BILL NUMBER: AB 1354 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY APRIL 12, 2011
INTRODUCED BY Assembly Member Huber
FEBRUARY 18, 2011
An act to amend Section 10261 of, and to add Section 7201
to, the Public Contract Code, relating to public works.
An act to amend Section 7108.5 of the Business and Professions
Code, to amend Section s 3252 and 9560 of the Civil Code,
and to amend Sections 10262 and 10262.5 of, to amend, repeal, and add
Section 10261 of, and to add and repeal Section 7201 of, the Public
Contract Code, relating to works of improvement.
LEGISLATIVE COUNSEL'S DIGEST
AB 1354, as amended, Huber. Public works: progress
payments: notice: retention proceeds .
(1) Existing law requires that, for private and public works of
improvement, and in a public works contract, a prime contractor or
subcontractor pay to any subcontractor, not later than 10 days after
receipt of each progress payment, unless otherwise agreed to in
writing, the respective amount allowed the contractor on account of
the work performed by the subcontractors, to the extent of each
contractor's interest therein, as prescribed.
This bill would, instead, require that those amounts be paid not
later than 7 days after receipt of each progress payment.
(2) Existing law requires, with regard to a contract entered into
on or after January 1, 1995, in order to enforce a claim upon any
payment bond given in connection with a public work, that a claimant
give the 20-day public works bond preliminary notice, as provided.
Existing law further authorizes a claimant, if the 20-day public
works preliminary bond notice was not given as prescribed by statute,
to enforce a claim by giving written notice to the surety and the
bond principal, as provided, within 15 days after recordation of a
notice of completion or, if no notice of completion has been
recorded, within 75 days after completion of the work of improvement.
This bill would, instead, with regard to a contract entered into
on or after January 1, 2012, require that the written notice to be
given to the surety and the bond principal be given prior to the
completion, as defined, of the project, or recordation of a notice of
completion.
(3) Existing law authorizes the Department of General Services, or
any other department with authority to enter into contracts, to
contract with suppliers for goods and services and for public works.
Existing law provides that in a contract relating to the construction
of a public work of improvement between the public entity and
original contractor, the original contractor and a subcontractor, and
in a contract between a subcontractor and any subcontractor
thereunder, the percentage of retention proceeds withheld cannot
exceed the percentage specified in the contract between the public
entity and the original contractor.
This bill would instead prohibit retention proceeds from exceeding
5% of the payment, as specified, for those contracts entered into on
or after January 1, 2012, between a public entity, as defined, and
an original contractor, between an original contractor and a
subcontractor, and between all subcontractors thereunder.
(4) Existing law contains various provisions relating to contracts
for the performance of public works of improvement, including
provisions for the payment of progress payments and the disbursing
and withholding of retention proceeds. Existing law prohibits
progress payments upon these contracts from being made in excess of
95% of the percentage of actual work completed plus a like percentage
of the value of material delivered, as specified, and requires the
Department of General Services to withhold not less than 5% of the
contract price until final completion and acceptance of the project.
This bill would, until December 31, 2015, instead, prohibit
progress payments upon these contracts from being made in excess of
100% of the percentage of actual work completed, and would require
the Department of General Services to withhold not more than 5% of
the contract price until final completion and acceptance of the
project.
Existing law authorizes the Department of General Services, or any
other department with authority to enter into contracts, to contract
with suppliers for goods and services and for public works. Existing
law provides that a contract entered into no or after January 1,
1999, relating to the construction of a public work of improvement
between the original contractor and a subcontractor or between any
subcontractors thereunder, the percentage of retention proceeds
withheld cannot exceed the percentage specified in the contract
between the public entity and the original contractor. Existing law
also prohibits the Department of General Services from making
payments upon such contracts in excess of 95% of the percentage of
actual work completed plus a like percentage of the value of material
delivered, as specified, and requires the department to withhold not
less than 5% of the contract price until final completion and
acceptance of the project.
