BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 164 HEARING: 6/12/13
AUTHOR: Wieckowski FISCAL: No
VERSION: 6/5/13 TAX LEVY: No
CONSULTANT: Weinberger
PUBLIC-PRIVATE INFRASTRUCTURE FINANCING
Requires local governments' public-private partnership
agreements for fee-producing infrastructure projects to
include performance bonds and payment bonds.
Background and Existing Law
The California Constitution grants laborers and materials
suppliers a mechanics lien on any property improved by
their labor or material (Article XIV, Section 3). A
mechanics lien gives laborers and suppliers a way to
obtain, from a property owner, the payment of debts
resulting from labor or materials used in construction on
the property. The mechanics lien law in the Civil Code
generally specifies the obligations, rights, and remedies
of those involved in a construction project (SB 189,
Lownethal, 2010).
Mechanics liens are not available on works of improvement
contracted for by a public entity. Instead of mechanics
liens, state law provides claimants on public works
projects with alternative remedies, including claims
against payment bonds. Before a direct contractor who is
awarded a public works contract worth more than $25,000 can
begin work, state law requires the contractor to give a
payment bond, worth at least 100 percent of the total
amount payable pursuant to the public works contract, to
the public entity that awarded the contract. A
subcontractor or material supplier can enforce a claim
against the payment bond to recover a direct contractor's
unpaid debts for labor or materials used on the public
works project. By contrast, state law specifies that
payment bonds are optional when a private entity contracts
for construction work.
Local governments may solicit proposals and enter into
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agreements with private entities for the study, planning,
design, financing, construction, maintenance, rebuilding,
improvement, repair, or operation by private entities of
specific types of fee-producing infrastructure (AB 2660,
Aguiar, 1996). Infrastructure financed by these
public-private partnership agreements is typically
constructed under contracts awarded by the private sector
entity, which does not need to require a payment bond.
However, the local government retains ownership of the real
property being developed, which means that mechanics liens
are not an available remedy for laborers and materials
suppliers who work on the project.
A performance bond protects a property owner from losses
that result from a direct contractor defaulting in the
performance of the contract. State law generally requires
local governments to obtain performance bonds from
contractors on public works projects. State law specifies
elements that must be included in an infrastructure
financing agreement between a local government and private
entity, including provisions to ensure security for the
construction of the facility to ensure its completion. But
current law does not specifically require a performance
bond for public-private infrastructure projects.
To eliminate loopholes in current law, subcontractors and
other stakeholders in public construction projects want the
Legislature to require payment bonds and performance bonds
on public-private infrastructure projects.
Proposed Law
Assembly Bill 164 requires that local governments'
agreements with private entities for the study, planning,
design, financing, construction, maintenance, rebuilding,
improvement, repair, or operation by private entities of
specific types of fee-producing infrastructure must include
provisions to ensure:
Performance bonds as security to ensure completion
of a facility's construction.
Payment bonds to secure the payment of claims of
laborers, mechanics, and materialmen employed on the
work under the contract.
State Revenue Impact
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No estimate.
Comments
Purpose of the bill . Because of their mixed public-private
characteristics, some infrastructure projects financed
under a public-private partnership agreement may not
provide either mechanics liens or payment bonds. This
leaves subcontractors and suppliers on these projects
unsure that they will be paid for their work. Inadequate
security for completion of a public-private infrastructure
project could leave a local government vulnerable to
covering the costs of work that isn't completed according
to the terms of a contract. AB 164 responds by requiring
that projects local governments build in partnership with
private entities must comply with statutory bonding
requirements that already apply to public works projects.
The bill protects laborers, materials suppliers, and local
governments against losses that could result from a private
sector entity's decision to cease work on an incomplete
infrastructure project financed pursuant to a
public-private infrastructure agreement.
Assembly Actions
Assembly Local Government Committee: 9-0
Assembly Floor: 73-0
Support and Opposition (6/6/13)
Support : American Subcontractors Association of
California; Air Conditioning Trade Association; Building
Industry Credit Association; California Chapter of the
National Electrical Contractors Association; California
Concrete Contractors Association; California Landscape
Contractors Association; California Legislative Conference
of the Plumbing, Heating and Piping Industry; California
Precast Concrete Association; California Professional
Association of Specialty Contractors; California State
Association of Electrical Workers; California State Pipe
Trades Council; Northern California Glass Management
Association; Northern California Painting and Finishing
Contractors Association; Painting and Decorating
Contractors of California; Plumbing-Heating-Cooling
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Contractors Association of California; Roofing Contractors
Association of California; Union Roofing Contractors
Association; Western Electrical Contractors Association;
Western States Council of Sheet Metal Workers.
Opposition : Unknown.