbyist, Nevada Chapter American Federation of Labor and Congress of Industrial Organizations
Jack Jeffrey, Lobbyist, Southern Nevada Building and Trades Council
Mark Fiorentino, Lobbyist, American Consulting Engineers Council of Nevada
Steve Weaver, Chief of Planning and Development, Division of State Parks
Colleen Wilson-Pappa, Lobbyist, Clark County
Thomas J. Grady, Lobbyist, Nevada League of Cities
Joseph Hollett, Lobbyist, The Gordian Group
Frederick Smith, Construction Manager, Clark County School District
James Keenan, Lobbyist, Nevada Public Purchasing Study Commission
John Madole, Executive Director, Nevada Chapter Association General Contractors
Senate Bill 61: Makes various changes to provisions relating to use of design-build teams on public works projects. (BDR 28-99)
Steve Holloway, Executive Vice President, Associated General Contractors, stated the interim legislative advisory committee on design-build contracting was created by statute in 1999. Eight construction industry representatives and eight public works representatives monitored and reviewed design-build contracting. S.B. 61 was the culmination of the committee’s work to bring design-build contracting to smaller counties with public work projects costing less than $250,000.
Mr. Holloway outlined the proposed changes. Section 5, subsection 3, extended smaller design-build projects to all state agencies and local governments. The thresholds of parks or remodeling projects were lowered to $250,000 annually. Public building thresholds were lowered to $500,000 annually. Larger public works projects had a threshold of $5 million. Clean-up language, standardization of advertising, and bidder preference were added to the bill. The bill changed NRS Chapters 338 and 408 congruently. Section 15 did away with the sunset provision for design-build construction.
Mr. Price questioned what types of newspapers the bidding process had to be advertised in.
Mr. Holloway replied NRS 338.143 through 338.147 were modified to specify newspapers of “general circulation within the state.”
Mr. Mortenson questioned the difference between design-build and conventional construction.
Mr. Holloway answered conventional methods involved an architect to design the project, a bidding process, and awarding the bid to the lowest responsible bidder. The design-build team concept was developed thirty years ago. An architect, engineer, and general contractor worked together to develop a project. Eighty percent of private construction was done this way. Currently, 38 states allowed public works to use the design-build system. The team designed, bid and built the project. Risk and costly change orders were reduced for the owner.
Mr. Mortenson asked how competitive bidding was done in the design-build system. Mr. Holloway replied statute outlined criteria for the bid process and selection of the design-build team. The Mesquite city hall project selected 5 finalists from the original 22 teams that bid on the project. The finalists completed the design and estimated costs; the public works agency picked the project and team that met their criteria.
Mr. Mortenson asked if different teams submitted different designs. Mr. Holloway said established specifications dictated the general design, but each team presented their own variation of the concept.
Mr. Neighbors asked if publications in smaller newspapers would be eliminated. Mr. Holloway replied no. Advertising could be done in several newspapers but must be done in at least one newspaper of general circulation.
Mr. Brown questioned why the design-build team usage was capped at one per year. Mr. Holloway explained they could contract for as many projects as they wanted under the $30 million cap. Most studies showed true savings were realized in larger projects.
Mr. Brown asked if the issue was a savings one. Mr. Holloway replied affirmatively. The initial threshold was set at $5 million and the $250,000 threshold was a compromise.
Mary Walker, Lobbyist, Carson City, Douglas and Lyon Counties, and Carson Tahoe Hospital, stated sometimes the low bid was not the best bid. Change orders, increased costs and quality of construction could suffer. The design-build method eliminated excessive change orders and helped keep costs within budget. Troublesome projects had architects, engineers and contractors assigning blame to each other and the owner was caught in the middle. The design-build team worked out problems and difficulties from the beginning and eliminated problems. The system saved time and potentially 16 to 20 percent in costs. The one project per year allowed the design-build process to be eliminated throughout the state and to document time and monetary savings. They had worked on the bill for over a year and were satisfied with the results.