This bill would delete the prohibition against payments being made
in excess of 95% of the work completed and the requirement that the
department withhold not less than 5% of the contract price until
final completion and acceptance of the project, and would instead
prohibit the retention of any amount with respect to all contracts
entered into on or after January 1, 2012, between a public entity and
an original contractor, between an original contractor and a
subcontractor, and between all subcontractors thereunder, relating to
the construction of any public work of improvement, as specified.
Vote: majority. Appropriation: no. Fiscal committee: no
yes . State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 7108.5 of the
Business and Professions Code is amended to read:
7108.5. (a) This section applies to all private works of
improvement and to all public works of improvement, except where
Section 10262 of the Public Contract Code applies.
(b) Except as provided in subdivision (c), a prime contractor or
subcontractor shall pay to any subcontractor, not later than
10 seven days after of
receipt of each progress payment, unless otherwise agreed to in
writing, the respective amounts allowed the contractor on account of
the work performed by the subcontractors, to the extent of each
subcontractor's interest therein. A prime contractor or subcontractor
that fails to comply with this subdivision shall be subject to a
penalty, payable to the subcontractor, of 2 percent of the amount due
per month for every month that payment is not made as required under
this subdivision.
(c) If there is a good faith dispute over all or any portion of
the amount due on a progress payment from the prime contractor or
subcontractor to a subcontractor, the prime contractor or
subcontractor may withhold no more than 150 percent of the disputed
amount.
(d) A violation of this section shall constitute a cause for
disciplinary action.
(e) In any action for the collection of funds wrongfully withheld,
the prevailing party shall be entitled to his or her attorney's fees
and costs.
(f) The sanctions authorized under this section shall be separate
from, and in addition to, all other remedies, either civil,
administrative, or criminal.
SEC. 2. Section 3252 of the Civil Code
is amended to read:
3252. (a) With regard to a contract entered into on or after
January 1, 1995, in order to enforce a claim upon any payment bond
given in connection with a public work, a claimant shall give the
20-day public works preliminary bond notice as provided in Section
3098.
(b) If
(b) (1) On and
after January 1, 1995, and before January 1, 2012, if the
20-day public work preliminary bond notice was not given as provided
in Section 3098, a claimant may enforce a claim by giving written
notice to the surety and the bond principal as provided in Section
3227 within 15 days after recordation of a notice of completion. If
no notice of completion has been recorded, the time for giving
written notice to the surety and the bond principal is extended to 75
days after completion of the work of improvement.
(2) On and after January 1, 2012, if the 20-day public work
preliminary bond notice was not given as provided in Section 3098, a
claimant may enforce a claim by giving written notice to the surety
and the bond principal, as provided in Section 3227, prior to
completion, as defined in Section 3086, of the project, or
recordation of a notice of completion.
(c) This section shall become inoperative on July 1, 2012, and, as
of January 1, 2013, is repealed, unless a later enacted statute,
that becomes operative on or before January 1, 2013, deletes or
extends the dates on which it becomes inoperative and is repealed.
SEC. 3. Section 9560 of the Civil Code
is amended to read:
9560. (a) In order to enforce a claim against a payment bond, a
claimant shall give the preliminary notice provided in Chapter 3
(commencing with Section 9300).
(b) If preliminary notice was not given as provided in Chapter 3
(commencing with Section 9300), a claimant may enforce a claim by
giving written notice to the surety and bond principal within 15 days
after recordation of a notice of completion. If no notice
of completion has been recorded, the time for giving written notice
to the surety and the bond principal is extended to 75 days after
completion of the work of improvement.
(c) This section shall become operative on July 1, 2012.
SEC. 4. Section 7201 is added to the
Public Contract Code , to read:
7201. (a) (1) This section shall apply with respect to all
contracts entered into on or after January 1, 2012, between a public
entity and an original contractor, between an original contractor and
a subcontractor, and between all subcontractors thereunder, relating
to the construction of any public work of improvement.
