BILL ANALYSIS Ó AB 1671 Page 1 Date of Hearing: April 25, 2012 ASSEMBLY COMMITTEE ON APPROPRIATIONS Felipe Fuentes, Chair AB 1671 (Huffman) - As Introduced: February 14, 2012 Policy Committee: Business and Professions Vote: 9-0 Urgency: No State Mandated Local Program: No Reimbursable: SUMMARY This bill extends, until January 1, 2020, the sunset date prohibiting Caltrans from withholding retention proceeds on progress payments to contractors. FISCAL EFFECT Continued minor administrative cost savings. Pursuant to federal law, Caltrans is prohibited from withholding retention proceeds on federally-funded projects, but absent extension to the current January 1, 2014 sunset date, Caltrans would have to resume withholding retention on non-federally funded contracts (roughly 10% to 15% of Caltrans' projects). Continuing the prohibition on retention for non-federal projects, and thus maintaining a uniform contract payment system in this regard, will provide ongoing savings in contract administration and avoid the one-time administrative costs of reestablishing a different payment system for non-federally funded projects. COMMENTS 1)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 from one its subcontractors. Through retention the public entity or the original contractor maintains a degree of financial control over a project. In general, the public entity or the original contractor withholds at least 5% of payment until the contract is AB 1671 Page 2 completed to the satisfaction of the public entity or original contractor. 2)Purpose . SB 593 (Margett)/Chapter 341 of 2008, prohibited Caltrans from withholding retention proceeds until January 1, 2014. This bill, sponsored by several contractor associations, extends this prohibition until 2020. According to the sponsors, "?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?CalTrans has not experienced any problems since the enactment of SB 593..." Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081