California School District Construction Projects Will be Impacted

The lease-leaseback construction delivery method for K-12 school facilities projects changed under a new law signed Friday by Gov. Jerry Brown. Previously, Education Code Section 17406 authorized school districts, without advertising for bids, to lease property to a contractor under a lease-lease back agreement. Under such agreements, typically, the contractor constructs the school facilities and then leases the facilities back to the school district, with title vesting in the district upon expiration of the lease.

Assembly Bill 2316, which goes into effect Jan. 1, amends Education Code 17406 and addresses some of the legal issues raised by the Court of Appeal decision in Davis v. Fresno Unified School District (2015) 237 Cal.App.4th 261.

AB 2316 establishes a competitive “best value” solicitation process for school districts that utilize a lease-leaseback procurement method in the future. School districts will also now be required to publish their procedures and guidelines for the evaluation of proposers and provide an estimate of the price of the project. AB 2316 also expressly authorizes school districts to contract with the lease-leaseback contractor for preconstruction services. Further, if a project procured using lease-leaseback prior to July 1, 2015 is invalidated by a court because it failed to fall within the former competitive bidding exception, the contractor would be entitled to be paid the reasonable cost of work it performed, except for profit, so long as several conditions are met.

We will issue additional, detailed guidance to clients regarding AB 2316.

[View source.]