California Legislature—2015–16 Regular Session

Assembly Bill No. 1347

Introduced by Assembly Member Chiu

(Coauthor: Assembly Member Frazier)

February 27, 2015

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

LEGISLATIVE COUNSEL’S DIGEST

AB 1347, as introduced, Chiu. Public contracts: claims.

(1) 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, 2016, a claim resolution process applicable to all public entity contracts. The bill would define a claim as a contractor’s written demand or assertion, including a request for a modification, contract amendment, or change order, seeking an adjustment or interpretation of the terms of the contract documents, payment of money, extension of time, or other relief, including a determination of disputes or matters arising out of, or related to, the contract documents or the performance of work on a public work.

The bill would require a public entity, upon receipt of a claim sent by registered mail, to review it and, within 30 days, provide a written statement addressing what parts of the claim are disputed and what parts are undisputed. The bill would require any payment due on an undisputed portion of the claim to be processed within 7 days, as specified. The bill would provide an alternative procedure if the public entity fails to issue the written statement and would require that the claim be deemed approved in its entirety. The bill would require disputed parts of the claim to be subject to nonbinding mediation. The bill would provide that unpaid claim amounts accrue interest at a statutorily prescribed rate. The bill would proscribe a procedure by which a subcontractor or lower tier contractor may make a claim through the contractor. The bill would require that the text of these provisions or a summary of them to be set forth in the plans or specifications for any public work which may give rise to a claim. The bill would except these provisions from laws relating to false claims. The bill would specify that a waiver of the rights granted by its provisions is void and contrary to public policy. By increasing the duties of local agencies and officials, this bill would impose a state-mandated local program.

(2) 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 public works 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 all claims by contractors in
connection with public works.

(c) For purposes of this section:

(1) “Claim” means a written demand or assertion by a contractor,
including a request for a modification, contract amendment, or
change order, seeking an adjustment or interpretation of the terms
of the contract documents, payment of money, extension of time,
or other relief, including a determination of disputes or matters
arising out of, or related to, the contract documents or the
performance of work on a public work.

(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 public works.

(3) “Public entity” means, without limitation, 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.

(4) “Public works” has the meaning provided in Section 1720
of the Labor Code.

(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) Upon receipt of a claim sent by registered mail, the
public entity to which the claim applies shall conduct a reasonable
review of the claim and, within a period not to exceed 30 days,
shall provide the claimant a written statement identifying what
portion of the claim is disputed and what portion is undisputed.
Any payment due on an undisputed portion of the claim shall be
processed and made within seven days after the public entity issues
its written statement. If the public entity fails to issue a written
statement, paragraph (3) shall apply.

(2) Any disputed portion of the claim, as identified in writing,
shall be submitted to nonbinding mediation. The public entity and
contractor shall mutually agree to a mediator within 10 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.
If either of the parties reject the mediator’s decision regarding all
or part of the disputed portion of the claim, the parts of the claim
remaining in dispute shall be subject to applicable procedures
outside this section.

(3) Failure by the public entity to respond to a claim from a
contractor within the 30-day period described in paragraph (1)
shall result in the claim being deemed approved in its entirety,
with the claim to be processed and paid within seven days from
the expiration of the 30-day period in paragraph (1) or as mutually
extended by the parties.

(4) Amounts not paid in a timely manner as required by this
section shall bear interest at the legal rate prescribed by subdivision
(a) of Section 685.010 of the Code of Civil Procedure.

(5) If a subcontractor or a lower tier subcontractor lacks legal
standings 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 provisions of the California False Claims Act (Article
9 (commencing with Section 12650) of Chapter 6 or Part 2 of
Division 3 of Title 2 of Government Code) shall not apply to claims
made under this section.

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

(g) A waiver of the rights granted by this section is void and
contrary to public policy.

(h) This section applies to contracts entered into on or after
January 1, 2016.

SEC. 2.  

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.