AB 361 Authorizes School Districts to Use Best Value Procurement for Public Projects

10.21.2025

On October 1, 2025, Governor Gavin Newsom signed into law Assembly Bill (“AB”) 361 (Stats, 2025, Ch. 144), to thereby authorize school districts, on and after January 1, 2026, to use a best value procurement method for public projects anticipated to cost more than $1,000,000. (Pub. Contract Code (“PCC”) § 20119.8 et seq.) Previously, AB 1185 (Stats 2015, Ch. 786) established a pilot program that authorized the Los Angeles Unified School District (“LAUSD”) to use the best value procurement method for public projects exceeding $1,000,000. AB 361 made the authority for LAUSD to use the best value procurement method permanent as of January 1, 2026. In addition, AB 361 created a pilot program authorizing, until January 1, 2031, the governing board of any school district (other than LAUSD) to use the best value procurement method for public projects costing in excess of $1,000,000. The legislative intent underlying AB 361 is to provide school districts with “an optional, alternative procedure for bidding and building school construction projects.”

AB 361 defines “best value” to mean “a procurement process whereby the contractor is selected on the basis of objective criteria for evaluating the qualifications of bidders, with the resulting selection representing the best combination of price and qualifications.” (PCC § 20119.8(a).) The governing board of a school district intending to use the best value procurement method must first adopt and publish mandatory procedures and guidelines for evaluating bidder qualifications, to ensure that the best value selections are the result of a fair and impartial process. The school district must implement a process that allows qualification ratings to be determined without revealing the identities of the bidders or their bid prices, and the contractor that constitutes the best value is to be determined by dividing its bid price by its qualification rating – the lowest quotient being the “best value.”

If the bidder determined to be the best value refuses or fails to execute the contract, the governing board, if it determines it to be in the school district’s best interests, may award the contract to the bidder with the second lowest best value score. Likewise, if the second lowest scoring bidder fails or refuses to execute the contract, the governing board may award the contract to the third lowest scoring bidder. Because AB 361 provides authority to award to the third lowest scoring bidder, this could be interpreted to preclude an award to a bidder further down the list, if any. Subject to the foregoing, AB 361 requires that the governing board of a school district using the best value procurement method either award the contract to the bidder whose bid represents the best value, or reject all bids.

Notably, a school district may not prequalify or shortlist a bidder, unless the bidder provides an enforceable commitment that it and its subcontractors of any tier will use a skilled and trained workforce to perform all work within an apprenticeable occupation in the building and construction trades, in accordance with Public Contract Code Section 2600 et seq. However, if a project labor agreement (as defined in PCC Section 2500) will be applicable to a public project, the skilled and trained workforce requirements will not apply to that project.

Many California school districts use the Lease-Leaseback (“LLB”) construction delivery method authorized by Education Code Section 17406 and, therefore, already have experience using a best value procurement method. Aside from the leases and preconstruction services associated with LLB, one difference from LLB may be what procedures and guidelines the school district will need to adopt in order to use the AB 361 best value procurement method. AB 361 appears to give school districts broad discretion to establish such procedures and guidelines, while Education Code Section 17406 sets forth requirements for procedures and guidelines that, at a minimum, shall be applicable to LLB. Still, the intent of the AB 361 requirement for procedures and guidelines is to establish a “fair and impartial” process, which is the same intent underlying the requirement for LLB procedures and guidelines in Education Code Section 17406. For that reason, a school district might look to modifying and adapting its LLB procedures and guidelines as a basis for the required best-value procedures and guidelines. However, school districts will need to establish procedures to prevent revealing bidder identities and bid amounts until qualification ratings have been determined, and for dividing the bid amounts by the qualification ratings to determine the best value contractor.

With respect to the qualification criteria, AB 361 defines “qualifications” to mean “financial condition, relevant experience, demonstrated management competency, labor compliance, [and] the safety record of the bidder,” and AB 361 further defines each of those terms within the definition of qualifications. Therefore, the criteria used to prequalify bidders presumably should, at a minimum, be consistent with the AB 361 definitions, but school districts will not be precluded from establishing additional qualification criteria that may help achieve fewer change orders, less schedule delays, and fewer claims.

A school district that elects to use the best value procurement method, or multiple school districts working together, must submit a report to the appropriate policy and fiscal committees of the Legislature on or before January 1, 2030. The report must be prepared by an independent third party, and the school districts are required to pay the costs of preparing the reports. AB 361 sets forth a non-exhaustive list of the information that must be included in such reports, including contract award amounts, the names of selected best value contractors, descriptions of any written bid protests and their resolutions, descriptions of the prequalification process and the criteria used to evaluate bids, and an assessment of any projects completed using the best value method.

We believe that AB 361 reflects a broader trend in public procurement policy aimed at striking a balance between efficiency and accountability, including, with respect to school districts, larger-scale school construction projects. However, AB 361 will not operate in a vacuum. School districts that elect to participate in the pilot program may already have opted into the California Uniform Public Construction Cost Accounting Act (“CUPCCAA”), and it’s possible someone could assert that the election to be subject to CUPCCAA precludes use of the best value procurement, similar to assertions previously made regarding CUPCCAA and the LLB construction delivery method. Ultimately, it was determined that there was no conflict with CUPCCAA school districts using LLB, and we believe it likely will be the same with CUPCCAA and best value, especially as the underlying legislative intent is to provide an “alternative” construction delivery method for use by school districts.

One issue that has not been addressed in connection with this newly-authorized best value procurement method is the potential for conflicts of interests. Generally, with strict competitive bidding, the contractors that bid on a project will not be participating in developing the plans for the project or providing preconstruction services for the project. Subject to safe harbor provisions set forth in Government Code section 1097.6, Government Code Section 1090 (which relates to contractual conflicts of interests) poses a potential roadblock to contractors consulting on the planning of a project or providing preconstruction services for a project to be procured using the best value procurement method. Because analyzing potential conflicts can be a nuanced task, school districts using this newly-authorized procurement method should be cautious about how they engage with contractors or consultants that may later want to submit a bid for a project.

Again, the use of the best value procurement method authorized by AB 361 is optional, meaning that a school district is not required to adopt procedures and guidelines, or take any other actions, unless the school district desires to use the best value procurement method. The best value procurement method could in some situations prove beneficial, as indicated by LAUSD, by reducing change orders on a project. An option the best value procurement method does not appear to allow is for the contractor that will be constructing the project to provide preconstruction services in connection with the project. Because there are significant benefits to a project resulting from preconstruction services, and because the leasing aspects of LLB are typically not problematic, we presume that at least some school districts already using the LLB construction delivery method will want to continue doing so, rather than use the best value procurement method authorized by AB 361.

In summary, AB 361 aims to provide school districts with the option to use a qualifications-oriented competitive-bidding procurement method, as an alternative to strict competitive bidding. However, there may be traps for the unwary, and best value procurement may not be the first choice for all situations. If you have questions about this Alert or would like guidance regarding implementation of the AB 361 best value procurement method, please contact the authors of this Alert or your usual AALRR facilities-construction counsel.

Special thanks to our law clerks, Elyse Capelli and John Adamson, for their extensive efforts on this Alert.