Amended in Senate August 19, 2016

Amended in Senate June 8, 2016

Amended in Assembly June 1, 2015

Amended in Assembly April 13, 2015

Amended in Assembly March 26, 2015

California Legislature—2015–16 Regular Session

Assembly Bill No. 626

Introduced by Assembly Members Chiu and Low

(Coauthor: Assembly Member Frazier)

(Coauthors: Senators Anderson, Cannella, begin delete and Gaines end delete begin insert Gaines end insert begin insert , and Hertzberg end insert )

February 24, 2015

An act to add and repeal Section 9204 of the Public Contract Code, relating to public contracts.

LEGISLATIVE COUNSEL’S DIGEST

AB 626, as amended, Chiu. Public contracts: claim resolution.

Existing law prescribes various requirements regarding the formation, content, and enforcement of state and local public contracts. Existing law applicable to state public contracts generally requires that the resolution of claims related to those contracts be subject to arbitration. Existing law applicable to local agency contracts prescribes a process for the resolution of claims related to those contracts of $375,000 or less.

This bill would establish, for contracts entered into on or after January 1, 2017, a claim resolution process applicable to any claim by a contractor in connection with a public works project. The bill would define a claim as a separate demand by the contractor for one or more of the following: a time extension for relief from damages or penalties for delay, payment of money or damages arising from work done pursuant to the contract for a public work, or payment of an amount disputed by the public entity, as specified.

This bill would require a public entity, defined to exclude certain state entities, upon receipt of a claim sent by registered or certified mail, to review it and, within 45 days, provide a written statement identifying the disputed and undisputed portions of the claim. The bill would authorize the 45-day period to be extended by mutual agreement. The bill would require any payment due on an undisputed portion of the claim to be processed within 60 days, as specified. The bill would require that the claim be deemed rejected in its entirety if the public entity fails to issue the written statement.

This bill would authorize, if the claimant disputes the public entity’s written response or if the public entity fails to respond to a claim within the time prescribed, the claimant to demand to meet and confer for settlement of the issues in dispute. The bill would require any disputed portion of the claim that remains in dispute after the meet and confer conference to be subject to nonbinding mediation, as specified. The bill would provide that unpaid claim amounts accrue interest at 7% per annum. The bill would prescribe a procedure by which a subcontractor or lower tier contractor may make a claim through the contractor.

This bill would require the text of these provisions, or a summary, to be set forth in the plans or specifications for any public work which may give rise to a claim. The bill would specify that a waiver of these rights is void and contrary to public policy, except as specified. The bill would also specify that it does not impose liability on a public entity that makes loans or grants available through a competitive application process, for the failure of an awardee to meet its contractual obligations.

By increasing the duties of local agencies and officials, this bill would impose a state-mandated local program.

This bill would, on January 1, 2020, repeal the provision establishing the claim resolution process.

This bill would specify that these provisions constitute a matter of statewide concern.

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.

This 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.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: yes.

The people of the State of California do enact as follows:

SECTION 1.  

Section 9204 is added to the Public Contract
Code, to read:

9204.  

(a) The Legislature finds and declares that it is in the
best interests of the state and its citizens to ensure that all
construction business performed on a public works project in the
state that is complete and not in dispute is paid in full and in a
timely manner.

(b) Notwithstanding any other law, including, but not limited
to, Article 7.1 (commencing with Section 10240) of Chapter 1 of
Part 2, Chapter 10 (commencing with Section 19100) of Part 2,
and Article 1.5 (commencing with Section 20104) of Chapter 1 of
Part 3, this section shall apply to any claim by a contractor in
connection with a public works project.

(c) For purposes of this section:

(1) “Claim” means a separate demand by a contractor sent by
registered mail or certified mail with return receipt requested, for
one or more of the following:

(A) A time extension, including, without limitation, for relief
from damages or penalties for delay assessed by a public entity
under a contract for a public works project.

