On September 23, 2016, Governor Brown signed AB 2316 which requires school districts, when awarding lease-leaseback contracts, to use an advertised competitive selection process and award the project to the proposer providing the “best value” to the district. Lease-leaseback, a construction delivery method that became increasingly popular with school districts, has been under increased scrutiny both in the courts and in Sacramento.

AB 2316 goes into effect on January 1, 2017.

New Competitive Process for Lease-leaseback Contractors
AB 2316 institutes a mandatory competitive selection process for lease-leaseback contractors and their subcontractors. Briefly outlined, the process is as follows:
• The district must issue a publicly-advertised request for proposals in the newspaper.
• The district then scores the sealed proposals based upon board-approved criteria.
• The district must rank the proposals highest-to-lowest and can award the contract to the highest-ranked proposer.
• If the selected contractor then subcontracts portions of the work, it must publicly solicit that work “in accordance with the publication requirements applicable to the competitive bidding process of the school district.”

Partial Conflict of Interest Protection
AB 2316 expressly provides that school districts may award a single lease-leaseback contract that includes, in addition to construction work, preconstruction work prior to Division of the State Architect approval of the plans. Districts are cautioned that this provision does not address other potential conflicts of interest that may arise if a district enters into multiple lease-leaseback contracts with the same contractor.

Other Aspects of AB 2316
AB 2316 does not modify existing statutory requirements for lease-leaseback, including mandatory prequalification and the participation of a skilled and trained work force.

The bill affords some financial protection to contractors who were awarded lease-leaseback contracts prior to July 1, 2015, by limiting the ability of districts to disgorge funds related to those contracts.

AB 2316 does not address the issue of whether lease-leaseback contracts must include a lease term and financing.

The new mandated competitive selection process for lease-leaseback contractors will require districts to expend more time to procure lease-leaseback contracts. Districts are strongly advised to consult with their legal counsel in evaluating the impacts created by AB 2316.