Amended in Senate August 17, 2015

Amended in Senate July 6, 2015

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)

(Coauthors: Senators Anderson, Cannella, Gaines, Galgiani, and Hertzberg)

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 claims by contractors in connection with public works. 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 public entity, as specified.

The bill would require a public entity, upon receipt of a claim sent by registered begin insert or certified end insert mail, to review it and, within begin delete 30 end delete begin insert 45 end insert days, provide a written statement identifying the disputed and undisputed portions of the claim. begin insert The 45 end insert begin insert -day period may be extended by mutual agreement. end insert The bill would require any payment due on an undisputed portion of the claim to be processed within begin delete 30 end delete begin insert 60 end insert days, as specified. The bill, if the public entity fails to issue the written statement, would require that the claim be deemed rejected in its entirety. 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. 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. The bill would require 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 begin delete policy. end delete begin insert 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. end insert 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 begin insert sent by
registered mail or certified mail with return receipt requested, end insert for
one or more of the following:

(A) A time extension, including, without limitation, for relief
from damages or penalties for begin delete delay. end delete begin insert delay end insert begin insert assessed by a public
entity under a public works contract. end insert

(B) Payment begin insert by the public entity end insert 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 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 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 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 begin delete sent by registered mail, end delete
begin insert pursuant to this section, end insert the public entity to which the claim applies
shall conduct a reasonable review of the claim and, within a period
not to exceed begin delete 30 end delete begin insert 45 end insert days, shall provide the claimant a written
statement identifying what portion of the claim is disputed and
what portion is undisputed. begin insert Upon receipt of a claim, a public entity
and a contractor may, by mutual agreement, extend the time period
provided in this subdivision. end insert

(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 begin delete 30 end delete begin insert 45 end insert days begin insert end insert begin insert or within the mutually
agreed to extension of time end insert following receipt of a claim sent by
registered begin delete mail, end delete begin insert mail or certified mail, return receipt requested, end insert
the public begin delete agency end delete begin insert entity end insert shall have up to three days following the
next duly publicly noticed meeting of the governing body begin insert after
the 45-day period, or extension, expires end insert 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 begin delete 30 end delete begin insert 60 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) (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 begin delete mail, end delete begin insert end insert begin insert mail or certified mail, return
receipt requested, end insert the public entity shall schedule a meet and confer
conference within 30 days for settlement of the dispute.

(B) Within begin delete five end delete begin insert 10 business end insert 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 begin delete 30 end delete begin insert 60 end insert days after the public entity issues
its written statement. Any disputed portion of the claim, as
identified begin insert end insert begin insert by the contractor end insert 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 begin insert business end insert 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.
begin delete If either of the parties rejects the mediator’s decision regarding all
or part of the disputed portion of the claim, end delete begin insert 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, end insert 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, 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 begin delete must end delete begin insert shall end insert conform to the
timeframes in this section.

(D)  begin delete The end delete begin insert Unless otherwise agreed to by the public entity and the
contractor in writing, the end insert mediation conducted pursuant to this
section shall excuse any further obligation under Section 20104.4
to mediate begin delete (meet and confer) end delete after litigation has been commenced.

(E) This section does not preclude begin delete an agency end delete begin insert a public entity end insert
from requiring arbitration of disputes under private arbitration or
the Public Works Contract Arbitration Program, if mediation begin insert under
this section end insert does not resolve the parties’ dispute.

(3) Failure by the public entity to respond to a claim from a
contractor within the time begin delete period end delete begin insert periods end insert described in this
subdivision begin insert or to otherwise meet the time requirements of this
section end insert shall result in the claim being deemed rejected in its
entirety. begin insert 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. end insert

(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 begin insert project end insert 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 begin delete policy. end delete begin insert 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 in its public works contracts may include dispute resolution
provisions that comply with this section, including the timeframes
set forth herein, and that prescribe additional reasonable and
equitable terms regarding actions or procedures to be taken by
the parties. end insert

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

begin insert

(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.

end insert

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.