(B) Payment by the public entity of money or damages arising
from work done by, or on behalf of, the contractor pursuant to the
contract for a public works project and payment for which is not
otherwise expressly provided or to which the claimant is not
otherwise entitled.

(C) Payment of an amount that is disputed by the public entity.

(2) “Contractor” means any type of contractor within the
meaning of Chapter 9 (commencing with Section 7000) of Division
3 of the Business and Professions Code who has entered into a
direct contract with a public entity for a public works project.

(3) (A) “Public entity” means, without limitation, except as
provided in subparagraph (B), a state agency, department, office,
division, bureau, board, or commission, the California State
University, the University of California, a city, including a charter
city, county, including a charter county, city and county, including
a charter city and county, district, special district, public authority,
political subdivision, public corporation, or nonprofit transit
corporation wholly owned by a public agency and formed to carry
out the purposes of the public agency.

(B) “Public entity” shall not include the following:

(i) The Department of Water Resources as to any project under
the jurisdiction of that department.

(ii) The Department of Transportation as to any project under
the jurisdiction of that department.

(iii) The Department of Parks and Recreation as to any project
under the jurisdiction of that department.

(iv) The Department of Corrections and Rehabilitation with
respect to any project under its jurisdiction pursuant to Chapter 11
(commencing with Section 7000) of Title 7 of Part 3 of the Penal
Code.

(v) The Military Department as to any project under the
jurisdiction of that department.

(vi) The Department of General Services as to all other projects.

(vii) The High-Speed Rail Authority.

(4) “Public works project” means the erection, construction,
alteration, repair, or improvement of any public structure, building,
road, or other public improvement of any kind.

(5) “Subcontractor” means any type of contractor within the
meaning of Chapter 9 (commencing with Section 7000) of Division
3 of the Business and Professions Code who either is in direct
contract with a contractor or is a lower tier subcontractor.

(d) (1) (A) Upon receipt of a claim pursuant to this section,
the public entity to which the claim applies shall conduct a
reasonable review of the claim and, within a period not to exceed
45 days, shall provide the claimant a written statement identifying
what portion of the claim is disputed and what portion is
undisputed. Upon receipt of a claim, a public entity and a contractor
may, by mutual agreement, extend the time period provided in this
subdivision.

(B) The claimant shall furnish reasonable documentation to
support the claim.

(C) If the public entity needs approval from its governing body
to provide the claimant a written statement identifying the disputed
portion and the undisputed portion of the claim, and the governing
body does not meet within the 45 days or within the mutually
agreed to extension of time following receipt of a claim sent by
registered mail or certified mail, return receipt requested, the public
entity shall have up to three days following the next duly publicly
noticed meeting of the governing body after the 45-day period, or
extension, expires to provide the claimant a written statement
identifying the disputed portion and the undisputed portion.

(D) Any payment due on an undisputed portion of the claim
shall be processed and made within 60 days after the public entity
issues its written statement. If the public entity fails to issue a
written statement, paragraph (3) shall apply.

(2) (A) If the claimant disputes the public entity’s written
response, or if the public entity fails to respond to a claim issued
pursuant to this section within the time prescribed, the claimant
may demand in writing an informal conference to meet and confer
for settlement of the issues in dispute. Upon receipt of a demand
in writing sent by registered mail or certified mail, return receipt
requested, the public entity shall schedule a meet and confer
conference within 30 days for settlement of the dispute.

(B) Within 10 business days following the conclusion of the
meet and confer conference, if the claim or any portion of the claim
remains in dispute, the public entity shall provide the claimant a
written statement identifying the portion of the claim that remains
in dispute and the portion that is undisputed. Any payment due on
an undisputed portion of the claim shall be processed and made
within 60 days after the public entity issues its written statement.
Any disputed portion of the claim, as identified by the contractor
in writing, shall be submitted to nonbinding mediation, with the
public entity and the claimant sharing the associated costs equally.
The public entity and claimant shall mutually agree to a mediator
within 10 business days after the disputed portion of the claim has
been identified in writing. If the parties cannot agree upon a
mediator, each party shall select a mediator and those mediators
shall select a qualified neutral third party to mediate with regard
to the disputed portion of the claim. Each party shall bear the fees
and costs charged by its respective mediator in connection with
the selection of the neutral mediator. If mediation is unsuccessful,
the parts of the claim remaining in dispute shall be subject to
applicable procedures outside this section.

