LEASE-LEASEBACK PROJECT DELIVERY:The Patient is Critical;

Can She Be Saved?

Timothy M. TruaxLAW OFFICES OF TIMOTHY M. TRUAX PC

AGC of California Building DivisionOmni 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."

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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

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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

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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

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Legislative Options:

• Revise LLB statutes• Clarify Government Code §1090• Prevent disgorgement• Expand other forms of procurement,

including best value (see below)

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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)

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Conflict of Interest Options:• Clarify that companies hired to perform pre-

construction services are not "employees" under Government Code §1090

• See Public Contract Code §10365.5 – applicable to State contracts

• Confirm no taxpayer standing - see San Bernardino County v. Superior Court (4th Dist., August 17, 2015)

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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)

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Document Options:

• Fixed monthly payments• Payments after completion• Occupancy by district during lease term• Require bidding of subcontracts

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Group Discussion

• What should we do?• Will LLB survive?• Political issues influencing legislators• What can you do?

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Thank You Very Much!

Contact Tim Truax: tim@truaxlaw.com310.662.4755

LAW OFFICES OF TIMOTHY M. TRUAX PC

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