WHAT IS LEASE-LEASE BACK IN CONSTRUCTION AND HOW HAS IT CHANGED IN 2017?

The Previous  Law:

The Lease-Lease Back construction law authorizes a school district to lease a school site to a contractor for a token amount (say for example $1), if the lease contract requires the contractor to construct, or provide for the construction of, a building to be used by the school district, so long as the title to the building would vest in the school district at the end of the lease.  The contractor will then build the school and lease it back to the district for up to 40 years.  After the lease period, the property’s ownership will revert back to the district.

Prior to January 2017, one feature of the law was that a school contractor could be chosen without competitive bidding.  This presented a lot of issues as you can imagine because it was contrary to the notions of fairness that are present in all areas of public contracting.

Its Effects:

A lot of misuse of this law happened.  School boards and administrators were building facilities without going through the difficult process of asking voters to approve bonds and therefore tax themselves.

Of course some school officials also used this to avoid competitive bidding altogether. So the came up with projects, where the “leases” would last only through construction, at the end of which the contractor would be paid off, thus cutting off the other contractors from a chance to participate at all.

New Law:

As of January 2017, the law has been changed.  School districts must now advertise for bids for these projects.  The change allows a larger pool of contractors to participate and present competitive bids.  Such a process is meant to ensure that, like any other public contract job, the lowest responsive bidder will win.

This amendment also provides for payment of costs, but not profit, to contractors who performed work on a project, but a court later finds they were not in compliance with the former law.

This is an important development.  If your company is involved in public contracting, make your bidding and estimating departments aware of this new law.  We at Ghassemian Law Group consistently help contractors involved in public contracting with their contracts as well as bid protests.  Please call if you have any questions.

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