BILL ANALYSIS Ó AB 1347 Page 1 Date of Hearing: May 20, 2015 ASSEMBLY COMMITTEE ON APPROPRIATIONS Jimmy Gomez, Chair AB 1347 (Chiu) - As Amended April 21, 2015 ----------------------------------------------------------------- |Policy |Accountability and |Vote:|9 - 0 | |Committee: |Administrative Review | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | | | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | | | | | | | | | | | | | | | ----------------------------------------------------------------- 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: AB 1347 Page 2 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. AB 1347 Page 3 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 AB 1347 Page 4 $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 AB 1347 Page 5 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