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School Construction Alert

January 2002

The Public School Construction Program:

What Is It and How Does It Affect You?

By Steven E. Brawer, Esq. and Adrienne L. Isacoff, Esq.

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n July 18, 2000, then-Governor Whitman signed into law the Educational Facilities Construction and Financing Act

i, (“EFCFA” or the

“Act”), which established an unprecedented $12 billion Public School Construction Program -- the largest of such programs in the nation. Part of the costs of the Act -- up to $100 million annually -- will be funded by moneys made available to the State from its share of settlement proceeds in the recently concluded multi-state tobacco litigation. All prospective participants in the Program -- school districts, design professionals and contractors -- should familiarize themselves with the comprehensive rules and policies which govern the construction and renovation of public schools throughout the State. These policies reflect an integrated scheme which affects every aspect of this massive public school construction initiative, including such areas as financing, taxpayer approval, project design, bid solicitation and project award, affirmative action efforts, environmental and energy concerns, and implementation of the construction process itself. This article is designed to give an overview of the Program and aspects of the Act that are of particular concern to the three main groups engaged in the construction process -- school boards/ administrators, design professionals and

• contractors. Other articles will be forthcoming to

provide greater detail about specific issues that should be considered by participants, and those seeking to participate, in a public school construction project. Overview of the Program The EFCFA establishes a comprehensive program for financing, design, renovation, repair and new construction of primary and secondary schools throughout New Jersey. Some $12 billion is expected to be spent on a myriad of school construction projects over the next decade. Of that amount, approximately $8.6 billion will be raised by State contracted debt issued by the New Jersey Economic Development Authority (“EDA”), and it is hoped that the balance will be raised through local school district voter approval. The Act was adopted in response to over 25 years of litigation culminating in the New Jersey Supreme Court’s decision in Raymond Abbott v. Fred G. Burke, 153 N.J. 480 (1998), which required the State to provide certain educational infrastructure improvements to needier urban schools in the so- called “Abbott Districts” (as defined in N.J.S.A. 18A:7F-3). Currently, there are thirty Abbott Districts throughout New Jersey, but the EFCFA applies to all of the State’s public schools, not just those in the Abbott Districts. Under the law, the State is authorized to borrow $6 billion for projects in the Abbott Districts, $2.5 billion for non-Abbott District

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This document is published by Lowenstein Sandler PC to keep clients and friends informed about current issues. It is intended to provide general information only.

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projects and $100 million for county vocational

• schools. The Act provides for 100% State funding
• f eligible school construction costs in the Abbott

Districts, while projects in non-Abbot Districts will be funded at each district’s State aid percentage multiplied by 1.15, or a minimum of 40%, whichever is greater. If the application is approved, the Commissioner of the Department

• f Education (“DOE”) would seek legislative
• approval. The EDA will administer the financing

for all school districts and supervise construction in the Abbott Districts and in all districts receiving at least 55% State aid. All other districts have the option of using EDA’s services. State Entities Responsible for Carrying Out the Program As might be expected in an initiative of this magnitude and scope, a wide variety of State agencies and departments are charged with responsibility over different aspects of the

• Program. These include the following:
• The DOE is responsible for reviewing and

approving each school district construction project to ensure that the plans are in compliance with State building standards, referred to as “facility efficiency standards.” These standards, developed pursuant to N.J.S.A. 18A:7G-4(h), will be used to determine the extent to which a district’s construction project qualifies for State aid. They represent the instructional and administrative spaces that have been determined by DOE to be educationally adequate to support the achievement of the Core Curriculum Content Standards established pursuant to the provisions

• f N.J.S.A. 18A:7F-4.
• The EDA is responsible for financing, designing

and constructing all of the school facilities in the Abbott Districts, in districts which receive 55%

• r more in State funding for education and in

certain districts which are subject to enhanced State monitoring. In addition, the EDA is charged with providing grants to fund the State share of school facilities projects approved by the DOE in districts with a district aid percentage of less than 55%. Those districts may elect to have the EDA undertake the financing and/

• r

construction of their school facilities projects.

