BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 629|
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UNFINISHED BUSINESS
Bill No: SB 629
Author: Liu (D)
Amended: 6/23/09
Vote: 21
SENATE JUDICIARY COMMITTEE : 4-1, 4/14/09
AYES: Corbett, Harman, Florez, Leno
NOES: Walters
SENATE FLOOR : 31-6, 6/1/09
AYES: Alquist, Calderon, Cedillo, Cogdill, Corbett,
Correa, Denham, DeSaulnier, Florez, Hancock, Harman,
Hollingsworth, Huff, Kehoe, Leno, Liu, Lowenthal,
Maldonado, Negrete McLeod, Oropeza, Padilla, Pavley,
Romero, Runner, Simitian, Steinberg, Wiggins, Wolk,
Wright, Wyland, Yee
NOES: Aanestad, Ashburn, Benoit, Cox, Dutton, Strickland
NO VOTE RECORDED: Ducheny, Walters, Vacancy
ASSEMBLY FLOOR : 52-22, 8/20/09 - See last page for vote
SUBJECT : Private works of improvement: retention
proceeds
SOURCE : American Subcontractors Association, California
DIGEST : This bill, applicable to all contracts entered
into on or after January 1, 2010, prohibits retention
proceeds withheld form any payment made by an owner to the
original contract from exceeding five percent of the amount
CONTINUED
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otherwise due under the contract. This bill prohibits the
percentage of the retention proceed withheld from any
payment made by the original contractor to any
subcontractor, or by a subcontractor to another
subcontractor, from exceeding five percent of the amount
otherwise due under the contract, or the percentage of each
payment that may be withheld under the contractor,
whichever is less.
Assembly Amendments deleted provisions requiring proceeds
to be deposited into an interest-bearing escrow account.
ANALYSIS : Existing law provides that a prime contractor
or subcontractor must pay subcontractors, to the extent of
their interest therein, within 10 days of receipt of any
progress payment, unless otherwise agreed to in writing.
In the event of a good faith dispute over the amount due,
the prime contractor or subcontractor may withhold up to
150 percent of the disputed amount. This section applies
to private and public works of improvement, except as
specified.
Existing law provides for the distribution of any proceeds
withheld by a project owner (retention proceeds) within 45
days of completion of a private work of improvement.
However, an owner may withhold up to 150 percent of any
disputed amount. Existing law also provides that an
original contractor must pay subcontractors their share
from the received retention within 10 days, but may
withhold up to 150 percent of any disputed amount.
Existing law provides that on a private work of improvement
the owner shall pay progress payments due under a contract
within 30 days of a demand for payment, but may withhold up
to 150 percent of any disputed amount.
Existing law defines "date of completion" as the date of
issuance of any certificate of occupancy covering the work
by the public agency issuing the building permit; the date
of completion indicated on a valid notice of completion; or
the date of completion as defined in Section 3086 (the
occupation or use of a work of improvement accompanied by
cessation of labor thereon; acceptance by the owner of the
work of improvement; or cessation of labor on a work of
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improvement for a continuous specified period).
This bill, applicable to all contracts entered into on or
after January 1, 2010, prohibits retention proceeds
withheld form any payment made by an owner to the original
contract from exceeding five percent of the amount
otherwise due under the contract.
This bill prohibits the percentage of the retention
proceeds withheld from any payment made by the original
contractor to any subcontractor, or by a subcontractor to
another subcontractor, from exceeding five percent of the
amount otherwise due under the contract, or the percentage
of each payment that may be withheld under the contract,
whichever is less.
This bill provides that notwithstanding any other provision
of law, with respect to a contract between an owner and an
original contractor, between an original contractor and a
subcontractor, or between two subcontractors, any retention
proceeds withheld pursuant to this bill by the owner,
original contractor, or subcontractor shall be released
within 45 days after the date the party seeking payment of
retained amounts serves to the hiring party a fully
executed form entitled "Conditional Wavier and Release Upon
Final Payment" as set forth in paragraph (3) of subdivision
(d) of Section 3262. Notwithstanding any other provision
of law, the party seeking payment of the retained amounts
may not serve the form upon the hiring party until the
party seeking payment of the retained amounts has completed
the scope of work in its contract and the hiring party.
This bill provides that it would be against public policy
for any party to require any other party to waive any
provision of the bill.
This bill specifies that the provisions of the bill do not
prohibit the withholding of funds in the event of a
dispute.
The bill specifies that the provisions of the bill shall
not apply if the owner or original contractor provides
written notice to the original contractor or subcontractor,
prior to or at the time the bid is requested, that
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performance and payment bonds may be required and the
original contractor or subcontractor subsequently is unable
or refused to provide to the owner or original contractor a
performance and payment bond issued by an admitted surety
insurer. If the expense of the bond or bonds is to be born
by the original contractor or subcontractor, the
requirement shall be specified in the written or published
requests for bids.
