BILL NUMBER: SB 293	CHAPTERED
	BILL TEXT

	CHAPTER  700
	FILED WITH SECRETARY OF STATE  OCTOBER 9, 2011
	APPROVED BY GOVERNOR  OCTOBER 9, 2011
	PASSED THE SENATE  SEPTEMBER 8, 2011
	PASSED THE ASSEMBLY  SEPTEMBER 7, 2011
	AMENDED IN ASSEMBLY  SEPTEMBER 2, 2011
	AMENDED IN ASSEMBLY  AUGUST 26, 2011
	AMENDED IN ASSEMBLY  AUGUST 15, 2011
	AMENDED IN ASSEMBLY  JULY 5, 2011
	AMENDED IN ASSEMBLY  JUNE 21, 2011
	AMENDED IN ASSEMBLY  JUNE 13, 2011
	AMENDED IN ASSEMBLY  JUNE 2, 2011
	AMENDED IN SENATE  MARCH 25, 2011

INTRODUCED BY   Senator Padilla

                        FEBRUARY 14, 2011

   An act to amend Section 7108.5 of the Business and Professions
Code, to amend Sections 8612 and 9560 of, and to amend and repeal
Section 3252 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
payment bonds.



	LEGISLATIVE COUNSEL'S DIGEST


   SB 293, Padilla. Payment bonds: laborers.
   (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
subcontractor'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, until July 1, 2012, 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 work preliminary
bond notice, as provided. Existing law further authorizes a claimant,
if the 20-day public work 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 provide, with regard to a contract entered into on
or after January 1, 2012, and until July 1, 2012, if the 20-day
public work preliminary bond notice was required to be given by a
person who has no direct contractual relationship with the
contractor, and who has not given that notice, that person may
enforce a claim by giving written notice to the surety and the bond
principal 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, as specified. The bill
would provide that these provisions do not apply to a laborer, as
specified, or if all progress payments, except for those disputed in
good faith, have been made to a subcontractor who has a direct
contractual relationship with the general contractor to whom the
claimant has provided materials or services, or the subcontractor has
been terminated from the project, as specified, and all progress
payments, except those disputed in good faith, were made as of the
termination date.
   (3) Existing law, operative July 1, 2012, requires a claimant to
give a preliminary notice to enforce his or her claim against a
payment bond given in connection with a private or public work of
improvement, and allows the claimant, if he or she did not give a
preliminary notice, to enforce his or her claim by giving written
notice to the surety and bond principal 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 provide, if the preliminary notice was required to
be given by a person who has no direct contractual relationship with
the contractor, and who has not given that notice, that person may
enforce a claim by giving written notice to the surety and the bond
principal 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, as specified. The bill
also would provide that these provisions do not apply to a laborer,
as specified, or if all progress payments, except for those disputed
in good faith, have been made to a subcontractor who has a direct
contractual relationship with the general contractor to whom the
claimant has provided materials or services, or the subcontractor has
been terminated from the project, as specified, and all progress
payments, except those disputed in good faith, were made as of the
termination date.
   (4) 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, until January 1, 2016, 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. The bill would exempt a contract from this provision if
the contractor notified the subcontractor that a bond is required,
and the subcontractor failed to furnish the contractor with the bond.

   (5) 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 instead, until January 1, 2016, prohibit progress
payments upon these contracts from being made in excess of 100% of
the percentage of actual work completed, and would permit the
Department of General Services to withhold not more than 5% of the
contract price until final completion and acceptance of the project,
except as specified.