• The Office of the Attorney General develops and

reviews all the contracts, agreements and regulations associated with implementation of the Program. The Unit of Fiscal Integrity was established within the Office of the Attorney General pursuant to N.J.S.A. 18A:7G-43 and the duties, powers and responsibilities of that Unit have been assigned by the Attorney General to the Office of the Inspector General (“OIG”). The mission of the OIG is to protect the integrity of the New Jersey School Construction Program by reducing waste, fraud and corruption in its administration.

• The Department of Community Affairs, Division
• f Local Government Services (“DCA”) is

responsible for ensuring that contracts awarded in connection with the Program comply with the Public School Contracts Law

ii(“PSCL”) and other

applicable statutes. DCA has developed a process for school districts to certify that all bidding and contract awards conform to the PSCL and that all contracts are completed in accordance with approved plans and specifications.

• The Department of Labor (“DOL”) will monitor

the payment of prevailing wages on all school construction projects in accordance with the

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Prevailing Wage Act

• iii. Also, DOL is charged

with responsibility to administer the registration

• f

all contractors to work

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school construction projects per applicable law

iv.

• The New Jersey Commerce and Economic

Growth Commission will certify businesses as emerging small business, women or minority-

• wned firms under current State set-aside
• requirements. This certification process is the
• nly one recognized by the EDA for pre-

qualification of consultants and classification of contractors.

• The Department of Treasury (“Treasury”) will

monitor the hiring of minority and women contractors to meet the State mandated affirmative action guidelines and coordinate the classification of all contracting firms with the

• EDA. Treasury will also work with EDA on the

issuance of the $8.6 billion in State-contract backed debt. Impact of the EFCFA on School Districts Pursuant to the regulations promulgated to implement the Act, all school districts were required to prepare and submit a long-range facilities plan (“LRFP”) by December 15, 2000, which details the district’s facilities needs and how it will address those needs over the next five years

• v. In every year thereafter ending with a “0”
• r “5” non-Abbott Districts must update their

LRFPs by October 1 of the fiscal year. Before submitting an application for a school facilities project, a district’s LRFP must be approved by the Commissioner of Education as being in compliance with the applicable facilities efficiency standards. If the Commissioner approves the project, eligible costs will be calculated for which the district will be entitled to receive State aid. The Commissioner must also approve additional space that exceeds State standards. If additional space beyond that provided in the facilities efficiency standards is disapproved, the district may either modify its plan or pay for the excess costs. An amendment to the LRFP may be submitted at any time to the Commissioner for review and approval. Projects eligible for State aid include building renovation necessary for compliance with the Uniform Construction Code, health and safety and/

• r educational adequacy as determined by the

facilities efficiency standards; new construction to accommodate increased enrollment; building space necessary to comply with state or federal law concerning students with disabilities; and additional spaces which the Commissioner determines are necessary to meet the educational needs of the district. With the exception of the Abbott Districts, school boards must obtain voter approval for the local share of the construction project. State funding for the project is available once the district secures financing for the local share of the project. The referendum must identify the final eligible costs of the project, as determined by the Commissioner, as well as those amounts that are in addition to eligible costs. If a district fails to obtain voter approval for a particular project after two attempts, it may ask the Commissioner to authorize funding for that project under certain conditions. The EFCFA provides funding for land acquisition and other project initiation costs as well as for “hard” construction expenses. Districts which have received approval of their LRFP’s may include a description of the need for site acquisition in their project applications. If

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approved, a project funding account will be

• established. Districts may also utilize funds from

available accounts such as capital reserve, surplus, etc., for which eligible costs will be

• reimbursed. Districts may choose, instead, to

take an option-to-buy on property that has been determined to build a new school facility and has been approved as part of the LRFP. The option would give the district time to develop and submit its application for approval from the DOE. If approved, the land acquisition would then be funded as part of the approved project application. Which of these alternatives to utilize for site acquisition is a significant question that should be given careful consideration by school boards during the project planning process. School districts must also bear in mind that the New Jersey Supreme Court has directed that the DOE and the districts collaborate on decisions about whether to replace or renovate a facility, which generally requires a feasibility study. The DOE tends to be more conservative in its assessment about the need to replace an existing facility. Districts need to find a balance between pursuing their