Related Pending Legislation
SB 802 (Leno) would prohibit retention proceeds from
exceeding five percent of a payment, as specified, for all
contracts entered into on or after January 1, 2010, between
a public entity and an original contractor, between an
original contractor and a subcontractor, and between all
subcontractors. The bill would also prohibit the
Department of General Services (DGS) from withholding more
than five percent of a contract price until final
completion and acceptance of the project. This bill has
been referred to the Senate Governmental Organization
Committee.
AB 396 (Fuentes) would, among other things, prohibit
retention proceeds from exceeding five percent of a
payment, as specified, for all contracts entered into on or
after January 1, 2010, between a public entity and an
original contractor, between an original contractor and a
subcontractor, and between all subcontractors. This bill
would also prohibit DGS from withholding more than five
percent of a contract price until final completion and
acceptance of the project. The bill has been referred to
the Assembly Business and Professions Committee.
Prior Legislation
SB 593 (Margett), Chapter 341, Statutes of 2008, prohibits
the Department of Transportation from withholding retention
proceeds when making progress payments to a contractor for
works performed on a transportation project. This bill
sunsets on January 1, 2014.
SB 619 (Migden), 2007-08 Session, would have prohibited
retention proceeds from exceeding five percent of a
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payment, as specified, for all contracts entered into on or
after January 1, 2008, between a public entity and an
original contractor and a subcontractor, and between all
subcontractors. The bill would also have prohibited DGS
from withholding more than five percent of a contract price
until final completion and acceptance of the project. The
bill died on the Assembly Floor.
AB 1622 (Lieu), 2005-06 Session, would have provided, with
respect to any retention proceeds in a contract entered
into on or after January 1, 2006, between an owner and an
original contractor relating to the construction of a
private work of improvement, retention proceeds withheld
from a payment by the owner to the original contractor, by
the original contractor to a subcontractor, or by any
subsequent subcontractors would be limited to maximum
retention rates, as specified. The bill would have
required that within 45 days after the date of completion
by the contractor or subcontractor, the retention proceeds
be released with interest. The bill would also have
provided that the provisions governing retention proceeds
that relate to the withholding of disputed amounts would
not be affected by the bill. The bill was vetoed.
SB 920 (Cox), 2005-06 Session, would have, in a contract
with DOT that utilizes federal funds, authorized an
original contractor in a contract between the original
contractor and any subcontractor to withhold five percent
retention when making payments to the subcontractor for
work performed. The bill died on the Senate Appropriations
Committee's suspense file.
AB 940 (Miller and Mazzoni), 1997-98 Session, would have,
among other things, specified the amount of retention
proceeds permitted to be withheld with respect to contracts
between public entities, contractors, and subcontractors,
relating to the construction of any public work of
improvement entered into on or after January 1, 1998. This
bill was vetoed.
AB 1949 (Conroy), 1995-96 Session, would have, until
January 1, 2000, and with respect to contracts entered into
on or after January 1, 1997, that related to the
construction of public works of improvement, revised the
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limits on the amount of retention proceeds that may be
withheld, and the amounts of progress payments to be made,
subject to certain conditions. The bill was vetoed.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 8/26/09)
American Subcontractors Association, California (source)
Advanced Installations
Advanced Lab Concepts
Ahlborn Fence & Steel Inc.
Ahlborn Structural Steel Inc.
Alternative Energy
Anchor Construction Specialties, Inc.
Architectural Wood Design Inc.
Arise/Waco Scaffolding & Equipment
Bagatelos Architectural Glass Systems Inc.
Barbara Roddick at Stoer & Graff Inc.
Bayview General Engineering Inc.
Bellicitti & Fellicciotti Constructio Co. Inc.
Brik-art
Brudvik Inc.
Bullet Guard Corp.
California Association of Sheet Metal and Air Conditioning
Contractors' National Association
California Erectors Bay Area Inc.
California Fence Contractors' Association
Consolidated Partitions Inc.
Construction Industry Products
Construction Preliens & Paperwork
Continental Electric Inc.
Continental Plumbing Inc.
DPW Inc.
Eckles Construction Inc.
Engineering Contractors Association
Engineering & Utility Contractors
Ertel Cabinets & Mill Work Inc.
F.M. Thomas Air Conditioning Inc.
Finishline Wood Crafters Inc.
Flasher/Barricade Association
Golden State Builders Exchange
Jake Lee at Stroer & Graff Inc.
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James Riolo Paving Inc.
Ks Telecom Inc.
Karsyn Construction
Legislative Conference of the Plumbing, Heating and Piping
Industry, California Chapter
Lescure Company Inc.