Ms. Parnell added a legislative round-table had been held in Carson City last year. Rural counties discussed how they had been financially devastated by bad construction projects. The $4 million swimming pool in Carson City was still unusable. The design-build team concept needed to be brought to smaller, rural counties. She thanked them for their hard work on the bill.
Jan Christopherson, Administrative Officer, Department of Transportation, introduced an amendment to clean up bidder preference on state-funded projects (Exhibit C). The second proposal was the preferable language.
Robin Keith, President, Nevada Rural Hospital Project, supported S.B. 61 because it offered an option to build new hospital facilities efficiently. The recent $5 million Battle Mountain rural hospital renovation went through a rigorous process to obtain quality licensed architects, engineers and general contractors. The facility ended up with sidewalks that were two-feet above grade and no one accepted responsibility to fix them. An expensive long process decided the mistake could not get fixed because of extensive legal costs. The visual impact of the mistake was disguised through creative landscaping. The sunken lawns that flanked the sidewalk became drainage ponds during heavy rains. The design-build concept brought design and construction expertise together from the beginning.
Mr. Neighbors asked why the architect was not responsible for the sidewalk mistake. Ms. Keith responded they felt the architect was responsible but he said his responsibility ended when the engineer took over. The exorbitant legal costs and time involved to sue all parties would have devastated the hospital.
Daniel K. O’Brien, Manager, State Public Works Board, favored S.B. 61. The revisions had addressed their concerns. Section 5, subsection 5, allowed additional state agencies to benefit from the process. The bill allowed the public works department to determine what projects would be design-built.
Mr. Neighbors asked who did inspections on public works projects. Mr. O’Brien replied the department had inspectors and project managers on various jobs. The low bid process allowed contractors to submit multiple, costly change orders. The state needed to clean up their act and use design-build for better, quality construction.
Tom Metcalf, Board Chairman, Carson Tahoe Hospital Trustees, stated design-build was another tool in the toolbox for government agencies. A University design-build project was budgeted at $38 million and finished at $33 million. The $5 million savings was within the 16 to 20 percent cost savings. He supported the bill and proposed changes.
Scott Morgan, Director, Douglas County Parks and Recreation, supported the bill. His experience with design-build had been positive. Start-up costs could be minimized. Douglas County had attempted to build a parking structure at Stateline. $400,000 had been spent on plans and specifications that were not useable. The plans were going through another costly redesign to reduce bidding costs. Design-build upfront costs could be as little $500 to establish the criteria for “rate for proposals.” The project budget set the parameters of the job. An accelerated project could produce cost savings of 20 percent through job coordination. Design-build allowed different contractors and architects to utilize innovative and efficient techniques to express their different visions. The builder and architect collaborated to find better, cost-saving measures to accomplish their goals. Possible problems were worked out before construction began. The designer and builder were partners in a competitive situation that created a high quality project for the taxpayer.
Warren Hardy, Lobbyist, Associated Builders and Contractors, supported the bill.
Vice Chairman Neighbors closed the hearing on S.B. 61 and opened the hearing on S.B. 63.
Senate Bill 63: Makes various changes to provisions relating to bidding on and awarding contracts for public works projects. (BDR 28-754)
Mr. Holloway stated the bill was a joint project of the Nevada Contractor’s Board, the Associated General Contractors and other building industry entities to address problems that were created two years ago. The bill plugged a loophole that allowed an out-of-state contractor to buy a subcontractor license and get general contractor bidder preference. Public works agencies had allowed specialty contractors to bid as general contractors on specific projects with bidder preference. The contractor’s board established the criteria for bidder preference. S.B. 63 allowed certain subcontractors to bid as prime contractors on specific jobs and granted bidder’s preference to those contractors that were entitled to bidder preference certification.
Mr. Holloway outlined the proposed changes. Section 2 clarified the work bid on by a specialty contractor could not be part of a larger public works project and was limited in scope. The majority of the work performed needed to be the work the specialty contractor was licensed to perform. Section 6 defined “general contractor” and Section 8 outlined how sales and use taxes were to be paid by out-of-state contractors. Section 9 stated bidder preference was part of “good will” and could be purchased with the general contractor’s license. Changes made to NRS 388.147 were duplicated in NRS 388.1389.
