LEASE-LEASEBACK PROJECT DELIVERY: The Patient is Critical; Can She Be Saved? Timothy M. Truax L AW O FFICES OF T IMOTHY M. T RUAX PC AGC of California Building Division Omni Rancho Las Palmas October 22, 2015

Davis v. Fresno USD Holdings: LLB is a legal exception to competitive bidding when there is a genuine lease arrangement The exception is not available when the LLB arrangement: Is a disguised construction agreement; Does not include contractor financing; and Does not provide for district's use of facilities "during the term of the lease." 2L AW O FFICES OF T IMOTHY M. T RUAX PC

Davis v. Fresno USD Holdings: Contractor's preconstruction services for the district may be a conflict of interest under §1090 of the Government Code because the contractor could be considered a district "employee" with a financial interest in the LLB contract 3L AW O FFICES OF T IMOTHY M. T RUAX PC

Davis v. Fresno USD History: Decision issued June 6, 2015 Modification issued June 19, 2015 Petitions for review and depublication denied August 26, 2015 Back to trial court for ruling on merits – standing will be argued (see below) Effect: LLBs coming to a halt and claims for disgorgement are being pursued by taxpayers 4L AW O FFICES OF T IMOTHY M. T RUAX PC

Options Following Davis: Court options None left; case is “good law” “Victory” for contractor in trial court has little effect on other projects Legislative options One bill introduced on disgorgement; did not get hearing in committee Document options 5L AW O FFICES OF T IMOTHY M. T RUAX PC

Legislative Options: Revise LLB statutes Clarify Government Code §1090 Prevent disgorgement Expand other forms of procurement, including best value (see below) 6L AW O FFICES OF T IMOTHY M. T RUAX PC

LLB Options: Eliminate/clarify financing and “use during term” requirements Require contractor selection process (similar to CM or design professional) Additional requirements from Labor (effective Jan. 2016, must use skilled workforce per AB 566) Require bidding of subcontracts Set minimum contract value for use of LLB Move to best value procurement (LAUSD bill) 7 L AW O FFICES OF T IMOTHY M. T RUAX PC

Conflict of Interest Options: Clarify that companies hired to perform pre- construction services are not "employees" under Government Code §1090 See Public Contract Code § – applicable to State contracts Confirm no taxpayer standing - see San Bernardino County v. Superior Court (4 th Dist., August 17, 2015) 8L AW O FFICES OF T IMOTHY M. T RUAX PC

Disgorgement Options: Amend Public Contract Code §5110 so it applies to LLB contracts and not just competitively bid contracts Permit recovery of profit? Retroactive effect? (pending bill applies only to contracts executed prior to July 1, 2015) 9L AW O FFICES OF T IMOTHY M. T RUAX PC

Document Options: Fixed monthly payments Payments after completion Occupancy by district during lease term Require bidding of subcontracts 10L AW O FFICES OF T IMOTHY M. T RUAX PC

Group Discussion What should we do? Will LLB survive? Political issues influencing legislators What can you do? 11L AW O FFICES OF T IMOTHY M. T RUAX PC

Thank You Very Much! Contact Tim Truax: L AW O FFICES OF T IMOTHY M. T RUAX PC 12