Amended in Assembly June 1, 2015

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)

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(Coauthors: Senators Cannella and Galgiani)

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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 begin delete public entity contracts. end delete begin insert claims by contractors in connection with public works. end insert The bill would define a claim as 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 begin delete local agency, end delete begin insert public entity, end insert as specified.

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 30 days, as specified. begin delete The bill would provide an alternative procedure end delete begin insert The bill, end insert if the public entity fails to issue the written begin delete statement and end delete begin insert statement, end insert would require that the claim be deemed begin delete approved end delete begin insert rejected end insert in its entirety. begin insert The 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. end insert The bill would require begin delete disputed parts end delete begin insert any disputed portion end insert of the claim begin insert that remains in dispute after the meet and confer conference end insert to be subject to nonbinding mediation, as specified. The bill would provide that unpaid claim amounts accrue interest at begin delete a statutorily prescribed rate. end delete begin insert 7% per annum. end insert The bill would prescribe a procedure by which a subcontractor or lower tier contractor may make a claim through the contractor. The bill would require begin delete that end delete 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 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 separate demand by the contractor for one
or more of the following:

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

(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.

(C) Payment of an amount that is disputed by the begin delete local agency. end delete
begin insert public entity. 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.

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

(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 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.

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

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(B)

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begin insert (C) end 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.

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(C)

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

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(2) (A) 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.

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(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, the public entity shall schedule
a meet and confer conference within 30 days for settlement of the
dispute.

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(B) Within five 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 30 days after the public entity issues its written statement.
Any disputed portion of the claim, as identified 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 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 rejects 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.

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(B)

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begin insert (C) end insert  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.

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(C)

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begin insert (D) end insert  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.

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(D)

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begin insert (E) end insert  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.

(3) Failure by the public entity to respond to a claim from a
contractor within the time period described in this subdivision
shall result in the claim being deemed begin delete approved in its entirety,
with the claim to be processed and paid within 30 days from the
expiration of the time period described in this subdivision or as
mutually extended by the parties. end delete begin insert rejected in its entirety. end insert

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(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.

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

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(5) If a subcontractor or a lower tier subcontractor lacks legal
begin delete standings end delete begin insert standing end insert 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 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.

(g) 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.