BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 1705|
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THIRD READING
Bill No: AB 1705
Author: Williams (D)
Amended: 6/11/14 in Senate
Vote: 21
SENATE GOVERNMENTAL ORGANIZATION COMMITTEE : 8-0, 6/10/14
AYES: Correa, Cannella, De León, Galgiani, Hernandez, Padilla,
Torres, Vidak
NO VOTE RECORDED: Berryhill, Lieu, Vacancy
ASSEMBLY FLOOR : 74-0, 5/5/14 - See last page for vote
SUBJECT : Public contracts: payment
SOURCE : American Subcontractors Association California
California Association of Sheet Metal & Air
Conditioning Contractors, National Association
California Chapters of the National Electrical
Contractors Association
DIGEST : This bill limits the circumstances under which public
agencies may withhold more than 5% of total payment amounts for
time and materials on substantially complex public works
projects; defines projects that are not substantially complex;
and extends the date for repealing provisions governing
retention proceeds.
ANALYSIS :
Existing law:
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1.Prohibits state and local public agencies from retaining more
than 5% of a contract price until final completion of a
project, unless the public agency finds that the project is
substantially complex pursuant to specified circumstances.
2.Authorizes a public entity to withhold more than 5% of the
contract price if a project is deemed to be substantially
complex under specified circumstances.
3.Prohibits retention amounts between contractors and
subcontractors from exceeding the retention percentage
specified in the contract between the public agency and the
original contractor.
4.Repeals these provisions governing retention proceeds on
January 1, 2016.
This bill:
1.Requires a state agency that plans to withhold more than 5% of
the contract price by making a finding, prior to the bid, that
a project is substantially complex, to include in bid
documents an explanation of the basis for that finding, and
the actual amount above 5% to be retained by the agency during
the project.
2.Specifies that if a local government agency intends to require
a retention amount higher than 5% on a specific project, it
must make the findings that the project is substantially
complex during a properly noticed and scheduled public hearing
prior to the bid.
3.Declares that public projects are not substantially complex if
they are projects that are regularly, customarily, or
routinely performed by the agency or by licensed contractors.
4.Provides that in a contract between the original contractor
and a subcontractor, and in a contract between a subcontractor
and any subcontractor, the percentage of the retention
proceeds withheld shall not exceed the percentage specified in
the contract between the public agency and the original
contractor.
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5.Extends the repeal date of the provisions governing retention
proceeds from January 1, 2016, to January 1, 2020.
Background
Retention proceeds . In California and many other states, a
public entity is entitled to withhold from payment a specified
amount so that the public entity can maintain financial control
of the project. In 2011, special retention procedures were
enacted into law in California (SB 293, Padilla, Chapter 700),
and public entities cannot now retain more than 5% of the costs
of a contract, subject to the "substantially complex" exception.
Before this law passed limiting retention on public works
projects to 5%, the usual standard for public entities was 10%,
although this was not set by statute. The only identified
exception to the 5% retention limit is when a public entity
approves a finding that a project is substantially complex
during a properly noticed and regularly scheduled public meeting
prior to bidding the project. In that case, retention proceeds
may exceed 5%. Whether a project is substantially complex for
purposes of requiring retention in excess of 5% must be analyzed
and approved on a project-by-project basis. The finding and the
designated retention amount must be included in the project's
bid documents. This law remains in effect until January 1,
2016, and cannot be waived by agreement.
It should be noted that the 5% limit on retention proceeds in
Public Contract Code Section 7201 does not limit a public
entity's ability to withhold funds for other purposes, including
withholding 150% of the value for disputed work.
Comments
According to the author's office and the bill's supporters, many
local public entities, particularly school districts, have
circumvented existing law by adopting resolutions containing
boilerplate language deeming essentially every school district
project as a substantially complex one.
For example, supporters furnished a sample resolution for use by
school districts in which substantially complex projects are
those which are, among other things, subject to design approval
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by the State Architect (which happens to be every school
construction or modification project), subject to higher safety
standards than other public works projects (any maintenance,
construction or modification done at school district property),
and the like.
In a specific instance, Newport Mesa Unified School District
adopted a resolution designating all of its school construction
projects as substantially complex ones because they are, among
other things, "designed to higher safety standard, including
seismic, fire protection and ADA compliance." These resolutions
are then routinely cited by the school board in advance of the
bid in order to form a basis to support a 10% retention amount
included on all of its school construction projects.
