BILL ANALYSIS Ó
AB 1671
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Date of Hearing: April 10, 2012
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Mary Hayashi, Chair
AB 1671 (Huffman) - As Introduced: February 14, 2012
SUBJECT : Department of Transportation: retention proceeds.
SUMMARY : Extends, until January 1, 2012, the sunset date
prohibiting the Department of Transportation (CalTrans) from
withholding retention proceeds to its contractors when making
progress payments for work performed on a public works project,
and makes legislative findings and declarations.
EXISTING LAW :
1)Prohibits, until January 1, 2014, CalTrans from withholding
retention proceeds to its contractors when making progress
payments for work performed on a public works project.
2)Provides that in a contract between the original contractor
and a subcontractor, and in a contract between a subcontractor
and any other subcontractor, the percentage of retention
proceeds withheld cannot exceed the percentage specified in
the contract between the public entity and the original
contractor, and requires the distribution of retention
proceeds by an original contractor to subcontractors within
seven days of receipt of retention proceeds from the public
agency.
3)Requires a contractor in a public works contract to file a
performance bond with the public entity in specified amounts
depending on the value of the contract.
4)Requires every original contractor who is awarded a contract
by a state entity involving expenditures in excess of $5,000
for any public work to file a performance bond with the state
entity in a sum not less than 100% of the total amount payable
by the terms of the contract.
FISCAL EFFECT : Unknown
COMMENTS :
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Purpose of this bill . According to the author's office,
"Section 7202 of the Public Contracts Code was added in 2008 by
SB 593 (Margett), Chapter 341, Statutes of 2008. SB 593
eliminated retention on all CalTrans' construction contracts and
contained a January 1, 2014 sunset date. CalTrans reports that
this provision has worked well since its enactment and that they
have experienced no problems. Since this provision has worked
well and because zero percent retention is important to every
contractor working on a CalTrans' project, this bill extends the
sunset provision until January 1, 2020."
Background . Retention proceeds represent a percentage of the
amount of a contract that is withheld from a progress payment by
the public entity to the original contractor, or the original
contractor to one its subcontractors. By withholding a
percentage of a contract, the public entity or the original
contractor maintains a degree of financial control over a
project.
CalTrans does not withhold retention proceeds on federally
funded projects on progress payments between CalTrans and its
prime contractors, and its contractors and their subcontractors.
SB 593 (Margett), Chapter 341, Statutes of 2008, prohibited
CalTrans from withholding retention proceeds to its contractors
when making progress payments for work performed on a public
works project until January 1, 2014. While state-funded
projects account for a small percentage of CalTrans projects, SB
593 conformed both state and federal laws so there is zero
withholding for all contracts, easing the financial
administration of those contracts.
Support . According to sponsors, "Government agencies have
historically withheld 10% of the total contract price until all
of the work on the project has been completed. Since the law
has always required contractors to file payment and performance
bonds to guarantee both the completion of the work and to ensure
that all workers and subcontractors have been paid, retentions
are unnecessarily burdensome on contractors. Profit margins on
these contracts typically do not exceed two to four percent at
best, so retention creates significant cash flow problems for
many contractors.
"To address this issue, SB 593 (Margett) was signed into law in
2008, Ýprohibiting] CalTrans, until January 1, 2014, from
withholding retention proceeds to its contractors when making
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progress payments for work performed on any transportation
project? CalTrans has not experienced any problems since the
enactment of SB 593, and this bill proposes to extend that
sunset date until January 1, 2020.
Previous Legislation . SB 593 (Margett), Chapter 341, Statutes of
2008, prohibited, until January 1, 2014, CalTrans from
withholding retention proceeds to its contractors when making
progress payments for work performed on a public works project.
REGISTERED SUPPORT / OPPOSITION :
Support
Associated General Contractors (co-sponsor)
California Fence Contractors' Association (co-sponsor)
Engineering Contractors' Association (co-sponsor)
Flasher Barricade Association (co-sponsor)
Marin Builders' Association (co-sponsor)
Southern California Contractors Association (co-sponsor)
United Contractors (co-sponsor)
Air Conditioning and Refrigeration Contractors Association
Air Conditioning and Sheet Metal Association
American Subcontractors Association of California
Building Industry Credit Association
California Concrete Contractors Association
California Landscape Contractors Association
California Landscape and Irrigation Council
California Legislative Conference of the Plumbing, Heating and
Piping Industry
California Precast Concrete Association
Eberhard Roofing
National Electrical Contractors Association, California Chapters
State Building and Construction Trades Council
Opposition
None on file.
Analysis Prepared by : Joanna Gin / B.,P. & C.P. / (916)
319-3301
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