BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 1347 (Chiu) - Public contracts: claims
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|Version: August 17, 2015 |Policy Vote: JUD. 7 - 0 |
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|Urgency: No |Mandate: Yes |
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|Hearing Date: August 24, 2015 |Consultant: Jolie Onodera |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: AB 1347 would establish a claims resolution process
for public works contracts entered into on or after January 1,
2016, by which a general contractor may seek public agency
review of the claim.
Fiscal
Impact:
Major ongoing costs potentially in the millions of dollars
(General Fund) to numerous state agencies engaged in
significant public works contracts for claims review and
resolution, which will result in additional administrative
costs to review, evaluate, and respond to claims within 45
days, and for mandated mediation. State agencies are currently
not subject to any statutory timelines for claims review and
resolution, and unresolved claims are subject to arbitration.
Caltrans, which has over 600 ongoing contracts valued at over
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$10 billion, expects it would need additional personnel at an
annual cost of approximately $11.5 million. Other agencies
that would be significantly impacted include but are not
limited to the Departments of General Services, Department of
Water Resources, the Department of Corrections and
Rehabilitation , the University of California, and the
California State University.
Potentially major ongoing state-reimbursable costs in the
millions of dollars (General Fund) to local agencies engaged
in public works projects to the extent this new process
results in higher administrative costs, including any increase
in administrative costs incurred under the existing process
for resolution of claims under $375,000.
Additional costs to state and local agencies for additional
interest costs accrued on late payments under the timelines
prescribed in this bill.
Background: Existing law prescribes various requirements regarding the
formation, content, and enforcement of state and local public
contracts. Existing law applicable to state public contracts
generally requires that the resolution of claims related to
those contracts be subject to arbitration. Existing law for
local agency public works requires all claims made for work
arising out of the contract, but not expressly provided for in
that contract, that are $375,000 or less to first be resolved
through administrative resolution procedures. However, if the
contract provides for arbitration, the claim will have to be
arbitrated according to express arbitration statutes. The
arbitration statutes apply to both local agency and state agency
public work contracts.
This bill prescribes a new claims resolution process by which a
contractor can submit a claim to a public entity.
Proposed Law:
This bill would establish a claims resolution process for
public works contracts entered into on or after January 1, 2016,
as follows:
Precludes any other claim resolution provision and applies to
all claims by contractors in connection with public works.
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Provides the following definitions:
o "Claim" means a separate demand by the contractor
sent by registered or certified mail for one or more of
the following: (a) a time extension, including, without
limitation, for relief from damages or penalties for
delay assessed by a public entity under a public works
contract; (b) payment by the public entity 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 (c)
payment of an amount that is disputed by the public
entity;
o "Contractor" means any type of contractor subject to
the Contractor's State License Law who has entered into a
direct contract with a public entity for public works;
o "Public entity" means, without limitation, a state
agency, department, office, division, bureau, board, or
commission, the California State University, the
University of California, a city, including a charter
city, county, including a charter county, city and
county, including a charter city and county, district,
special district, public authority, political
subdivision, public corporation, or nonprofit transit
corporation wholly owned by a public agency and formed to
carry out the purposes of the public agency;
o "Public work" means the erection, construction,
alteration, repair, or improvement of any public
structure, building, road, or other public improvement of
any kind;
o "Subcontractor" means any type of contractor subject
to the Contractor's State License Law who either is in
direct contract with a contractor or is a lower tier
subcontractor.
Upon receipt of a claim sent by registered mail, requires a
public entity to which the claim applies to conduct a
reasonable review of the claim and, within a period not to
exceed 45 days, provide the claimant a written statement
identifying what portion of the claim is disputed and what
portion is undisputed. Authorizes a public entity and a
contractor to, by mutual agreement, extend the 45-day time
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period.
If the public entity needs approval from its governing body to
provide the claimant the written statement, and the governing
body does not meet within the 45 days or within the mutually
agreed to extension of time following receipt of a claim sent
by registered mail, provides the public agency up to three
days following the next duly publicly noticed meeting of the
governing body to provide the claimant a written statement
identifying the disputed portion and the undisputed portion.
Requires any payment due on an undisputed portion of the claim
to be processed and made within 60 days after the public
entity issues its written statement; if the public entity
fails to issue a written statement, the claim would be deemed
rejected in its entirety.
If the claimant disputes the public entity's written response,
or if the public entity fails to respond to a claim issued
within the time prescribed, authorizes the claimant to demand
in writing an informal conference to meet and confer for
settlement of the issues in dispute, and, upon receipt of a
demand in writing sent by registered or certified mail, the
public entity would be required to schedule a meet and confer
conference within 30 days for settlement of the dispute.
