Mandatory Prequalification Requirements Now Apply to Lease-Leaseback Agreements

On September 18, 2014, Governor Brown signed AB 1581 which amended Education Code sections 17406 and 17407 (the lease leaseback statutes) to expressly provide that the mandatory prequalification requirements apply to the lease-leaseback delivery projects.  The mandatory prequalification requirements set forth in the new Public Contract Code section 20111.6 apply to any school district public works project that is awarded after January 1, 2014, involves a projected expenditure of $1,000,000 or more, and uses any money from the Leroy F. Greene School Facilities Act of 1998 or any future state school construction bond.  The mandatory prequalification requirements not only apply to prime contractors, but to any mechanical, electrical, or plumbing subcontractors used on the project which possess the following licenses: C-4, C-7, C-10, C-16, C-20, C-34, C-36, C-38,  C-42, C-43 or C-46.  This prequalification requirement for lease-leaseback projects is set to sunset on January 1, 2019.

AB 1581 also allows school districts to establish a process to prequalify prime contractors, and mechanical, electrical and plumbing subcontractors on a quarterly or annual basis, with the prequalification being valid for a calendar year.  In order to protect confidential contractor information, the standardized prequalification questionnaire and the contractor financial statements will not considered public records.  AB1581 ends any questions that have arisen as to whether the mandatory prequalification requirements apply to lease-leaseback agreements.

Recent confusion and bid protests arising from projects requiring mandatory prequalification under Public Contract Code section 20111.6 and interpreting its requirements emphasizes the importance for school districts to carefully review their bid documents to reduce or eliminate the possibility of bid protests.  Finally, AB 1581 or the mandatory prequalification requirements do not apply to community college districts.

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