Mr. Price questioned if the contractor’s board had options when issuing bidder preference certificates. Mr. Holloway clarified the contractor could get a license if the criteria was met. They did not want disputes over whether or not a license would be issued and any certificate dispute would be settled at the time of the public works bid.
Mr. Holloway said S.B. 61 would remove much of the bill’s duplication. The changes outlined when a specialty contractor could bid as a prime contractor and when bidder preference was allowed.
Mrs. Smith asked why the bill had moved towards the purchase provision of bidder preference. Mr. Holloway said originally bidder’s preference was not given to general contractors who purchased a subcontractor’s license. They felt support of local economy and Nevada expertise was needed first. Currently, bidder’s preference was viewed as an asset that affected the value of a company. You were entitled to the bidder preference reward when you purchased the company’s assets and liabilities.
Margi Grein, Lobbyist, State Contractor’s Board, introduced a proposed amendment (Exhibit D) that modified sections 2, 4 through 6, and deleted section 3. Properly licensed contractors would qualify for preferential bidder status when they acted as prime contractors. Senate Bill 437 of the Seventieth Session and Senate Bill 475 of the Seventieth Session changed the requirements and qualifications for contractors to receive bidding preference and stated the contractor must be a licensed general contractor. NRS Chapter 624 outlined three separate branches of contractor classifications. Nevada had around 15,000 licensed contractors of which 9,000 were specialty contractors, 1500 were general engineering, and 3500 were general building contractors. The changes in bidder preference had created controversy and resulted in litigation against the board. Section 2 was modified to state (Exhibit D):
“A specialty contractor may qualify as a bidder on a project pursuant to NRS 338.1379, if the majority of the work of the project is specialty contracting for which the specialty contractor is licensed and the project is not part of a larger public work, as defined in NRS 338.010. When a specialty contractor is authorized to bid a project, all work to be performed outside of the scope of the specialty contractor’s license shall be performed by a properly licensed subcontractor.”
Any work allowed in the specialty contractor’s classification allowed him to qualify for a bid if remaining requirements were met.
Section 4 was changed to read:
“A local government may award a contract to a specialty contractor who is able to act as a prime contractor pursuant to NRS 338.147 if the majority of the work of the project is specialty contracting for which the specialty contractor is licensed, and the project is not part of a larger public work, as defined in NRS 338.010. When a specialty contractor is awarded a contract, all work to be performed outside of the scope of the specialty contractor’s license shall be performed by a properly licensed subcontractor.”
Section 5 defined specialty contractors.
Mr. Brown thought the original language addressed a specialty contractor contracting with other subcontractors to do additional work better.
Ms. Grein stated additional work was included in the original scope of the work where a specialty contractor acted as a general contractor.
Mr. Brown was concerned the specialty contractor would say work done outside of his license dismissed him from liability. He felt the additional work did not fall within the scope of the prime contract.
Ms. Grein clarified the work was outlined under “majority work” in Section 1. Mr. Brown felt the addition of “the specialty contractor shall contract with a subcontractor to perform the work” to Section 3 would clarify the specialty contractor had the responsibility for finishing the work.
Mr. Holloway did not feel the language was needed. Any specialty contractor would know what subcontractors were needed to get the job done. The specialty contractor needed flexibility to work with subcontractors as they saw fit.
Ms. Berman questioned why a specialty contractor was referred to as a person in one section and a contractor in another.
Ms. Grein responded she defined specialty contractor the same way general contractor was defined in statute.
Mr. Holloway said specialty contractor had been defined in different statutes. He recommended the combining of definitions for consistency purposes.
Danny Thompson, Lobbyist, Nevada Chapter American Federation of Labor and Congress of Industrial Organizations, supported the bill.
Jack Jeffrey, Lobbyist, Southern Nevada Building and Trades Council, supported the bill.
Vice Chairman Neighbors closed the hearing on S.B. 63 and Chairman Bache opened the hearing on S.B. 255.
