Amended in Assembly April 21, 2015

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 amended, 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 begin delete 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. end delete begin insert end insert begin insert a separate demand by the contractor for one or more of: 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 local agency, as specified. end insert

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 begin delete 7 end delete begin insert 30 end insert 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 begin insert , as specified end insert . The bill would provide that unpaid claim amounts accrue interest at a statutorily prescribed rate. The bill would begin delete proscribe end delete begin insert prescribe end insert 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. begin delete The bill would except these provisions from laws relating to false claims. end delete 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:

begin delete

(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.

end delete begin insert

(1) “Claim” means a separate demand by the contractor for
one or more of the following:

end insert begin insert

(A) A time extension, including without limitation, for relief
from damages or penalties for delay.

end insert begin insert

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

end insert begin insert

(C) Payment of an amount that is disputed by the local agency.

end insert

(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.

begin delete

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

end delete begin insert

(4) “Public work” means “public works contract” as defined
in Section 1101.

end insert

(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)  begin insert (A) end insert begin insert   end insert 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. begin delete Any end delete

begin insert (B) end insert begin insert   end insert begin insert 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 30 days following receipt of a claim
sent by registered mail, the public agency shall have up to three
days following the next duly publicly noticed meeting of the
governing body to provide the claimant a written statement
identifying the disputed portion and the undisputed portion. end insert

begin insert (C) end insert begin insert   end insert begin insert Any end insert payment due on an undisputed portion of the claim
shall be processed and made within begin delete seven end delete begin insert 30 end insert days after the public
entity issues its written statement. If the public entity fails to issue
a written statement, paragraph (3) shall apply.

(2)  begin insert (A) end insert begin insert   end insert 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.

begin insert

(B) For purposes of this section, mediation includes any
nonbinding process, such as 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 must conform to the time
frames in this section.

end insert begin insert

(C) The mediation conducted pursuant to this section shall
excuse any further obligation under Section 20104.4 to mediate
(meet and confer) after litigation has been commenced.

end insert begin insert

(D) This section does not preclude an agency from requiring
arbitration of disputes under private arbitration or the Public
Works Contract Arbitration Program, if mediation does not resolve
the parties’ dispute.

end insert

(3) Failure by the public entity to respond to a claim from a
contractor within the begin delete 30-day end delete begin insert time end insert period described in begin delete paragraph
(1) end delete begin insert this subdivision end insert shall result in the claim being deemed approved
in its entirety, with the claim to be processed and paid within begin delete seven end delete
begin insert 30 end insert days from the expiration of the begin delete 30-day end delete begin insert time end insert period begin insert described end insert
in begin delete paragraph (1) end delete begin insert this subdivision end insert 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.

begin delete

(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.

end delete begin delete

(f)

end delete

begin insert (e) end insert  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.

begin delete

(g)

end delete

begin insert (f) end insert  A waiver of the rights granted by this section is void and
contrary to public policy.

begin delete

(h)

end delete

begin insert (g) end insert  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.