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) A prime contractor or subcontractor shall pay to any
subcontractor, not later than seven days after 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. 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, the prime
contractor or subcontractor may withhold no more than 150 percent of
the disputed amount.
   (b) Any violation of this section shall constitute a cause for
disciplinary action and shall subject the licensee to a penalty,
payable to the subcontractor, of 2 percent of the amount due per
month for every month that payment is not made.
   (c) 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.
   (d) The sanctions authorized under this section shall be separate
from, and in addition to, all other remedies, either civil,
administrative, or criminal.
   (e) 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.
  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 work preliminary bond notice as provided in Section
3098.
   (b) On and after January 1, 1995, and before July 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.
   (c) Commencing January 1, 2012, and except as provided in
subdivision (b), if the 20-day public work preliminary bond notice
was required to be given by a person who has no direct contractual
relationship with the contractor, and who has not given notice as
provided in Section 3098, that person 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.
   (d) Subdivision (c) shall not apply in either of the following
circumstances:
   (1) All progress payments, except for those disputed in good
faith, have been made to a subcontractor who has a direct contractual
relationship with the general contractor to whom the claimant has
provided materials or services.
   (2) The subcontractor who has a direct contractual relationship
with the general contractor to whom the claimant has provided
materials or services has been terminated from the project pursuant
to the contract, and all progress payments, except those disputed in
good faith, have been made as of the termination date.
   (e) Pursuant to subdivision (a) of Section 3097 and subdivision
(c) of Section 3098, this section shall not apply to a laborer, as
defined in Section 3089.
   (f) 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 8612 of the Civil Code is amended to read:
   8612.  (a) In order to enforce a claim against a payment bond
under this title, a claimant shall give the preliminary notice
provided in Chapter 2 (commencing with Section 8200).
   (b) If preliminary notice was not given as provided in Chapter 2
(commencing with Section 8200), a claimant may enforce a claim by
giving written notice to the surety and the 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) Commencing July 1, 2012, and except as provided in subdivision
(b), if the preliminary notice was required to be given by a person
who has no direct contractual relationship with the contractor, and
who has not given notice as provided in Chapter 2 (commencing with
Section 8200), that person may enforce a claim by giving written
notice to the surety and the bond principal, as provided in Section
8614, 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.
   (d) Subdivision (c) shall not apply in either of the following
circumstances:
   (1) All progress payments, except for those disputed in good
faith, have been made to a subcontractor who has a direct contractual
relationship with the general contractor to whom the claimant has
provided materials or services.
   (2) The subcontractor who has a direct contractual relationship
with the general contractor to whom the claimant has provided
materials or services has been terminated from the project pursuant
to the contract, and all progress payments, except those disputed in
good faith, have been made as of the termination date.
   (e) Pursuant to Section 8200, this section shall not apply to a
laborer, as defined under Section 8024.
   (f) This section shall become operative on July 1, 2012.
  SEC. 4.  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 the 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) Commencing July 1, 2012, and except as provided in subdivision
(b), if the preliminary notice was required to be given by a person
who has no direct contractual relationship with the contractor, and
who has not given notice as provided in Chapter 3 (commencing with
Section 9300), that person may enforce a claim by giving written
notice to the surety and the bond principal, as provided in Section
9562, 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.
   (d) Subdivision (c) shall not apply in either of the following
circumstances:
   (1) All progress payments, except for those disputed in good
faith, have been made to a subcontractor who has a direct contractual
relationship with the general contractor to whom the claimant has
provided materials or services.
   (2) The subcontractor who has a direct contractual relationship
with the general contractor to whom the claimant has provided
materials or services has been terminated from the project pursuant
to the contract, and all progress payments, except those disputed in
good faith, have been made as of the termination date.
   (e) Pursuant to Section 9300, this section shall not apply to a
laborer, as defined under Section 8024.
   (f) This section shall become operative on July 1, 2012.
  SEC. 5.  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 charter
cities and charter 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 shall 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.
   (3) Notwithstanding any other provision of this subdivision, the
retention proceeds withheld from any payment by an awarding entity
set forth in paragraphs (1) to (5), inclusive, of subdivision (a) of
Section 10106, from the original contractor, by the original
contractor from any subcontractor, and by a subcontractor from any
subcontractor thereunder, may exceed 5 percent on specific projects
where the director of the department has made a finding prior to the
bid that the project is substantially complex and therefore requires
a higher retention amount than 5 percent and the department includes
both this finding and the actual retention amount in the bid
documents. 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 department and the original contractor.
   (4) Notwithstanding any other provision of this subdivision, the
retention proceeds withheld from any payment by the awarding entity
of a city, county, city and county, including charter cities and
charter 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, from the original contractor, by
the original contractor from any subcontractor, and by a
subcontractor from any subcontractor thereunder, may exceed 5 percent
on specific projects where the governing body of the public entity
or designee, including, but not limited to, a general manager or
other director of an appropriate department, has approved a finding
during a properly noticed and normally scheduled public hearing and
prior to bid that the project is substantially complex and therefore
requires a higher retention amount than 5 percent and the awarding
entity includes both this finding and the actual retention amount in
the bid documents. 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 department and the original contractor.
   (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, unless a later enacted
statute, that is enacted before January 1, 2016, deletes or extends
that date.
  SEC. 6.  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 100
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
more 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) Notwithstanding this section, when the director of the
department has made a finding prior to the bid that a specified
project is substantially complex and therefore requires a higher
retention amount than 5 percent, and the department includes both
this finding and the actual retention amount in the bid documents,
then payments upon contracts by the department shall be made as the
department prescribes upon estimates made and approved by the
department. However, 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. 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 with
funds appropriated therefor. 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.
   (c) This section shall remain in effect only until January 1,
2016, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2016, deletes or extends
that date.
  SEC. 7.  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 become operative on January 1, 2016.
  SEC. 8.  Section 10262 of the Public Contract Code is amended to
read:
   10262.  The contractor shall pay to his or her subcontractors,
within 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 prescribed 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. 9.  Section 10262.5 of the Public Contract Code is amended to
read:
   10262.5.  (a) Notwithstanding any other law, a prime contractor or
subcontractor shall pay to any subcontractor, not later than seven
days after 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.