BILL ANALYSIS Ó
AB 1347
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Date of Hearing: April 29, 2015
ASSEMBLY COMMITTEE ON ACCOUNTABILITY AND ADMINISTRATIVE REVIEW
Rudy Salas, Chair
AB 1347
Chiu - As Amended April 21, 2015
SUBJECT: Public contracts: claims
SUMMARY: Establishes a claim resolution process for public
works contracts when contractors and public entities are in
dispute. Specifically, this bill:
1)Establishes that provisions of this bill supersede other code
sections related to local and state contracting disputes.
2)Defines what constitutes a claim.
3)Requires a public agency to respond with a written statement
to a claim within 30 days following receipt that identifies
which parts of the claim are disputed and undisputed.
4)Creates an exception to the 30-day timeframe if a governing
board does not meet during that time.
5)Requires payment of the undisputed portion within 30 days
after the public entity's issuance of the written statement.
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6)Deems the total amount in the claim due to the contractor if
the public entity does not respond to the claim with a
determination of disputed and undisputed amounts.
7)Requires the contractor and public entity to enter non-binding
mediation within 10 days after the disputed portion of the
claim has been identified in writing.
8)Subjects public entities to interest payments for late
payments.
9)Allows contractors to file claims on behalf of subcontractors.
EXISTING LAW:
1)Sets a resolution process for disputes between contractors and
state entities for public works contracts that relies
primarily on arbitration.
2)Sets a separate resolution process for disputes between
contractors and local entities for public works contracts for
claims of $375,000 or less.
FISCAL EFFECT: Unknown
COMMENTS: This bill creates a claim resolution process for
public works contracts when contractors and public entities are
in dispute. It applies to both state and local public entities
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and specifies that the new section added by this bill takes
precedence over the current resolution of claims processes
described in Public Contract Code sections 10240-10240.13 and
20100-20929.
This bill defines a claim as one or more of the following: a
time extension, including without limitation, for relief from
damages or penalties for delay; 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; or payment of an amount that is disputed
by the local agency.
The author explains that this bill is meant to ensure
contractors are paid in a timely manner for work, which is not
specified in the original contract, but becomes necessary to
complete a public works project.
According to the author, this bill "addresses the indefinite
delay of payment to California's public works contractors for
extra work performed. There is a loophole in current prompt
payment law when it comes to resolving disputes in the claims
process." The author states that some contractors have to wait
months or even years until they are paid.
This bill allows contractors to submit claims to public entities
and requires an entity to respond within 30 days following
receipt with a written statement identifying which parts of the
claim are disputed and undisputed. This bill extends the 30-day
timeframe if the public entity needs approval from its governing
board and the board does not meet within the 30 days following
receipt of the claim. In such a case, the response would
instead be due three days after the next publicly noticed
meeting of the governing body.
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For amounts determined to be undisputed, this bill would require
the public entity to pay the contractor within 30 days after the
public entity's issuance of the written statement. If the
entity does not reply within 30 days or the extended time
provided due to governing body meeting dates, the entire claim
is deemed approved. Payments would be due to the contractor 30
days after the expiration of the time period.
For disputed portions of a claim, this bill requires the
contractor and public entity to enter non-binding mediation
within 10 days after the disputed portion of the claim has been
identified in writing. If both sides cannot agree on a
mediator, they are each required to choose a mediator and those
mediators decide on a neutral third party to mediate the
disputed portion of the claim. If an agreement cannot be
reached in mediation, other procedures already set forth in
existing law would apply.
This bill specifies that amounts not paid in a timely manner
would accrue interest at the rate specified by a section in the
Code of Civil Procedure. This section sets the interest rate at
10% per year.
In addition to allowing contractors to submit claims, this bill
lets contractors submit claims on behalf of a subcontractor.
Within 45 days of receiving the claim from a subcontractor, the
contractor must notify the subcontractor in writing as to
whether or not the contractor presented the claim to the public
entity. If the claim was not presented, the contractor must
provide the subcontractor with a statement explaining why the
claim was not submitted.
Opposition to this bill, which primarily includes organizations
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that represent local governments and special districts as well
as individual counties and special districts, have expressed
several concerns about this bill.
Specifically, the opponents state that this bill is redundant
because there are already claims resolution processes in place
under current law; the timelines are not feasible for public
entities as some claims are complex and might not include enough
supporting documents from the contractor; the 10% interest rate
for late payments is inappropriate; and deeming the claim
approved for missing a response deadline puts public agencies
and therefore taxpayers at financial risk.
An opposition letter from a coalition that includes the
California State Association of Counties (CSAC) and 16 others,
says "Overall, we are very concerned with the new claims
resolution process envisioned by AB 1347 as it will only add
time and squander taxpayer funding by usurping a process which
works well a significant majority of the time."
In response to identified concerns, the author recently took
amendments, which are incorporated in this analysis. However,
no groups that registered opposition contacted the committee to
remove their opposition.
PRIOR LEGISLATION: AB 2471 (Frazier) of 2014 would have
required a public entity to pay a contractor for a change order
for extra work that occurred in a public works project within 60
days of the completion of the work. AB 2471 was held in the
Senate Appropriations Committee.
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REGISTERED SUPPORT / OPPOSITION:
Support
United Contractors (co-sponsor)
California Chapters of the National Electrical Contractors
Association (co-sponsor)
California State Council of Laborers (co-sponsor)
California-Nevada Conference of Operating Engineers (co-sponsor)
State Building and Construction Trades Council of California
(co-sponsor)
Air Conditioning Sheet Metal Association (prior version)
Air-conditioning & Refrigeration Contractors Association (prior
version)
Associated General Contractors, California Chapters (prior
version)
American Subcontractors Association, California
California Association of Sheet Metal and Air Conditioning
Contractors (prior version)
California Landscape & Irrigation Council (prior version)
California Legislative Conference of the Plumbing, Heating and
Piping Industry (prior version)
California State Association of Electrical Workers (prior
version)
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California State Pipe Trades Council (prior version)
California Plumbing and Mechanical Contractors Association
(prior version)
Finishing Contractors Association of Southern California (prior
version)
Union Roofing Contractors Association (prior version)
Western Line Constructors (prior version)
Western States Council of Sheet Metal Workers (prior version)
Opposition
Alameda County Board of Supervisors
Alpine County Board of Supervisors (prior version)
Association of California Healthcare Districts
Association of California School Administrators
California Airports Council (prior version)
California Association of Sanitation Agencies
California Association of School Business Officials
California Special Districts Association
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California State University
Coalition for Adequate School Housing
Community College Facility Coalition
Contra Costa County Board of Supervisors (prior version)
County of San Bernardino (prior version)
County of Tulare (prior version)
County School Facilities Consortium
CSAC
Desert Water Agency
El Dorado Irrigation District
Kern County Board of Supervisors (prior version)
League of California Cities
Los Angeles County Board of Supervisors (prior version)
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Mendocino County (prior version)
Modoc County Board of Supervisors (prior version)
Municipal Water District of Orange County
Rural County Representatives of California
Sacramento County Board of Supervisors (prior version)
Three Valleys MWD
Urban Counties Caucus
Ventura County Board of Supervisors
Yuba County Board of Supervisors (prior version)
Analysis Prepared by:Scott Herbstman / A. & A.R. / (916)
319-3600
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