(2) Under no circumstances shall any provision of this section be
construed to limit the ability of any public entity to withhold 150
percent of the value of any disputed amount of work from the final
payment, as provided for in subdivision (c) of Section 7107. In the
event of a good faith dispute, nothing in this section shall be
construed to require a public entity to pay for work that is not
approved or accepted in accordance with the proper plans or
specifications.
(3) For purposes of this section, "public entity" means the state,
including every state agency, office, department, division, bureau,
board, or commission, the California State University, the University
of California, city, county, city and county, including chartered
cities and chartered counties, district, special district, public
authority, political subdivision, public corporation, or nonprofit
transit corporation wholly owned by a public agency and formed to
carry out the purposes of the public agency.
(b) (1) The retention proceeds withheld from any payment by a
public entity from the original contractor, by the original
contractor from any subcontractor, and by a subcontractor from any
subcontractor thereunder shall not exceed 5 percent of the payment.
In no event shall the total retention proceeds withheld exceed 5
percent of the contract price. In a contract between the original
contractor and a subcontractor, and in a contract between a
subcontractor and any subcontractor thereunder, the percentage of the
retention proceeds withheld shall not exceed the percentage
specified in the contract between the public entity and the original
contractor.
(2) This subdivision shall not apply if the contractor provides
written notice to the subcontractor, pursuant to subdivision (c) of
Section 4108, prior to, or at, the time that the bid is requested,
that bonds may be required, and the subcontractor subsequently is
unable or refuses to furnish to the contractor a performance and
payment bond issued by an admitted surety insurer.
(c) A party identified in subdivision (a) shall not require any
other party to waive any provision of this section.
(d) This section shall remain in effect only until January 1,
2016, and as of that date is repealed.
SEC. 5. Section 10261 of the Public
Contract Code is amended to read:
10261. (a) Payments upon contracts shall be made as
the department prescribes upon estimates made and approved by the
department, but progress payments shall not be made in excess of 95
percent of the percentage of actual work completed plus a like
percentage of the value of material delivered on the ground or stored
subject to or under the control of the state, and unused, except as
otherwise provided in this section. The department shall withhold not
less than 5 percent of the contract price until final completion and
acceptance of the project. However, at any time after 95
100 percent of the work has been completed, the
department may reduce the funds withheld to an amount not less than
125 percent of the estimated value of the work yet to be completed,
as determined by the department, if the reduction has been approved,
in writing, by the surety on the performance bond and by the surety
on the payment bond. The Controller shall draw his or her warrants
upon estimates so made and approved by the department and the
Treasurer shall pay them. The funds may be released by electronic
transfer if that procedure is requested by the contractor, in
writing, and if the public entity has, in place at the time of the
request, the mechanism for the transfer.
(b) This section shall remain in effect only until December 31,
2015, and as of January 1, 2016, is repealed.
SEC. 6. Section 10261 is added to the
Public Contract Code , to read:
10261. (a) On and after January 1, 2016, payments upon contracts
shall be made as the department prescribes upon estimates made and
approved by the department, but progress payments shall not be made
in excess of 95 percent of the percentage of actual work completed
plus a like percentage of the value of material delivered on the
ground or stored subject to or under the control of the state, and
unused, except as otherwise provided in this section. The department
shall withhold not less than 5 percent of the contract price until
final completion and acceptance of the project. However, at any time
after 95 percent of the work has been completed, the department may
reduce the funds withheld to an amount not less than 125 percent of
the estimated value of the work yet to be completed, as determined by
the department, if the reduction has been approved, in writing, by
the surety on the performance bond and by the surety on the payment
bond. The Controller shall draw his or her warrants upon estimates so
made and approved by the department and the Treasurer shall pay
them. The funds may be released by electronic transfer if that
procedure is requested by the contractor, in writing, and if the
public entity has, in place at the time of the request, the mechanism
for the transfer.
(b) This section shall take effect on January 1, 2016.