Senate Bill 255: Makes various changes concerning contract between design professional and public body for provision of services in connection with public work. (BDR 28-236)
Mark Fiorentino, Lobbyist, American Consulting Engineers Council of Nevada, stated there was no opposition to the bill or additional concerns that needed to be addressed. Design professionals who entered into contracts with local governments were required to indemnify the local government for the actions of their employees or agents. The design professionals were put in the position to take responsibility for people they had no control over. The bill prevented the requirement of those provisions. Local government could pay to have their name added to the design professional policy. The contract required the entity to indemnify what they or their employees did.
Steve Weaver, Chief of Planning and Development, Division of State Parks, did not support or oppose the bill. He was concerned about possible fiscal impact. Section 2, subsection 4(c), required public agencies to pay for additional insured coverage in situations that did not involve design-build firms. The language added in the first reprint did not specify if general liability was the only coverage required. The bill did not specify how payments would be covered. The current practice allowed additional insurance coverage to be incorporated in the consultant’s overhead costs.
Mr. Fiorentino stated the extra provision was requested by local governments. They wanted to maintain flexibility to add themselves to the general liability insurance policies of design-build firms. The added section was optional.
Colleen Wilson-Pappa, Lobbyist, Clark County, stated Madelyn Shipman had wanted the section added. The amended version was fine for Clark County.
Thomas J. Grady, Lobbyist, Nevada League of Cities, clarified Ms. Shipman had requested the additional language.
Chairman Bache closed the hearing on S.B. 255 and opened the hearing on S.B. 473.
Senate Bill 473: Authorizes public bodies to use indefinite quantity contracts for certain public works projects. (BDR 28-746)
Joseph Hollett, Lobbyist, The Gordian Group, stated they were a consulting firm that attempted to implement the indefinite quantity construction contract system (IQCC) for Clark County School District (CCSD). The bill was a pilot program and included a sunset provision. CCSD would use indefinite quantity construction contracts for minor repair and maintenance projects. The contract simplified the process for small and medium sized projects and could save 10 to 15 percent of construction costs. Most federal agencies used IQCC (Exhibit E). The contract catalogued construction tasks with set prices, standardized plans, and was competitively bid. The contractor and the agency were brought together to define the work. The interested contractor developed a proposal and the agency could accept or decline it. The proposal process took usually three to four weeks.
The contract created incentives because the series of small projects were awarded on a performance basis. Overhead costs were spread out over the entire value of the contract. The contractor participated in the proposal process and fewer change orders and claims were realized. IQCC increased the number of opportunities for small, local businesses. The small contractor had no bonding requirements. The contract saved time and money for the district and benefited the small contractor.
Mrs. Smith asked if subcontractors were generally bonded. Frederick Smith, Construction Manager, Clark County School District, replied most major construction projects had the subcontractor bond pursuant to terms of the contract between the owner and the general contractor.
Mr. Hollett clarified small projects did not create a sufficient risk to require bonding.
Mrs. Smith asked if the limit to each small job was capped at $250,00 then the larger project could cost more. Mr. Hollett replied affirmatively.
Mr. Brown disclosed his law firm represented construction interests that were sometimes adverse to CCSD. He questioned the definition of master contracts.
Mr. Hollett replied the IQCC contained a master contract and a series of job orders or obligation documents for the contractor.
Mr. Brown asked if a separate agreement was needed for each job order and the value was from $100,000 to $250,000. Mr. Hollett explained there was no minimum value on job orders.
Mr. Brown asked if “opt out” provisions were available for contractors. Mr. Hollett replied generally they were not needed.
Mr. Brown asked if the school district was looking mostly toward maintenance costs. Mr. Smith replied over $100 million was spent on rehab and modernization projects. Maintenance was a General Fund operation and capital funding covered their projects. Many small projects could be finished efficiently and quickly under the system.
Mr. Brown asked if provisions were provided to adjust costs in the catalog. Mr. Hollett replied a construction cost catalog would be put together for the Clark County schools. Any adjustments would be made on the contracts’ anniversary date. An unforeseen, dramatic increase in materials could be adjusted by mutual agreement.
