BILL ANALYSIS
AB 649
Page 1
Date of Hearing: May 20, 2009
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Kevin De Leon, Chair
AB 649 (Nestande) - As Amended: May 6, 2009
Policy Committee: Higher
EducationVote: 9-0
Judiciary 10-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill establishes statutory procedures for administration of
change orders and claims on University of California (UC)
construction projects, for contracts entered into after January
1, 2010. Specifically, this bill:
1)Establishes a change order process as follows:
a) Requires contractors to provide UC with the price of
proposed change order and supporting documentation, in
writing, within 20 working days of the issuance of the
change order.
b) Requires UC to respond within 10 working days, as
specified, and requires that the parties proceed to
arbitration if agreement cannot be reached on the amount to
be charged or credited.
c) Creates a rebuttable presumption that UC has approved
the change order if it fails to approve or reject the scope
and pricing within 30 working days.
d) Requires a contractor to immediately notify UC, in
writing, if there is a dispute whether work to be performed
is within the contract scope of work, and:
i) Requires UC to respond in writing within 20 working
days if the contractor's claim is rejected.
ii) Requires the parties to proceed to arbitration if
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the dispute cannot be resolved by negotiation.
e) 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.
2)Establishes a claims process for 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 working 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 working days of the contractor's written demand.
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.
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.
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FISCAL EFFECT
UC anticipates that mandatory arbitration, combined with the
requirement to award attorneys fees if the contractor makes any
recovery will:
1)Increase the number of arbitration actions to be filed,
processed, and coordinated between the Office of the President
and the campuses at an estimated cost of around $600,000
annually.
2)Increase attorneys fees associated with the increased
arbitrations at a cost of $11 million to $34 million annually.
These costs assume 50 additional arbitrations related to claims
under $500,000 and 10 additional arbitrations related to claims
over $500,000 and include payment of some portion of claimants'
attorneys' fees in half these cases.
The university also anticipates increased project costs from
delays in project completion due to the stop work provision.
COMMENTS
1)Purpose . For most state and local building project contracts,
current law establishes a process for resolving contract
disputes. For state agencies, this generally involves
exhausting administrative remedies and submitting of the
dispute to arbitration, or as provided in the contract. UC 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. 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." The author believes
this bill will address problems relating to change orders by
providing "a fair and equitable dispute resolution process,
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prompt review and approval of changes orders, and timely
payment for work performed and accepted."
2)Opposition . UC argues that the bill will impose significant
costs on the system and "would also permit contractors to
recover damages under legal theories that are inconsistent
with the contract." UC contends that, following consultation
with the contracting community, it has recently modified its
contracts to address some of the concerns raised by
contractors.
3)Prior Legislation . AB 523 (De La Torre) of 2007 was
substantially similar to this bill prior to be amended to
address another topic.
Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081