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