BILL ANALYSIS                                                                                                                                                                                                    

                                                                  AB 1705
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          AB 1705 (Williams)
          As Amended  March 28, 2014
          Majority vote 

           ADMINISTRATIVE REVIEW         12-0                              
          |Ayes:|Frazier, Achadjian,       |     |                          |
          |     |Buchanan,                 |     |                          |
          |     |Ian Calderon, Cooley,     |     |                          |
          |     |Gorell, Hagman,           |     |                          |
          |     |Lowenthal, Medina, Olsen, |     |                          |
          |     |Salas, Wagner             |     |                          |
          |     |                          |     |                          |
           SUMMARY  :  Clarifies the circumstances under which a public  
          agency may withhold more than 5% of a contract price until final  
          completion of a public works project.  Specifically,  this bill  :   

          1)Clarifies that a public agency may retain more than 5% of the  
            contract price in public works projects under the following  

             a)   The director of a state department awarding the contract  
               makes a finding prior to the bid that the project is  
               substantially complex and includes an explanation of the  
               basis of this finding and the actual retention amount in  
               the bid documents; or,

             b)   The governing body of a local government entity awarding  
               the contract adopts the same procedures as in a) above.   
               Projects awarded by local entities must make the  
               substantially complex finding on a project by project  

          2)Specifies that the deeming of a substantially complex project  
            does not include maintenance projects and work that is  
            regularly, customarily, or routinely performed by the public  
            agency or by licensed contractors.

           EXISTING LAW  :


                                                                  AB 1705
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          1)Prohibits a public agency from retaining more than 5% of a  
            contract price until final completion of a project.   

          2)Provides an exemption to the above prohibition by allowing a  
            public agency to withhold more than 5% of the contract price  
            if a project is deemed to be substantially complex under  
            specified circumstances.  Current law does not require the  
            agency to explain in the bid documents why it finds the  
            project to be substantially complex.  

          3)Prohibits retention proceeds from exceeding the retention  
            percentage specified in the contract between the public agency  
            and the contractor. 

          4)Sunsets these retention provisions on January 1, 2016.

           FISCAL EFFECT  :  None

           COMMENTS :  Withholding a percentage of a contract allows a  
          public agency to maintain a degree of control over a project to  
          ensure that the contractor performs the work well, on time, and  
          on budget.  Pursuant to SB 293 (Padilla), Chapter 700, Statutes  
          of 2011, the maximum amount of money that public agencies can  
          withhold from a contractor prior to completion of the job is 5%  
          of the total contract.  However, current law allows a higher  
          percentage to be retained if an agency, after a proper hearing,  
          finds a project to be "substantially complex," provided that the  
          finding itself and the actual retention amount are included in  
          the bid documents.  This bill requires an explanation of the  
          basis for the finding to be included in the bid documents and  
          requires local agencies specifically to approve a substantially  
          complex finding on a project by project basis.

          Current law does not define the types of projects that  
          constitute "substantially complex." The sponsors of this bill,  
          representing the construction industry, assert that this lack of  
          a definition means that some public entities, particularly  
          school districts, have been applying this exception broadly to  
          encompass all construction projects in order to withhold a  
          higher retention rate, typically 10%.  The sponsors contend that  
          this is inconsistent with what was meant to be a reasonable  
          exemption for very unique and large scale construction projects,  
          such as waste water treatment facilities or dams and bridges.


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          This bill would bring clarity to the "substantially complex"  
          exception by requiring public entities to explain the reasons  
          why a project is complex in the bid documents and prohibiting  
          maintenance projects and routine work commonly performed by  
          licensed contractors, such as upgrading parking lot lights or  
          installing bleachers or chain link fencing, from being included  
          in the exception.

          Opponents, representing water and irrigation districts, argue  
          that the provision in this bill specifying the types of projects  
          that are not substantially complex is a counter intuitive  
          approach that will only lead to more litigation and further  
          hamper local agency decision-making.

          The statutes mandating the 5% retention limit and granting the  
          substantially complex exception are due to expire on January 1,  
          2016.  The author may wish to consider extending the sunset on  
          these provisions as this bill moves through the legislative  

          Analysis Prepared by  :    Cassie Royce / A. & A.R. / (916)  

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