BILL ANALYSIS �
SB 399
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Date of Hearing: July 3, 2013
ASSEMBLY COMMITTEE ON ACCOUNTABILITY AND ADMINISTRATIVE REVIEW
Jim Frazier, Chair
SB 399 (Wright) - As Amended: June 26, 2013
SENATE VOTE : 39-0
SUBJECT : California Prompt Payment Act.
SUMMARY : Requires state agencies to pay a penalty for payments
not made within 45 days of an undisputed invoice from a
contractor performing emergency work or remedial measures, as
defined in the Public Contract Code, at a rate of 10% above the
U.S. Prime Rate.
EXISTING LAW :
1) Establishes the Prompt Payment Act in the Government
Code that requires state agencies pay undisputed invoices
for goods or services provided under a contract within 45
calendar days.
2) Requires state agencies to pay a penalty to certified
small businesses or nonprofit organizations for late
payments at a rate of 10% above the U.S. Prime Rate.
3) Requires state agencies to pay a penalty to other
businesses at a rate of 1% above the Pooled Money
Investment Account rate.
FISCAL EFFECT : According to the Senate Appropriations
Committee, state costs are unknown and likely minor to moderate
to pay a greater penalty on late payments for emergency work or
remedial measures performed under contract with state agencies.
Actual costs depend on the volume of uncontested payments for
emergency or remedial work performed by certain businesses, the
volume of contract dollars that are paid after the 45 day grace
period, and the average number of days between the due date and
the payment date.
COMMENTS : This bill would require state agencies to a pay a
greater penalty for payments not made within 45 days of an
undisputed invoice from a contractor performing emergency work
SB 399
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or remedial measures at a rate of 10% above the U.S. Prime Rate
(the interest rates that banks charge to their most
credit-worthy customers). This would be in line with the
calculation method for late payment penalties made to certified
small businesses and nonprofit organizations.
As of the end of June, the Prime Rate was 3.25% so the penalty
under this bill would be 13.25% of the outstanding amount after
45 days. Additional penalties would accrue daily and would stop
when an agency submitted a claim schedule to the State
Controller's Office for payment. Under current law, the late
payment to a contractor performing emergency or remedial work
that is not a small business or nonprofit would be 1.358% of the
outstanding amount after 45 days.
This bill specifies that "emergency work and remedial measures"
is linked to a definition in Section 10101 (b) of the Public
Contract Code. This definition likely limits the type of work
that could be claimed as meeting the requirements.
As noted in the fiscal effect section, the costs of this bill
are unknown. However, departments are required to report late
payment amounts each year to the Department of General Services
(DGS). According to DGS, the state paid in total about $973,000
in late payment penalties under the Prompt Payment Program in
Fiscal Year 2011/12.
According to the sponsors, this bill is in response to late
payments from the state for emergency work that contractors
performed. Sponsors state that this bill is meant to call
attention to late payment concerns so state agencies pay
promptly.
REGISTERED SUPPORT / OPPOSITION :
Support
California Chapter of the American Fence Association
(co-sponsor)
California Fence Contractors' Association (co-sponsor)
California Landscape Contractors Association
Engineering Contractors' Association (co-sponsor)
Flasher Barricade Association (co-sponsor)
Marin Builders Association (co-sponsor)
Opposition
SB 399
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None on file
Analysis Prepared by : Scott Herbstman / A. & A.R. / (916)
319-3600