BILL ANALYSIS Ó AB 1347 Page 1 ASSEMBLY THIRD READING AB 1347 (Chiu) As Amended June 1, 2015 Majority vote ------------------------------------------------------------------- |Committee |Votes |Ayes |Noes | | | | | | | | | | | |----------------+------+---------------------+---------------------| |Accountability |9-0 |Salas, Lackey, | | | | |Brough, Burke, | | | | |Frazier, Beth | | | | |Gaines, Irwin, | | | | |Medina, Rodriguez | | | | | | | |----------------+------+---------------------+---------------------| |Appropriations |15-2 |Gomez, Bonta, |Bigelow, Gallagher | | | |Calderon, Chang, | | | | |Daly, Eggman, | | | | |Eduardo Garcia, | | | | |Gordon, Holden, | | | | |Jones, Quirk, | | | | |Rendon, Wagner, | | | | |Weber, Wood | | | | | | | | | | | | ------------------------------------------------------------------- SUMMARY: Establishes a claim resolution process for public works AB 1347 Page 2 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)Specifies that the claimant shall provide reasonable documentation to support the claim. 4)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. 5)Creates an exception to the 30-day timeframe if a governing board does not meet during that time. 6)Requires payment of the undisputed portion within 30 days after the public entity's issuance of the written statement. 7)Deems that the claim is considered rejected in its entirety if the public entity does not respond by the specified timeframe to the claim with a determination of disputed and undisputed amounts. 8)Allows the claimant to demand an informal conference to meet and confer to settle issues in dispute if the claimant disputes the public entity's written response or if the public entity does not respond to the claim within the specified timeframe. AB 1347 Page 3 9)Establishes a non-binding mediation process if agreements are not reached in the meet and confer conference. 10)Subjects public entities to interest payments for late payments. 11)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: According to the Assembly Appropriation Committee: 1)State agencies are currently not subject to any statutory timelines for claims review and resolution, thus it is unclear to what extent the bill's procedures are more stringent than agencies current practices. 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. It is unclear to what extent the most recent AB 1347 Page 4 amendments would reduce these costs. Other agencies that could 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 $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. 3)State and local agencies could also incur additional associated contract costs and higher interest costs on late payments. 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 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 to 10240.13 and 20100 to 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 public entity. AB 1347 Page 5 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. 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 rejected. If a claimant disputes the public entity's written response or if the public entity fails to respond in the specified timeframe, the claimant can demand in writing an informal conference to meet and confer in order to resolve the issues in dispute. After receiving the demand through registered mail, the public entity must schedule a meet and confer conference within 30 days. AB 1347 Page 6 If the entire claim is not resolved during the meet and confer conference, this bill establishes a non-binding mediation process. Within five days of the conclusion of the meet and confer conference, a public entity must provide the claimant a written statement identifying the disputed and undisputed portions of the claim. Undisputed portions must be paid within 30 days after the statement is issued. Disputed portions are submitted to nonbinding mediation in which the claimant and public entity split the mediation costs equally. The claimant and public entity must agree to a mediator 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 at 7% 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. AB 1347 Page 7 Analysis Prepared by: Scott Herbstman / A. & A.R. / (916) 319-3600 FN: 0000790