BILL ANALYSIS
AB 649
Page 1
Date of Hearing: April 28, 2009
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 649 (Nestande and Portantino) - As Introduced: February 25,
2009
As Proposed to be Amended
SUBJECT : PUBLIC WORKS Contracts: University of California
KEY ISSUE : Should the process of resolving "change order"
disputes between the University of California and private
contractors be modified so as to ensure timelier resolution of
such disputes?
FISCAL EFFECT : As currently in print this bill is keyed fiscal.
SYNOPSIS
This bill seeks to provide a fairer and timelier approach to
handling "change order" disputes in contracts for construction
projects at the University of California (UC). The bill would
establish a series of timelines by which change order requests
shall be requested and responded to. The measure also provides
procedures for informal dispute resolution and arbitration of
disputes that cannot be resolved informally. Supporters argue
that the current procedure for resolving contract modification
disputes has led to inequitable resolutions and resulted in
construction delays and litigation, and that this bill will
ensure prompt review and resolution of disputes. This bill is
similar to last year's AB 523 (De La Torre), which was not heard
by this Committee and was eventually gutted and amended in the
Senate to deal with another topic. That bill, like this one,
was supported by a number of contractor and building
associations. Last year's bill was opposed by UC on the grounds
that it would ultimately lead to increased litigation and
mandated arbitration costs, while at the same time over-riding
UC internal policies regulating dispute resolution. UC has
apparently decided not to take a position on the present bill,
which passed out of the Assembly Higher Education Committee on a
9-0 vote.
SUMMARY : Establishes procedures for handling "change orders" on
University of California (UC) construction projects, including
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procedures for resolving conflicts through informal conferences
and arbitration, as specified. 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) Creates a rebuttable presumption that UC has approved
the change order if it 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
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.
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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. Upon demand of a contractor,
the university shall schedule an informal conference within
30 days of the contractor's written demand for settlement
of issues in controversy.
b) 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.
Specifies that the contractor shall not be required to
exhaust any administrative procedure or pursue a
contractual dispute resolution procedure contained in the
contract before initiating arbitration.
c) 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.
d) Requires the arbitration costs to be borne equally by
both parties, except that the prevailing party must be
awarded reasonable attorneys' fees and costs.
e) 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
the arbitration is equivalent to the filing of an action
under specified Civil law for the purpose of an award of
interest.
f) 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 :
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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. (Public Contract Code Sections 10500 et seq.)
3)Establishes procedures for resolution and arbitration of state
public works contract disputes between state and local
agencies, on the one hand, and contractors and subcontractors,
on the other hand. These provisions do not apply, however, to
the University of California. (Public Contract Code Sections
10240 to 10245.4 and 22200 to 22201.)
COMMENTS : For most building project contracts offered by state
and local agencies, existing law establishes a system for
resolution of contract disputes. For state agencies, that
process generally involves exhaustion of administrative remedies
and submission of the dispute to arbitration, or as provided in
the contract. (See Public Contract Code sections 10240 through
10245.4 for state agencies and Sections 22200-22201 for local
public agencies.) The University of California, however, is
endowed with independent powers not accorded to other public
agencies, and its contracts for building projects and other
works of improvement are governed by separate provisions in the
Public Contract Code (sections 10500 et seq.). Methods of
dispute resolution are generally established by terms of the
contract as permitted by UC internal policies.
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." This bill, the author
believes, will address problems relating to change orders by
providing "a fair and equitable dispute resolution process,
prompt review and approval of changes orders, and timely payment
for work performed and accepted." Specifically, this bill sets
out a series of time lines by which either UC or a contractor
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may seek a modification or clarification of the scope of work
required under the contract, and the time that the other party
has to respond. The bill further establishes methods of dispute
resolution, including procedures and timelines for scheduling
informal conferences prior to seeking arbitration.
The provisions of this bill would only apply to contracts
entered into on or after January 1, 2010.
Authors' Proposed Amendments : As noted in the Assembly
Committee on Higher Education analysis, the various timelines
that appear throughout the bill do not specify whether the word
"days" means "calendar" days (which would include weekends and
holidays) or "working" or "business" days, which would exclude
week-ends and holidays. The authors therefore propose to amend
the bill by changing the term "days" throughout to "working
days."
In order to address concerns that the bill may be seen as
creating an unusual precedent of allowing a contracting party to
avoid or abrogate statutory or contractual terms, the authors
prudently propose to delete the provision relieving contractors
from the requirement to exhaust administrative remedies or to
pursue any contractual dispute resolution procedure contained in
the public works contract, or otherwise, as a condition
precedent to initiating arbitration. (Page 4, lines 2-6.)
The Committee may wish to consider a further issue raised by the
Assembly Committee on Higher Education, but which could not be
addressed by amendment given the short time frame between
hearings. According to the Assembly Committee on Higher
Education, allowing a contractor to stop the project if he or
she has not been paid for a change order (Page 3, lines 19-21)
would be a unique provision in public works contracts, which
generally assume that the contractor will eventually be paid
because the public entity is solvent.
Recent Related 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
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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 : Thomas Clark / JUD. / (916) 319-2334