BILL ANALYSIS �
SB 399
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Date of Hearing: August 14, 2013
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
SB 399 (Wright) - As Amended: June 26, 2013
Policy Committee: Accountability
Vote: 10 - 0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill 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.
Specifically, this bill requires departments to pay a penalty of
10% above the United State Prime Rate.
FISCAL EFFECT
1)Moderate, on-going costs, likely less than $100,000 per year
for the Department of General Services (DGS) to assess whether
a contract meets the criteria for the enhanced penalty and for
the costs associated with paying the penalty to any eligible
contractors who are not paid within the specified time frames.
2)According to DGS, the state paid about $973,000 in late
payment penalties under the Prompt Payment Program in Fiscal
Year 2011-12. DGS further notes that the Public Contract Code
section referenced in this bill (Section 10101 (b)) is not
regularly used as a basis for awarding contracts and is
limited to emergency contracts awarded for emergency work or
remedial measures that are caused by the accidental or
unplanned release of toxic substances. This will likely
significantly limit the impact of this legislation.
COMMENTS
1)Rationale . According to the author's office, there has been
difficulty getting prompt payment for emergency services
rendered to the state. The California Prompt Payment Act
SB 399
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provides that a state agency that fails to make a timely
payment for goods or services acquired pursuant to a contract
with a small business or nonprofit organization is subject to
a late payment penalty. Currently, companies contracted in an
emergency are not subject to the Prompt Payment Act, unless
they are small businesses or nonprofit organizations. This
bill will include emergency contractors under the Prompt
Payment Act, regardless of the size or structure of the
organization.
2)Background . 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
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.
Analysis Prepared by : Julie Salley-Gray / APPR. / (916)
319-2081