BILL ANALYSIS Ó
AB 626
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CONCURRENCE IN SENATE AMENDMENTS
AB
626 (Chiu and Low)
As Amended August 19, 2016
Majority vote
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|ASSEMBLY: | |(June 3, 2015) |SENATE: |39-0 |(August 23, |
| | | | | |2016) |
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(vote not relevant)
Original Committee Reference: HIGHER ED.
SUMMARY: Establishes, with specified exceptions, a claim
resolution process for public works projects with local and
state public entities.
The Senate amendments delete the Assembly version of this bill,
and instead:
1)State that it is in the interest of the state to ensure that a
payment is made in a timely manner for the undisputed
construction costs of a public works projects.
2)Define a claim as a demand sent by a contractor to a public
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entity that includes, among others, a payment of an amount
that is disputed by the public entity.
3)Require a public entity to review and respond in writing to a
claim within 45 days, and identify the portions that are
disputed and undisputed.
4)Require public entities to pay undisputed amounts within 60
days of the written response.
5)Allow the contractor to demand an informal conference to meet
and confer for settlement of disputed issues if the contractor
disputes the written response or the public entity fails to
respond.
6)Require the public entity to respond within 10 business days
after the meet and confer conference with a written statement
specifying disputed and undisputed items.
7)Require the undisputed amounts that are agreed to after the
conference to be paid within 60 days.
8)Require the remaining disputed portions of a claim to be
submitted to nonbinding mediation, and the contractor and
public entity to share mediation costs equally.
9)Allow other specified processes if mediation is not
successful.
10)Set a 7% annual interest rate for amounts not paid in a
timely manner.
11)Allow a subcontractor to use the claim resolution process by
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working through the contractor.
12)Exclude several specified state public entities from
requirements of this bill.
13)Sunset requirements of this bill on January 1, 2020.
EXISTING LAW specifies:
1)That state public works contract disputes are generally
subject to arbitration.
2)That local entity public works contract disputes proscribe a
resolution process for contracts of $375,000 or less.
FISCAL EFFECT: According to the Senate Appropriations
Committee:
1)State agencies: Potential costs (General Fund) to state
agencies not specifically exempted from the bill's provisions,
including the University of California and the California
State University, that engage in public works contracts for
claims review and resolution, which will result in additional
administrative costs to review, evaluate, and respond to
claims within 45 days, and for mandated mediation. State
agencies are currently not subject to any statutory timelines
for claims review and resolution, and unresolved claims are
subject to arbitration. Staff notes the state agencies with
numerous public works contracts and/or large-scale projects
(i.e., Department of Transportation (CalTrans), Department of
Water Resources (DWR), Department of General Services (DGS),
High Speed Rail Authority) have been exempted from the bill's
provisions.
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2)Local agencies: Potentially major state-reimbursable costs in
the millions of dollars (General Fund) to local agencies
engaged in public works projects to the extent this new
process results in higher administrative costs, including any
increase in administrative costs incurred under the existing
process for resolution of claims under $375,000.
3)Interest: Additional costs to state and local agencies for
additional interest costs accrued on late payments under the
timelines prescribed in this bill.
COMMENTS: This bill establishes a claim resolution process for
public works projects for state and local public entities. It
specifies that contractors can submit claims to public entities.
According to the author, the intent of this bill is to ensure
that undisputed portions of claims are paid in a timely manner
and that there is a mechanism in place to resolve disputed
items. The author explains that long-standing disputes have
placed some contractors in difficult financial circumstances.
This bill requires public entities to provide a written response
to claims within 45 days that details disputed and undisputed
amounts. Further, it requires the payment of undisputed amounts
and sets a process to resolve remaining disputes. Contractors
can demand a meet and confer conference with the entity for
remaining disputes. Items not resolved during the conference
are submitted to nonbinding mediation.
The following state entities are excluded from the requirements
in this bill:
1)DWR, as to any project under its jurisdiction.
2)CalTrans, as to any project under its jurisdiction.
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3)The Department of Parks and Recreation, as to any project
under its jurisdiction.
4)The Department of Corrections and Rehabilitation, with respect
to any project under its jurisdiction, as specified.
5)The Military Department, as to any project under its
jurisdiction.
6)DGS, as to all other projects.
7)The High-Speed Rail Authority.
The requirements of this bill sunset on January 1, 2020.
This bill is substantially similar to the author's AB 1347 in
2015, which was vetoed by Governor Brown. According to the
author, this bill is the result of various stakeholder meetings
to resolve earlier-identified issues while AB 1347 was under
consideration.
Analysis Prepared by:
Scott Herbstman / A. & A.R. / (916) 319-3600
FN: 0004885