(C) For purposes of this section, mediation includes any
nonbinding process, including, but not limited to, neutral evaluation
or a dispute review board, in which an independent third party or
board assists the parties in dispute resolution through negotiation
or by issuance of an evaluation. Any mediation utilized shall
conform to the timeframes in this section.

(D) Unless otherwise agreed to by the public entity and the
contractor in writing, the mediation conducted pursuant to this
section shall excuse any further obligation under Section 20104.4
to mediate after litigation has been commenced.

(E) This section does not preclude a public entity from requiring
arbitration of disputes under private arbitration or the Public Works
Contract Arbitration Program, if mediation under this section does
not resolve the parties’ dispute.

(3) Failure by the public entity to respond to a claim from a
contractor within the time periods described in this subdivision or
to otherwise meet the time requirements of this section shall result
in the claim being deemed rejected in its entirety. A claim that is
denied by reason of the public entity’s failure to have responded
to a claim, or its failure to otherwise meet the time requirements
of this section, shall not constitute an adverse finding with regard
to the merits of the claim or the responsibility or qualifications of
the claimant.

(4) Amounts not paid in a timely manner as required by this
section shall bear interest at 7 percent per annum.

(5) If a subcontractor or a lower tier subcontractor lacks legal
standing to assert a claim against a public entity because privity
of contract does not exist, the contractor may present to the public
entity a claim on behalf of a subcontractor or lower tier
subcontractor. A subcontractor may request in writing, either on
his or her own behalf or on behalf of a lower tier subcontractor,
that the contractor present a claim for work which was performed
by the subcontractor or by a lower tier subcontractor on behalf of
the subcontractor. The subcontractor requesting that the claim be
presented to the public entity shall furnish reasonable
documentation to support the claim. Within 45 days of receipt of
this written request, the contractor shall notify the subcontractor
in writing as to whether the contractor presented the claim to the
public entity and, if the original contractor did not present the
claim, provide the subcontractor with a statement of the reasons
for not having done so.

(e) The text of this section or a summary of it shall be set forth
in the plans or specifications for any public works project that may
give rise to a claim under this section.

(f) A waiver of the rights granted by this section is void and
contrary to public policy, provided, however, that (1) upon receipt
of a claim, the parties may mutually agree to waive, in writing,
mediation and proceed directly to the commencement of a civil
action or binding arbitration, as applicable; and (2) a public entity

begin delete in its public works contracts may include dispute resolution
provisions that comply with this section, including the timeframes
set forth herein, and that prescribe additional reasonable and
equitable terms regarding actions or procedures to be taken by the
parties. end delete begin insert may prescribe reasonable change order, claim, and dispute
resolution procedures and requirements in addition to the
provisions of this section, so long as the contractual provisions
do not conflict with or otherwise impair the timeframes and
procedures set forth in this section. end insert

(g) This section applies to contracts entered into on or after
January 1, 2017.

(h) Nothing in this section shall impose liability upon a public
entity that makes loans or grants available through a competitive
application process, for the failure of an awardee to meet its
contractual obligations.

(i) This section shall remain in effect only until January 1, 2020,
and as of that date is repealed, unless a later enacted statute, that
is enacted before January 1, 2020, deletes or extends that date.

SEC. 2.  

The Legislature finds and declares that it is of statewide
concern to require a charter city, charter county, or charter city
and county to follow a prescribed claims resolution process to
ensure there are uniform and equitable procurement practices.

SEC. 3.  

If the Commission on State Mandates determines that
this act contains costs mandated by the state, reimbursement to
local agencies and school districts for those costs shall be made
pursuant to Part 7 (commencing with Section 17500) of Division
4 of Title 2 of the Government Code.