BILL ANALYSIS
AB 649
Page 1
Date of Hearing: April 21, 2009
ASSEMBLY COMMITTEE ON HIGHER EDUCATION
Anthony Portantino, Chair
AB 649 (Nestande) - As Introduced: February 25, 2009
SUBJECT : Contracts: University of California.
SUMMARY : Revises change order processes on University of
California (UC) construction projects and allows for binding
arbitration between the UC Regents and contractors to settle
change order disputes. Specifically, this bill :
1)Establishes a change order process for UC construction
projects as follows:
a) Authorizes UC to order changes, modifications,
deletions, and extra work pursuant to a written proposed
change order.
b) Requires contractors to provide UC with the price of the
change and supporting documentation, in writing, within 20
days of the issuance of the change order.
c) Requires UC to respond within 10 days, as specified, and
requires that the parties proceed to arbitration if
agreement cannot be reached on the amount to be charged or
credited.
d) Requires the existence of a rebuttable presumption that
UC has approved the change order if the UC fails to approve
or reject the scope and pricing within 30 days.
e) Requires a contractor to immediately notify UC, in
writing, if there is a dispute whether work to be performed
is within the scope of work required by the contract and:
i) Requires UC to respond in writing within 20 days if
the contractor's claim is rejected.
ii) Requires the parties to proceed to arbitration if
the dispute cannot be resolved by negotiation.
f) Requires UC to pay the contractor for extra work as that
work progresses, concurrent with payments made under the
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payment schedule, and authorizes the contractor to stop
work if any payment is not made to the contractor as
provided in this bill.
g) Requires requests for extra work to be made in writing.
h) States that failure to comply with the provisions of
this bill does not preclude recovery of compensation for
work performed by the contractor based on specified
remedies outside the contract.
2)Establishes a process for claims arising under UC construction
contracts as follows:
a) Authorizes a contractor to notify the university and
demand an informal conference to settle issues in
controversy if the UC fails to respond, the contractor
disputes the UC's written response, or the parties are
unable to resolve a claim.
b) Requires UC to schedule an informal conference within 30
days of the contractor's written demand.
c) Authorizes the contractor to initiate arbitration
proceedings if any claim remains unresolved following the
informal conference or if the conference does not proceed
within 30 days of the contractor's written demand.
d) Prohibits any requirement that a contractor exhaust any
administrative procedure or pursue a contractual dispute
resolution procedure contained in the contract before
initiating arbitration.
e) Establishes the procedures for conducting the
arbitration, based upon the monetary value of the claim,
and provides that the arbitration procedures be governed by
specified provisions of the Civil Code, as specified.
f) Requires the arbitration costs to be borne equally by
both parties, except that the prevailing party must be
awarded reasonable attorneys' fees and costs.
g) Authorizes the recovery of interest as part of an award,
grants the arbitrator the same authority as a court in
awarding interest, and provides that the commencement of
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the arbitration is equivalent to the filing of an action
under specified Civil law for the purpose of an award of
interest.
h) Authorizes a party to petition the court to confirm,
correct, or vacate the award rendered by the arbitrator.
3)Makes its provisions applicable only to contracts entered into
on or after January 1, 2010.
EXISTING LAW :
1)Establishes UC as a public trust with full powers of
organization and government, as provided, and administered by
the UC Board of Regents.
2)Authorizes the UC Regents to enter into contracts for the
erection, construction, alteration, repair, or improvement to
a university structure, as specified, and requires UC to
competitively bid construction projects in excess of $50,000,
as specified.
FISCAL EFFECT : Unknown
COMMENTS : This bill is double-referred to the Assembly
Judiciary Committee.
Purpose of this bill : According to the author, "The current
procedure for resolving contract management disputes at the
University of California has led to inequitable resolutions of
disputes between parties often leading to construction delays
and litigation. This has resulted in many UC construction bids
not receiving adequate qualified contractors bidding their work
and has even put quality contractors out of business."
What does this bill do ? This bill makes several changes to the
way in which change orders and extra work are settled between UC
and its contractors, including the following:
1)Sets specific time frames for both UC and contractors to
respond to change orders.
2)Requires both parties to enter into arbitration to resolve
disputes.
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3)Creates a rebuttable presumption that UC has accepted a change
order request if UC does not accept or reject the change order
within 30 days.
4)Permits contractors to recover under legal theories outside
the contract.
5)Allows contractors to stop the job if payments are not being
made.
Clarification needed : The time frames listed in this bill do
not specify if "calendar" or "working" days are to be counted.
Staff recommends that the time frames be clarified as "working"
days.
Issues to consider :
1)Are 10 days enough time to reach a decision on a complex
change order? Should this bill include a provision that
allows UC to send a written request to the contractor for
additional time not to exceed a specified period, for example,
60 working days?
2)Allowing a contractor to stop the project if he or she has not
been paid for a change order would be a unique provision in
public works contracts, which assume that the contractor will
eventually be paid because the public entity is solvent.
3)Is it appropriate to allow contractors to recover under legal
theories outside the contract, such as equitable adjustment,
quantum meruit, and quasi-contract, which are legal doctrines
that would authorize an arbitrator to enter a legally
enforceable judgment that is inconsistent with (or
contradictory to) the terms of the contract that were subject
to competitive bidding? For example, the arbitrator would
have the power to disregard the contractor's obligation under
the contract to document the actual cost of labor and
materials associated with change order work or to value the
work based upon measurements more favorable to the contractor
than the documented actual cost of performing the work.
4)These provisions are not currently required on any public
works in California and would be applied only to UC. Should
this bill apply to all public entities?
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Previous legislation : AB 523 (De La Torre) of 2007, was
substantially similar to this bill before it was gutted and
amended in the Senate.
REGISTERED SUPPORT / OPPOSITION :
Support
Air Conditioning-Sheet Metal Association
Air-conditioning & Refrigeration Contractors Association
Associated General Contractors of California
California Association of Sheet Metal and Air Conditioning
Contractors' National Association
California Chapters of the National Electrical Contractors
Association
California Fence Contractors' Association
California Legislative Conference of the Plumbing, Heating and
Piping Industry
California State Association of Electrical Workers
California State Council of Laborers
California State Pipe Trades Council
Construction Employers Association
Engineering & Utility Contractors
Engineering Contractors' Association
Fence Contractors' Association, California Chapter
Flasher/Barricade Association
Golden State Builders Exchanges
Marin Builders' Association
State Building and Construction Trades Council of California
Western States Council of Sheet Metal Workers
Opposition
None on file.
Analysis Prepared by : Sandra Fried / HIGHER ED. / (916)
319-3960