Mr. Brown asked if those issues were addressed in the original contract. Mr. Hollett replied affirmatively.
Mrs. Smith questioned how overtime hours were factored into the contract. Mr. Hollett explained the contract allowed the agency to determine when the job must be done. Many jobs had to be done during off-hours or over weekends and the contractor was allowed to adjust their costs. Any overtime hours incurred because of job-related factors were the contractor’s responsibility.
Mr. Smith explained they needed small projects done efficiently and had started looking at the process four years ago. The legislation was enabling and did not force the contract on any government body. The contract committee’s proposed amendments did not make the first reprint of the bill. The $1 million dollar cap should be changed to $250,000 and the bill should indicate the program was a pilot program for Clark County schools. He would get those amendments in writing to the committee for their consideration.
Chairman Bache disclosed he and Ms. Von Tobel were teachers in the Clark County School District, but were not involved with the construction process.
James Keenan, Lobbyist, Nevada Public Purchasing Study Commission, supported the bill. Indefinite quantity contracting was a legitimate form of purchasing for CCSD. All members of the commission would help implement the program.
Mr. Holloway had reviewed the proposal for two years. Currently, 80 percent of the work done in CCSD was done by general contractors that did not support this method of contracting. The bill took 5 percent of the construction budget and gave it to the Gordian Group to employ a sophisticated method of contracting that was already being done. A staff of 114 would see no reduction or cost savings. He believed job-ordered contracting provided no savings to the taxpayer and the quality of repairs would suffer. Smaller contractors who competed for small jobs would not be able to bond for larger jobs. Job-ordered contracting was not profitable for small contractors. The construction industry opposed the bill and believed there was no value to the taxpayer.
Mr. Thompson said the AFL-CIO opposed the bill. He felt $1 million was a substantial amount of construction work to be awarded to those types of contracts. He was concerned about the quality of work provided and believed the current bidding process was sufficient.
Mr. Jeffrey was concerned the bill would affect prevailing wage. Current statute required any project over $100,000 must be paid prevailing wage. He felt the adjustment factor would decrease prevailing wage standards. Quantity contracts could increase worker misclassification.
John Madole, Executive Director, Nevada Chapter Association General Contractors, found inconsistencies in the presentation. He felt the concept would enrich the consulting firm only. He did not see one redeeming quality in the bill.
Mr. Hardy opposed the bill as written. They had worked with the Senate to draft amendments that kept the bill as a pilot program. He would provide those to the committee.
Mr. Brown asked if the school district had looked at other processes to expedite smaller construction work. Mr. Smith answered they had implemented some unit price contracts and were continually looking for options. He felt the quantity contract gave them the ability to address the many categories of construction work.
Mr. Smith clarified the fee to the Gordian Group was about 2.66 percent of the construction value. Design and administrative fee savings were greater than the fee paid the Gordian Group. His staff consisted of 45 individuals. The contract would not reduce their size, but would allow them to be more efficient and productive. They favored a 5 percent bidder preference for local contractors. Price breaks were built into the catalogue to account for piece-meal jobs. They had agreed to reduce the construction ceiling to $250,000 versus $1 million. The replacement of light fixtures in a high school could easily cost $500,000. Any job over $100,000 required prevailing wage.
Mr. Brown questioned if Mr. Smith had discussed quality of work and retention of contractors with other agencies that used quantity contracts. Mr. Smith stated he talked to federal agencies that used job-ordered contracting and they had not abandoned the system.
Mr. Brown felt master contracts promised good, consistent work but sometimes did not provide that. He was concerned about contractors being bound to a contract that was not profitable for them and might put them out of business.
Mr. Smith clarified the contract was one year with possible mutual extensions.
Chairman Bache closed the hearing on S.B. 473 and adjourned the meeting at 10:47 a.m.
RESPECTFULLY SUBMITTED:
Glenda Jacques
Committee Secretary
APPROVED BY:
Assemblyman Douglas Bache, Chairman
DATE: