BILL NUMBER: AB 626	CHAPTERED
	BILL TEXT

	CHAPTER  810
	FILED WITH SECRETARY OF STATE  SEPTEMBER 29, 2016
	APPROVED BY GOVERNOR  SEPTEMBER 29, 2016
	PASSED THE SENATE  AUGUST 23, 2016
	PASSED THE ASSEMBLY  AUGUST 30, 2016
	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

INTRODUCED BY   Assembly Members Chiu and Low
   (Coauthor: Assembly Member Frazier)
   (Coauthors: Senators Anderson, Cannella, Gaines, and Hertzberg)

                        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, 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.



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 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.
   (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.