Amended in Senate August 11, 2014

Amended in Senate June 11, 2014

Amended in Assembly March 28, 2014

California Legislature—2013–14 Regular Session

Assembly Bill No. 1705

Introduced by Assembly Member Williams

February 13, 2014

An act to amend Sections 7201 and 10261 of the Public Contract Code, relating to public contracts.

LEGISLATIVE COUNSEL’S DIGEST

AB 1705, as amended, Williams. Public contracts: payment.

Existing law, until January 1, 2016, authorizes the retention proceeds withheld from any payment by an awarding entity, as described, from the original contractor, by the original contractor from any subcontractor, and by a subcontractor from any subcontractor to exceed 5% on specific projects where the director of the applicable department, as specified, has made, or the governing body of the public entity or designated official of the public entity has approved, a finding prior to the bid that the project is substantially complex and requires a higher retention and the department or public entity includes both this finding and the actual retention amount in the bid documents.

This bill would extend the operation of these provisions begin delete until end delete begin insert to end insert January 1, begin delete 2020, end delete begin insert 2018, end insert and, instead of requiring that the finding and actual retention amount be included in the bid documents, would require that the bid documents include details explaining the basis for the finding in addition to the actual retention amount. The bill would also begin delete define projects that are not “substantially complex.” end delete begin insert require any finding by a public entity that a project is substantially complex to describe the specific project and why it is a unique project that is not regularly, customarily, or routinely performed by the agency or licensed contractors. end insert

Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 7201 of the Public Contract Code is
amended 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 begin delete complex, as defined, end delete
begin insert complex end insert and therefore requires a higher retention amount than 5
percent and the department includes in the bid documents details
explaining the basis for the finding and the actual retention amount.
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, on a project by project basis, during a properly noticed
and normally scheduled public hearing and prior to bid that the
project is substantially begin delete complex, as defined, end delete begin insert complex end insert and therefore
requires a higher retention amount than 5 percent and the awarding
entity includes in the bid documents details explaining the basis
for the finding and the actual retention amount. 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.

begin delete

(5) As used in this subdivision, projects are not “substantially
complex” if they are regularly, customarily, or routinely performed
by the agency or by licensed contractors.

end delete begin insert

(5) Any finding by a public entity that a project is substantially
complex shall include a description of the specific project and why
it is a unique project that is not regularly, customarily, or routinely
performed by the agency or licensed contractors.

end insert

(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, begin delete 2020, end delete
begin insert 2018, end insert and as of that date is repealed, unless a later enacted statute,
that is enacted before January 1, begin delete 2020, end delete begin insert 2018, end insert deletes or extends
that date.

SEC. 2.  

Section 10261 of the Public Contract Code, as amended
by Section 6 of Chapter 700 of the Statutes of 2011, 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 begin delete public entity end delete begin insert department end insert has, in place at the time of the
request, the mechanism for the transfer.

(b) (1) Notwithstanding begin delete this section end delete begin insert subdivision (a) end insert , when the
director of the department has made a finding prior to the bid that
a specified project is substantially complex begin delete , as defined, end delete and
therefore requires a higher retention amount than 5 percent, and
the department includes in the bid documents details explaining
the basis for the finding and the actual retention amount, 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 begin delete public entity end delete
begin insert department end insert has, in place at the time of the request, the mechanism
for the transfer.

(2)  begin delete As used in this subdivision, projects are not “substantially
complex” if they are regularly, customarily, or routinely performed
by the agency or by licensed contractors. end delete begin insert Any finding by the
director of a department that a project is substantially complex
shall include a description of the specific project and why it is a
unique project that is not regularly, customarily, or routinely
performed by the agency or licensed contractors. end insert

(c) This section shall remain in effect only until January 1, begin delete 2020, end delete
begin insert 2018, end insert and as of that date is repealed, unless a later enacted statute,
that is enacted before January 1, begin delete 2020, end delete begin insert 2018, end insert deletes or extends
that date.

begin insert

begin insert SEC. 3. end insert   

end insert

begin insert Section 10261 of the end insert begin insert Public Contract Code end insert begin insert , as added
by Section 7 of Chapter 700 of the Statutes of 2011, is amended
to read: end insert

10261.  

(a) On and after January 1, begin delete 2016, end delete begin insert 2018, end insert 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, begin delete 2016. end delete
begin insert 2018. end insert