BILL ANALYSIS Ó
AB 1347
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ASSEMBLY THIRD READING
AB
1347 (Chiu)
As Amended June 1, 2015
Majority vote
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|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 | |
| | | | |
| | | | |
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SUMMARY: Establishes a claim resolution process for public works
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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.
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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
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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.
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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.
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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.
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Analysis Prepared by:
Scott Herbstman / A. & A.R. / (916) 319-3600 FN:
0000790