SB 616, as amended, Wright. Public works: payment bonds.
Existing law requires a direct contractor that is awarded a public works contract involving an expenditure greater than $25,000 to give a payment bond to, and approved by, the officer or public entity bybegin delete whenend deletebegin insert whomend insert the contract was awarded, as specified.
This bill wouldbegin delete make nonsubstantive changes toend deletebegin insert, until January 1, 2017, exempt the Los Angeles Unified School District fromend insert this provisionbegin insert
when the district enters into a public works contract in an amount less than $1,000,000 with a contractor that is a small business or microbusiness, as defined, that participates in the district’s self-insurance program. The bill would, in order for this exemption to apply, require the district to state in its call for bids that the self-insurance program is available to these small business and microbusiness contractors. The bill would require the district to establish guidelines and requirements for the small business or microbusiness to participate in the program, as specified. The bill would require the district to establish separate accounts for each project that participates in the program to cover the cost of the default or failure of a small business or microbusiness to make payments to subcontractors or material vendors. By increasing the duties of local officials, this bill would create a state-mandated local programend insert.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
end insertbegin insertThis bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to these statutory provisions.
end insertbegin insertThis bill would provide findings as to the need for special legislation.
end insertVote: majority.
Appropriation: no.
Fiscal committee: begin deleteno end deletebegin insertyesend insert.
State-mandated local program: begin deleteno end deletebegin insertyesend insert.
The people of the State of California do enact as follows:
The Legislature hereby finds and declares all of
2the following:
3(a) It is the intent of the Legislature to demonstrate an
4alternative and optional procedure for the bidding of public works
5projects that is applicable only to the Los Angeles Unified School
6District (LAUSD).
7(b) The LAUSD should be able to utilize cost-effective options
8for the delivery of public works projects, to self-insure those
9projects involving an expenditure of less than $1,000,000 when
10the contractor is a
small business or microbusiness, as defined in
11Section 14837 of the Government Code.
12(c) Since 2000, the LAUSD has issued more than 3,100 contracts
13valued at less than $1,000,000. The total value of those contracts
14exceeded more than $1,000,000,000. The estimated cost of the
15payment bond passed along to the LAUSD totaled more than
16$31,000,000.
17(d) The benefits of the self-insurance program include cost
18savings through an increase in the pool of qualified contractors,
19a reduction in bid amounts when contractors pass along the costs
20to secure payment bonds to the LAUSD.
21(e) The benefits for the small business or microbusiness
22contractor include access to the LAUSD construction program,
23whereby the contractor may gain long-term experience that will
24translate to other public agencies and improve a small business
25or
microbusiness’s competitive capacity on future bids.
Section 9550 of the Civil Code is amended to read:
(a) A direct contractor that is awarded a public works
4contract involving an expenditure greater than twenty-five thousand
5dollars ($25,000) shall, before commencement of work, give a
6payment bond to and approved by the officer or public entity by
7whom the contract was awarded.
8(b) A public entity shall state in its call for bids that a payment
9bond is required for a public works contract involving an
10expenditure greater than twenty-five thousand dollars ($25,000).
11(c) A payment bond given and approved under this section will
12permit performance of and provide coverage for work pursuant to
13a public works contract that
supplements the contract for which
14the bond is given, if the requirement of a new bond is waived by
15the public entity.
16(d) For the purpose of this section, a design professional is not
17deemed a direct contractor and is not required to give a payment
18bond.
19(e) This section does not apply tobegin delete aend deletebegin insert either of the following:end insert
20begin insert(1)end insertbegin insert end insertbegin insertAend insert public works contract with a “state entity” as defined in
21subdivision (d) of
Section 7103 of the Public Contract Code.
22(2) The Los Angeles Unified School District for a public works
23contract in an amount less than one million dollars ($1,000,000)
24entered into with a contractor that is a small business or
25microbusiness, as defined in Section 14837 of the Government
26Code, that participates in the district’s self-insurance program
27pursuant to Section 9550.1. This paragraph shall remain operative
28only until January 1, 2017.
begin insertSection 9550.1 is added to the end insertbegin insertCivil Codeend insertbegin insert, to read:end insert
begin insert(a) In lieu of requiring a contractor that is a small
31business or microbusiness, as defined in Section 14837 of the
32Government Code, awarded a public works contract for an amount
33less than one million dollars ($1,000,000) to provide a payment
34bond to the Los Angeles Unified School District pursuant to Section
359550, the district may provide the small business or microbusiness
36contractor an opportunity to participate in the district’s
37self-insurance program if the district states in its call for bids that
38this program is available.
39(b) As part of the district’s self-insurance program, the district
40shall establish guidelines and requirements for the small business
P4 1or microbusiness to participate. The guidelines and requirements
2shall include,
but will not be limited to, a requirement that the
3small business or microbusiness complete the district’s small
4business training program, complete the district’s prequalification
5process, and adhere to the district’s project stabilization
6agreement.
7(c) The district shall establish a separate account in which funds
8shall be set aside for each project in the event the small business
9or microbusiness defaults or fails to make payment to their
10subcontractors or materials vendors.
11(d) If the contractor fails to make payment to the subcontractor
12or materials vendor, the district shall assume responsibility and
13ensure prompt payment is made to the subcontractor and materials
14vendor.
15(e) At the conclusion of a contract, any funds remaining in the
16separate account shall be retained by the district to be applied to
17any
future project.
18(f) This section shall remain in effect only until January 1, 2017,
19and as of that date is repealed, unless a later enacted statute, that
20is enacted before January 1, 2017, deletes or extends that date.
The Legislature finds and declares that a special law
22is necessary and that a general law cannot be made applicable
23within the meaning of Section 16 of Article IV of the California
24Constitution because of the unique resources of the Los Angeles
25Unified School District to implement a self-insurance program
26and self-monitor public works projects to minimize disruptions to
27the completion of its public work projects. These include an
28in-house labor compliance program, a project stabilization
29agreement, a small business boot camp program, and in-house
30project managers.
If the Commission on State Mandates determines that
32this act contains costs mandated by the state, reimbursement to
33local agencies and school districts for those costs shall be made
34pursuant to Part 7 (commencing with Section 17500) of Division
354 of Title 2 of the Government Code.
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