SB 293 (Padilla) limited the amount of retention proceeds to 5%
of the costs of the contract, unless a project was substantially
complex. According to the author and the sponsors of AB 1705,
soon thereafter, many public entities, particularly school
districts, started adopting resolutions setting forth the
methodology by which all construction future projects will be
designated as substantially complex. The author states that
this practice is inconsistent with the original intent of SB 293
(Padilla), and unfairly exploits what was meant to be a
reasonable exemption to the law.
The author's office states that this bill will clarify what a
substantially complex project is as it relates to retention
proceeds in public works projects. In the event that a project
is deemed substantially complex, this bill requires that details
explaining the basis of the finding be included in the bid
documents.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local:
No
SUPPORT : (Verified 6/11/14)
American Subcontractors Association California (co-source)
California Association of Sheet Metal & Air Conditioning
Contractors, National Association (co-source)
California Chapters of the National Electrical Contractors
Association (co-source)
Air Conditioning & Refrigeration Contractors Association
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Air Conditioning Sheet Metal Association
Air Conditioning Trade Association
American Fence Association, California Chapter
Associated Builders and Contractors, San Diego Chapter
Building Industry Credit Association
California Concrete Contractors Association
California Fence Contractors' Association
California Landscape Contractors Association
California Legislative Conference of the Plumbing, Heating and
Piping Industry
California State Association of Electrical Workers
California State Council of Laborers
California State Pipe Trades Council
Flasher Barricade Association
Marin Builders Association
Plumbing-Heating-Cooling Contractors Association of California
Sheet Metal and Air Conditioning Contractors' National
Association
State Building and Construction Trades Council
United Contractors
Western Electrical Contractors Association
Western States Council of Sheet Metal Workers
OPPOSITION : (Verified 7/15/14)
Association of California Healthcare Districts
Association of California School Administrators
Association of California Water Agencies
California Association of Sanitation Agencies
California Association of School Business Officials
California School Boards Association
California Special Districts Association
California State Association of Counties
Coalition for Adequate School Housing
Eastern Municipal Water District
El Dorado Irrigation District
Irvine Ranch Water District
La Puente County Water District
League of California Cities
Municipal Water District of Orange County
Newhall County Water District
Pico Water District
Rowland Water District
Rural County Representatives of California
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San Diego County Water Authority
Stockton East Water District
Three Valleys Municipal Water District
Urban Counties Caucus
ARGUMENTS IN SUPPORT : The sponsors of this bill complain that
the actions of public agencies have undermined the law, which is
intended to apply to all projects unless a project is
exceptionally unique, but the agencies and their attorneys have
instead turned this substantially complex "exception" into the
rule, and are routinely deeming simple projects "substantially
complex" in order to withhold 10% instead of 5%. Supporters
believe that this bill will remedy this situation because it
requires public entities to explain the reasons why a project is
complex, as well as the project's retention rate.
ARGUMENTS IN OPPOSITION : The opponents say that the
construction contract companies should be focusing solely on
school projects, where the substantially complex exception rule
has apparently been troublesome for construction companies.
They would prefer this approach to one that seeks to define
"substantially complex" by what is not - which is a
counterintuitive approach that will only lead to additional
litigation and further hinder the decisions that local agencies
can make on behalf of their taxpayers and ratepayers. Opponents
write, "This bill would prematurely extend the sunset date on
retention limitations and place scarce resources for schools,
hospitals, parks, fire houses, and other public infrastructure
at risk."
ASSEMBLY FLOOR : 74-0, 5/5/14
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Bloom,
Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian
Calderon, Campos, Chau, Chávez, Chesbro, Conway, Cooley,
Dababneh, Dahle, Daly, Dickinson, Donnelly, Eggman, Fong, Fox,
Frazier, Garcia, Gatto, Gomez, Gonzalez, Gordon, Gorell, Gray,
Grove, Hagman, Hall, Harkey, Roger Hernández, Holden, Jones,
Jones-Sawyer, Levine, Linder, Lowenthal, Maienschein, Medina,
Mullin, Muratsuchi, Nazarian, Nestande, Olsen, Pan, Patterson,
Perea, V. Manuel Pérez, Quirk, Quirk-Silva, Rendon,
Ridley-Thomas, Rodriguez, Salas, Skinner, Stone, Ting, Wagner,
Waldron, Weber, Wieckowski, Wilk, Williams, Yamada, John A.
Pérez
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NO VOTE RECORDED: Bigelow, Beth Gaines, Logue, Mansoor,
Melendez, Vacancy
MW:k 7/28/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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