• wn

project vision and working cooperatively with the DOE in order to maximize the funding available. Impact of the EFCFA on Design Professionals Abbott Districts are required to use the EDA for construction, as are certain districts subject to enhanced State monitoring and those that have a State aid eligibility of 55% or greater. However, when the eligible costs of a school facilities project are $500,000 or less, the EDA may authorize the district to undertake the project on its own and enter into a grant agreement with the district for the State’s share of the financing. The provisions of the PSCL are applicable to any school facilities project constructed by a district, but not to projects constructed by the EDA. The PSCL provides that any contract for professional services which exceeds the bid threshold (generally $17,500), shall be negotiated and awarded by the board of education by resolution at a public meeting without public advertisement for bids

• vi. The EDA uses a

competitive selection process for projects having design and construction administration fees up to $300,000, whereby a “short list” of firms (approximately six) is selected from a compilation

• f EDA pre-qualified consultants using a

computer-generated random selection process. Short listed consultants are given a scope of work for the project at a pre-proposal conference and are invited to submit proposals to the EDA by a specified date. All proposals are reviewed by a selection committee comprised of school representatives and EDA staff, then ranked, negotiated and awarded to the consultant having the best qualifications for the project, price and other factors considered, in conformance with statutory mandate

• vii. Architects who have previously worked

for a school district should note that the district may request that such consultants be added to the short list of firms invited to submit proposals for all projects other than emergency health and safety projects. Projects with design fees exceeding $300,000 must be publicly advertised in regional newspapers and on the EDA website. Impact of the EFCFA on Contractors In order to be eligible to bid on school construction projects, the EFCFA requires pre- qualification

• f

all general contractors, construction managers and contractors in the following trades: plumbing and gas fitting, HVAC,

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electrical work and structural steel and miscellaneous iron work

• viii. The pre-qualification classification shall

be valid for 24 months. If a contractor has a valid classification from Treasury’s Division of Property and Management and Construction, it may obtain pre-qualified status under the Act by submitting a short-form application developed by the EDA

• ix. In

addition, the Act provides that a mandatory uniform performance evaluation shall be conducted on all school facilities projects undertaken by the EDA, which evaluation shall include, at a minimum, cost, schedule adherence and quality components

• x. The

evaluation will be utilized in reviewing bid submissions. A pre-qualified contractor seeking to bid on school construction projects, as well as any subcontractors required to be named under the Act shall be required to submit a certification evidencing certain necessary credentials including a current certificate of registration issued pursuant to the Public Works Contractor Registration Act

xi; a

“certificate of authority to perform work in New Jersey” issued by Treasury; and any applicable trade licenses. i P.L. 2000, c. 72 (N.J.S.A. 18A:7G-1 et seq.) ii N.J.S.A. 18A:18A-1 et seq. iii N.J.S.A 18A:7G-23 and 34:11-56.25 et seq. iv N.J.S.A. 18A:7G-37 and 34:11-56.48 et seq. v See N.J.A.C. 6:23A-2.2 vi See N.J.S.A. 18A:18A-5 vii See N.J.S.A. 52:34-9.1. viiiSee N.J.S.A. 18A:7G-33 and 34 ix See N.J.S.A. 18A:7G-41 x See N.J.S.A. 18A:7G-36 xi N.J.S.A. 34:11-56.48 et seq. If you have any questions regarding this or any other construction law issue, please call Steven E. Brawer, Chair of the Construction Law Practice Group, at 973- 597-2412, or Adrienne L. Isacoff, an associate in the Construction Law Practice Group, at 973.597.2596. You may also e-mail them at sbrawer@ lowenstein.com and aisacoff@ lowenstein.com.

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