- Will any of the schools be closed during construction? What are the plans for relocation of students during construction?
- What is a lease-leaseback agreement? Why do we have these types of agreements with contractors who are building new or upgrading existing school facilities in Piedmont?
- Why are the District”’s payments to the contractors structured as lease payments?
Will any of the schools be closed during construction? What are the plans for relocation of students during construction?
Yes. The District has leased a vacant school in Emeryville for the temporary relocation of elementary students (with the exception of Kindergarten students) during the construction phase of the Seismic Safety Bond Program. Havens students will be relocated to Emeryville during the 2009-10 academic year, Wildwood students will follow in 2010-2011, and Beach students will follow in 2011-2012. The Emeryville site is approximately five miles from Piedmont, and the District will provide transportation to and from the site.
During construction at PHS during the 2009-2010 school year, PHS will relocate some classes and programs to portable classrooms on the Havens site.
What is a lease-leaseback agreement? Why do we have these types of agreements with contractors who are building new or upgrading existing school facilities in Piedmont?
Lease-leaseback agreements are an increasingly common form of public-private partnership used for construction of new school facilities in California. Under a typical lease-leaseback agreement, a school district leases property to a private developer for $1 per year (the “site lease”). The developer then finances construction of new facilities, and leases the facilities to the district over a period of time (the “facilities lease”). Title to the new facilities vest in the district at the expiration of the facilities lease.
Lease-leaseback agreements are preceded by a pre-construction services agreement (or “PSA”), under which the district and developer work together from the early stages of the design phase to develop the design and construction plans and conduct value engineering. In contrast, under conventional school construction projects, the district could not start the process of selecting a contractor until the California Division of the State Architect (or “DSA”) approves the completed design and construction plans. At that point, value engineering may make it necessary to modify construction plans and return to DSA for approval of the modifications, causing significant delays.
Following completion of the design, construction planning and value engineering phase, and following DSA approval, the school district and the developer negotiate the lease-leaseback agreement and guaranteed maximum price (or “GMP”). Notably, lease-leaseback agreements are unlike most public works contracts because these agreements are not subject to competitive bidding. Nonetheless, the California Education Code explicitly authorizes districts to use lease-leaseback agreements for the construction of school facilities. The State Legislature has recognized that the collaborative approach to design and construction planning is a proven method to deliver school facilities on time, on budget, and with a reduced level of public agency risk. More to the point, the Legislature has recognized that the collaborative approach promotes cost containment as well as transparency of cost and the negotiation of fair pricing. For these reasons, the Legislature has approved collaborative design and negotiation of a GMP as an alternative to competitive bidding.
Following negotiation of the lease-leaseback agreement and GMP, the developer can start construction almost immediately because the developer is already familiar with the plans and specifications. Also, the project can move relatively swiftly from the start of construction to completion, because typically there are no change orders. In contrast, in conventional school construction projects, lengthy delays between selection of the contractor and the start of construction, and additional, lengthy delays due to change orders are not unusual.
For these reasons, the lease-leaseback process streamlines the design and construction of schools by promoting collaboration between the school district and developer before DSA approval is granted. In addition, the GMP component of the lease-leaseback agreement offers school districts some protection against inflation, because the district does not bear the increase in cost of materials and labor that may occur during the construction phase.
Why are the District”’s payments to the contractors structured as lease payments?
A significant advantage of lease-leaseback agreements is that they offer school districts flexible financing. As the developer pays for the construction and recoups the cost through the facilities lease, the school district does not have to pay the construction costs at the start or even during the construction phase – the costs are paid through lease payments that extend over several years. As the school district pays for the construction in relatively small increments through lease payments, the district can spread available funds over a variety of projects at one time.
In this case, the District’s use of lease-leaseback agreements makes it possible for the District to proceed with all Phase I projects (the Maintenance Facility, Havens, Ellen Driscoll Auditorium, PHS and PMS) concurrently. In addition, the use of lease-leaseback agreements makes it possible for the District to proceed despite the current, temporary interruption in payment of State school modernization matching funds.