BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                    AB 1347


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          Date of Hearing:  May 20, 2015


                        ASSEMBLY COMMITTEE ON APPROPRIATIONS


                                 Jimmy Gomez, Chair


          AB  
          1347 (Chiu) - As Amended April 21, 2015


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          Urgency:  No  State Mandated Local Program:  YesReimbursable:   
          Yes


          SUMMARY:


          This bill establishes a claims resolution process for state and  
          local government public works contracts entered into after  
          January 1, 2016. Specifically, this bill:








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          1)Defines "claim" as a separate demand by a contractor for one  
            or more of the following:


             a)   A time extension, including relief from damages or  
               penalties for delay.


             b)   Payment for money or damages arising from work done by  
               the contractor for which payment is not otherwise expressly  
               provided or to which the claimant is not entitled.


             c)   Payment of the amount disputed by a local agency.


          2)Requires a contracting agency, upon receipt of a written  
            claim, to review and, within 30 days inform the claimant in  
            writing what portion of the claim is in dispute and what  
            portion is undisputed. If the agency's governing body must  
            approve the notification and the governing body does not meet  
            within the 30 days, the agency has three days following the  
            meeting to respond to the claim. Failure of the agency to  
            respond within 30 days deems the claim approved, upon which  
            the agency must pay the claim within another 30 days.


          3)Stipulates that a payment on the undisputed portion of the  
            claim is due within 30 days following the contracting agency's  
            response to the claimant.


          4)Requires the disputed portion of the claim to be submitted to  
            nonbinding mediation, as specified. Portions of the claim  
            still in dispute following the mediation are subject to  
            applicable procedures of current law.









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          5)Stipulates that amounts not paid in a timely manner shall bear  
            interest at 10% annually on the unpaid principal.


          6)Requires a subcontractor requesting that a claim be presented  
            to the public agency must furnish reasonable documentation to  
            the contractor to support the claim, after which the  
            contractor has 45 days to notify the subcontractor whether the  
            contractor presented the claim to the public agency.


          





          FISCAL EFFECT:


          1)State agencies with significant public works activity would  
            incur major costs to implement this bill. State agencies are  
            currently not subject to any statutory timelines for claims  
            review and resolution, and unresolved claims are subject to  
            arbitration. The bill, will therefore, result in additional  
            administrative costs to review, evaluate, and respond to  
            claims within 30 days, and for mandated mediation. Caltrans,  
            which has 600 ongoing contracts valued at over $10 billion,  
            expects it would need several dozen more personnel at an  
            annual cost exceeding $10 million. Other agencies that would  
            experience similar impacts are the Departments of General  
            Services, Water Resources, and Corrections and Rehabilitation,  
            the University of California, and the California State  
            University. 


          2)For local governments, current law provides a process,  
            including timelines, for claims resolution for claims under  








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            $375,000-a threshold first established in 1990. (This bill  
            does not amend this process, but establishes a different  
            process applying to all state and local public works and to  
            claims regardless of the amount.) To the extent this new  
            process results in higher administrative cost, these costs  
            would be state reimbursable. Given the massive volume of  
            public works done by cities, counties, school and community  
            college districts and special districts, these ongoing costs  
            would be major.


          3)State and local agencies could also incur additional  
            associated contract costs and higher interest costs on late  
            payments.


          COMMENTS:


          1)Purpose. 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 is  
            supported by numerous contractor associations.


          2)Opposition. Several organizations representing local  
            governments and special districts, as well as individual  
            counties and special districts, have expressed several  
            concerns about this bill. Specifically, opponents assert the  
            bill is redundant because there are already claims resolution  








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            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.


          3)Prior Legislation. AB 2471 (Frazier) of 2014, which 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, was held on  
            Suspense in Senate Appropriations.


          Analysis Prepared by:Chuck Nicol / APPR. / (916)  
          319-2081