SEC. 7. Section 10262 of the Public
Contract Code is amended to read:
10262. The contractor shall pay to his or her subcontractors,
within 10 seven days of receipt of each
progress payment, the respective amounts allowed the contractor on
account of the work performed by his or her subcontractors, to the
extent of each subcontractor's interest therein. The payments to
subcontractors shall be based on estimates made pursuant to Section
10261. Any diversion by the contractor of payments received for
prosecution of a contract, or failure to reasonably account for the
application or use of the payments constitutes ground for actions
proscribed in Section 10253, in addition to disciplinary action by
the Contractors' State License Board. The subcontractor shall notify,
in writing, the Contractors' State License Board and the department
of any payment less than the amount or percentage approved for the
class or item of work as set forth in Section 10261.
SEC. 8. Section 10262.5 of the Public
Contract Code is amended to read:
10262.5. (a) Notwithstanding any other provision of
law, a prime contractor or subcontractor shall pay to any
subcontractor, not later than 10 seven
days after of receipt of each progress
payment, the respective amounts allowed the contractor on account of
the work performed by the subcontractors, to the extent of each
subcontractor's interest therein. In the event that there is a good
faith dispute over all or any portion of the amount due on a progress
payment from the prime contractor or subcontractor to a
subcontractor, then the prime contractor or subcontractor may
withhold no more than 150 percent of the disputed amount.
Any contractor who violates this section shall pay to the
subcontractor a penalty of 2 percent of the amount due per month for
every month that payment is not made. In any action for the
collection of funds wrongfully withheld, the prevailing party shall
be entitled to his or her attorney's fees and costs.
(b) This section shall not be construed to limit or impair any
contractual, administrative, or judicial remedies otherwise available
to a contractor or a subcontractor in the event of a dispute
involving late payment or nonpayment by a contractor or deficient
subcontract performance or nonperformance by a subcontractor.
(c) On or before September 1 of each year, the head of each state
agency shall submit to the Legislature a report on the number and
dollar volume of written complaints received from subcontractors and
prime contractors on contracts in excess of three hundred thousand
dollars ($300,000), relating to violations of this section.
SECTION 1. Section 7201 is added to the Public
Contract Code, to read:
7201. (a) (1) This section shall apply with respect to all
contracts entered into on or after January 1, 2012, between a public
entity and an original contractor, between an original contractor and
a subcontractor, and between all subcontractors thereunder, relating
to the construction of any public work of improvement.
(2) Under no circumstances shall any provision of this section be
construed to limit the ability of any public entity to withhold 150
percent of the value of any disputed amount of work from the final
payment, as provided for in subdivision (c) of Section 7107. In the
event of a good faith dispute, nothing in this section shall be
construed to require a public entity to pay for work that is not
approved or accepted in accordance with the proper plans or
specifications.
(3) For purposes of this section, "public entity" means the state,
including every state agency, office, department, division, bureau,
board, or commission, the California State University, the University
of California, a city, county, city and county, including chartered
cities and chartered counties, district, special district, public
authority, political subdivision, public corporation, or nonprofit
transit corporation wholly owned by a public agency and formed to
carry out the purposes of the public agency.
(b) (1) A public entity shall not withhold retention proceeds when
making progress payments to a contractor for work performed.
(2) In a contract between the original contractor and a
subcontractor, and in a contract between a subcontractor and any
subcontractor thereunder, there shall be no withholding of
retentions.
(c) Nothing in this section shall alter, amend, or impair the
rights, duties, and obligations of an original contractor, its
subcontractors, and all subcontractors thereunder, relating to the
construction of any public work of improvement as set forth in
Section 7200.
SEC. 2. Section 10261 of the Public Contract
Code is amended to read:
10261. For contracts entered into on and after January 1, 2012,
payments upon contracts shall be made as the department prescribes
upon estimates made and approved by the department as set forth in
Section 7201 and no amount may be retained from any payment. The
Controller shall draw his or her warrants upon estimates so made and
approved by the department and the Treasurer shall pay them. The
funds may be released by electronic transfer if that procedure is
requested by the contractor, in writing, and if the public entity
has, in place at the time of the request, the mechanism for the
transfer.