M.F. Filice & Son Surfaces
Magik Glass and Door
Marin Builders' Association
McCurley & Day Masonry
McLennon Law Corp.
Merrit Construction Inc.
Mid-State Steel Erectors Inc.
Muhlhauser Steel Inc.
National Concrete Cutting Company
National Electrical Contractors Association, California
Chapter
North Bay Drywall & Plastering Inc.
O'Brien Steel Erectors Inc.
P.T.S. Masonry Inc.
Pacific Mechanical Contractors
Partition Specialties Inc.
Pike Heating & Air Conditioning
Porter Law Group
Q.I.S. Inc.
Qualify Fence Company Inc.
R & R Maher Construction Co. Inc.
Randy Bogs Masonry Inc.
Rescue Concrete Inc.
Richwell Steel Company Inc.
Risee Mechanical Inc.
Roger Lee at Stroer & Graff Inc.
Russell Hinton Company
Salvadore Altamirano at Stoer & Graff Inc.
San Joaquin Steel Company Inc.
Schroeder Iron Corporation
Seawright Custom Precast Inc.
Service Metal Products Inc.
Sierra West Construction Inc.
Superior Caseworks Inc.
Supercraft Supply Inc.
Swirdoff Construction Company
Terra Pave Inc.
The Patterson Company Inc.
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Tri-Co Floors
Tru-form Construction Corp.
Union Roofing Contractors Association
Waco Scaffolding & Equipment
Wagner Electric
Wayne E. Swisher Cement Contractor Inc.
Williams & Sons Masonry Inc.
OPPOSITION : (Verified 8/26/09)
Associated General Contractors of California
Construction Employers' Association
ARGUMENTS IN SUPPORT : The sponsor, American
Subcontractors Association, California, provides the
following reasons for the bill:
1.Right now cash flow is the most important element in
construction. Yet, on most projects, 10 percent of money
that is due for work properly performed by subcontractors
is withheld until the entire project is completed. This
means a subcontractor's entire profit margin is absorbed
in the retention. Trades working on the job may go years
before receiving their final payment.
2.Without full payment, subcontractors cannot pay
employees, contribute to their benefit programs, or buy
adequate supplies and tools. The ability to seek or
begin new projects can be delayed as a result.
3.Retainage increases bid prices because contractors have
to account for loss of use and financing costs of
retained funds.
4.Retainage is unnecessary because performance bonds and
the right to withhold payment protect against incomplete
or defective work.
5.Since 1993, the federal government's Fair Acquisition
Regulations have allowed zero retention on projects it
funds, unless poor performance is documented.
6.In the 2007-08 Session, the Legislature responded to this
dilemma for public works projects by passing SB 593
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(Margett), Chapter 342, Statutes of 2008, which prohibits
DOT from retaining any payments (zero percent) to
subcontractors once their work has been satisfactorily
completed. This bill parallels this policy by limiting
retention in the private sector to five percent.
7.Numerous other states prohibit or limit retainage
practices.
8.The logic in this approach is inescapable and is critical
to our economic recovery. Full payment for full
performance is fair and responsive to the cash crisis.
Full payment will keep companies in business, stimulate
construction, and keep projects on schedule.
ARGUMENTS IN OPPOSITION : The Construction Employers'
Association, in opposition, writes, "Retention serves many
purposes; to soften the blow if a subcontractor defaults or
provides an unacceptable work product; to use as motivation
to get a subcontractor to pay his or her subcontractors if
they fail to do so; and?to help cover any losses associated
with the subcontractor. Under this measure, if a
subcontractor were to default, the contractor would be
forced to absorb an even larger loss, thereby jeopardizing
their own solvency.
ASSEMBLY FLOOR :
AYES: Adams, Ammiano, Arambula, Beall, Block, Blumenfield,
Brownley, Caballero, Carter, Chesbro, Conway, Coto,
Davis, De La Torre, De Leon, Emmerson, Eng, Evans, Feuer,
Fong, Fuentes, Furutani, Galgiani, Hall, Hayashi,
Hernandez, Hill, Huber, Huffman, Jeffries, Jones,
Krekorian, Lieu, Bonnie Lowenthal, Mendoza, Monning,
Nava, Nestande, Nielsen, John A. Perez, Portantino,
Ruskin, Salas, Saldana, Skinner, Solorio, Swanson,
Torlakson, Torres, Torrico, Yamada, Bass
NOES: Anderson, Bill Berryhill, Tom Berryhill, DeVore,
Duvall, Fletcher, Fuller, Gaines, Garrick, Gilmore,
Hagman, Harkey, Knight, Ma, Miller, Niello, V. Manuel
Perez, Silva, Smyth, Audra Strickland, Tran, Villines
NO VOTE RECORDED: Blakeslee, Buchanan, Charles Calderon,
Cook, Logue, Vacancy
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RJG:cm 8/26/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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