Within 10 business days following the conclusion of the meet
and confer conference, if the claim or any portion of the
claim remains in dispute, requires the public entity to
provide the claimant a written statement identifying the
portion of the claim that remains in dispute and the portion
that is undisputed.
Requires any payment due on an undisputed portion of the claim
to be processed and made within 60 days after the public
entity issues its written statement, and any disputed portion
of the claim, as identified by the contractor in writing,
would be required to be submitted to nonbinding mediation,
with the public entity and the claimant sharing the associated
costs equally.
Requires the public entity and claimant to mutually agree to a
mediator within 10 business days after the disputed portion of
the claim has been identified in writing, and, if the parties
cannot agree upon a mediator, each party would select a
mediator and those mediators would select a qualified neutral
third party to mediate with regard to the disputed portion of
the claim.
Requires each party to bear the fees and costs charged by its
respective mediator, as specified. If mediation is
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unsuccessful, requires the parts of the claim remaining in
dispute to be subject to other applicable claim resolution
procedures.
Unless otherwise agreed to by the public entity and the
contractor in writing, requires the mediation conducted
pursuant to this bill to excuse any further obligation to
mediate after litigation has been commenced.
Does not preclude a public entity from requiring arbitration
of disputes under private arbitration or the Public Works
Contract Arbitration Program, if mediation does not resolve
the parties' dispute.
Specifies that failure by the public entity to respond to a
claim from a contractor within the time periods described
would result in the claim being deemed rejected in its
entirety. Provides that a claim denied by reason of a public
entity's failure to have responded to a claim, or its failure
to otherwise meet the time requirements shall not constitute
an adverse finding with regard to the merits of the claim or
the responsibility or qualifications of the claimant.
Requires amounts not paid in a timely manner to bear interest
at 7 percent per annum.
If a subcontractor or a lower tier subcontractor lacks legal
standing to assert a claim against a public entity because
privity of contract does not exist, authorizes the contractor
to present to the public entity a claim on behalf of a
subcontractor or lower tier subcontractor.
Authorizes a subcontractor to request in writing, either on
his or her own behalf or on behalf of a lower tier
subcontractor, that the contractor present a claim for work
which was performed by the subcontractor or by a lower tier
subcontractor on behalf of the subcontractor.
Requires the subcontractor requesting that the claim be
presented to the public entity to furnish reasonable
documentation to support the claim.
Within 45 days of receipt of that written request, requires
the contractor to notify the subcontractor in writing as to
whether the contractor presented the claim to the public
entity and, if the original contractor did not present the
claim, provide the subcontractor with a statement of the
reasons for not having done so.
Requires the text of the provisions provided under this bill
or a summary of it to be set forth in the plans or
specifications for any public works that may give rise to a
claim under this bill.
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Makes a waiver of the rights granted by this bill void and
contrary to public policy, subject to specified conditions.
Provides that nothing in this bill shall impose a liability
upon a public entity that makes loans or grants available
through a competitive application process, for the failure of
the awardee to meet its contractual obligations.
Related
Legislation: AB 2471 (Frazier) 2014 would have required state
and local public entities engaged in a public works contract
awarded to the lowest bidder to promptly issue change orders
when extra work was required of the contractor or subcontractor.
This bill stalled in this Committee without a hearing.
AB 2096 (Miller) 2010 would have allowed a public agency and a
contractor to mutually agree to resolve a claim through
independent arbitration. This bill failed passage in the
Assembly Committee on Judiciary.
Staff
Comments: Caltrans has indicated the provisions of this bill
could result in significantly increased personnel costs for
evaluation, response, coordination, and oversight activities
related to submitted claims requiring action within the
prescribed timeframes of this measure.
In addition to one-time costs of approximately $450,000 to
rewrite specifications, policy, construction and oversight
manuals, forms, and provide training, ongoing resource needs of
approximately $11.5 million are estimated to address the
workload involved with submitted claims. This estimate includes
the costs associated with an increase in oversight support costs
for Caltrans on projects performed by local agencies on Caltrans
right of way.
This bill requires that the "associated cost" of the mediation
to be shared equally between the public entity and the claimant.
Caltrans notes, however, that these costs are not limited as
they are in the current Caltrans Standard Specifications. The
current Caltrans specifications also specifically preclude each
party's preparation and participation costs from the shared
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costs. As the associated costs are not so defined under the
provisions of this bill, Caltrans could potentially be required
to pay for half of the costs of the contractor's legal staff to
prepare a case against Caltrans.
By requiring local agencies to adhere to the claims resolution
process specified in this measure, this bill creates a
state-mandated local program, potentially resulting in major
ongoing state-reimbursable costs in excess of millions of
dollars (General Fund) annually to local agencies engaged in
public works projects. While the magnitude of costs to local
agencies cannot be estimated with certainty, given the volume of
local public works projects and claims subject to this
resolution process, costs are likely substantial.
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