BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 1347|
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THIRD READING
Bill No: AB 1347
Author: Chiu (D)
Amended: 9/1/15 in Senate
Vote: 21
SENATE JUDICIARY COMMITTEE: 7-0, 6/30/15
AYES: Jackson, Moorlach, Anderson, Hertzberg, Leno, Monning,
Wieckowski
SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/27/15
AYES: Lara, Bates, Beall, Hill, Leyva, Mendoza, Nielsen
ASSEMBLY FLOOR: 76-0, 6/3/15 - See last page for vote
SUBJECT: Public contracts: claims
SOURCE: California Chapters of the National Electrical
Contractors Association
California-Nevada Conference of Operating Engineers
California State Council of Laborers
State Building and Construction Trades Council of
California
United Contractors
DIGEST: This bill, until January 1, 2019, establishes, for
public works contracts entered into on or after January 1, 2016,
a claim resolution procedure by which a general contractor can
seek public agency review of the claim. This bill also
prescribes a procedure by which a subcontractor or lower tier
contractor may make a claim against the public agency through
the general contractor.
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ANALYSIS:
Existing law:
1) Provides that, in the event that a dispute arises between
the local public entity and the contractor whether the
conditions materially differ, or involve hazardous waste, or
cause a decrease or increase in the contractor's cost of, or
time required for, performance of any part of the work, the
contractor is not excused from any scheduled completion date
provided for by the contract.
2) Provides that the contractor retains any and all rights
provided either by contract or by law which pertain to the
resolution of disputes and protests between the contracting
parties.
3) Authorizes public agencies to make changes in construction
contracts for public improvements in the course of
construction, and requires the contractor to be paid for the
changes in accordance with the provisions of the contract
governing payment for changes in the work.
4) Authorizes, pursuant to contract terms and by mutual
consent of the contracting parties, any public agency to
terminate, amend, or modify any contract within the scope of
such authority; however, this provision does not apply to
contracts entered into pursuant to any statute expressly
requiring that contracts be let or awarded on the basis of
competitive bids.
5) Prohibits, except as otherwise provided, a suit for money
or damages against a public entity on a cause of action for
which a claim is required to be presented until a written
claim therefor has been presented to the public entity and
has been acted upon or rejected by the board.
6) Prescribes a contract claims resolution process for
contracts entered into with a state agency and requires
arbitration of a claim, defined to mean a demand for
monetary compensation or damages, arising under or relating
to the performance of contracts with a state agency.
7) Authorizes a claimant to initiate arbitration no later
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than 90 days after the date of personal or mail service on
the claimant of the final written decision by the
appropriate public agency department (department) on the
claim; however, this limitation does not apply to any claim
founded on any cost audit, latent defect, warranty, or
guarantee under the contract.
8) Prohibits arbitration until the claimant pursues
diligently and exhausts, as to the claim, the required
administrative procedures set forth in the contract under
which the claim arose, as specified.
9) Authorizes a party to the contract to join in the
arbitration as a party, any supplier, subcontractor, design
professional, surety, or other person who has so agreed and
if the joinder is necessary to prevent a substantial risk of
the party otherwise being subjected to inconsistent
obligations or decisions.
This bill:
1) Precludes, until January 1, 2019, any other claim
resolution provision, applies to all claims by contractors
in connection with public works, and applies to 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.
2) Requires, upon receipt of a claim, the 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.
3) Requires the claimant to furnish reasonable documentation
to support the claim, and provides, if the public entity
needs approval from its governing body to provide the
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claimant a written statement identifying the disputed
portion and the undisputed portion of the claim, and the
governing body does not meet within the 45 days following
receipt of a claim or within a mutually agreed to extension
of time, the public agency up to three days following the
next duly publicly noticed meeting of the governing body
after the 45-day period, or extension, expires to provide
the claimant a written statement identifying the disputed
portion and the undisputed portion.
4) 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.
5) Authorizes, 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, 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, the public entity would be
required to schedule a meet and confer conference within 30
days for settlement of the dispute.
6) Requires, 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, 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.
7) 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 requires any
disputed portion of the claim, as identified by the
contractor in writing, to be submitted to nonbinding
mediation, with the public entity and the claimant sharing
the associated costs equally.
8) 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
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select a mediator and those mediators would select a
qualified neutral third party to mediate with regard to the
disputed portion of the claim.
9) Requires each party to bear the fees and costs charged by
its respective mediator in connection with the selection of
the neutral mediator, and if mediation is unsuccessful, the
parts of the claim remaining in dispute would be subject to
other applicable claim resolution procedures.
10) Specifies that mediation includes any nonbinding process,
such as neutral evaluation or a dispute review board, in
which an independent third party or board assists the
parties in dispute resolution through negotiation or by
issuance of an evaluation, and any mediation utilized shall
conform to the time frames provided in this bill.
11) Requires, unless otherwise agreed to by the public entity
and the contractor in writing, the mediation conducted
pursuant to this bill to excuse any further obligation to
mediate (meet and confer) after litigation has been
commenced.
12) 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.
13) 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, and a claim denied by reason of the public
entity's failure to have responded to a claim, or its
failure to otherwise meet the time requirements, do not
constitute an adverse finding with regard to the merits of
the claim or the responsibility or qualifications of the
claimant.
14) Authorizes, 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,
the contractor to present to the public entity a claim on
behalf of a subcontractor or lower tier subcontractor.
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15) 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.
16) Requires the subcontractor requesting that the claim be
presented to the public entity to furnish reasonable
documentation to support the claim, and requires, within 45
days of receipt of that written request, 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.
17) 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 project that may give
rise to a claim under this bill.
18) Makes a waiver of the rights granted by this bill void and
contrary to public policy, as specified, and only applies to
contracts entered into on or after January 1, 2016.
Background
In general, public works refers to construction, alteration,
demolition, installation, or repair work (including maintenance)
of any public structure, building, road, or other improvement
done under contract and paid by public funds, or if private
funds are used, more than 50 percent of the square footage is
leased to a public entity. Because of this, there are laws
regarding many aspects of the construction projects to protect
the public's interest. Public works projects do not include
those done by a public agency with its own employees.
On public works projects, a public agency contracts with a
general contractor, who has submitted a bid or estimated cost to
provide the materials and services for the construction,
alteration, demolition, installation, or repair work. If the
cost of the materials and services is more than the general
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contractor's bid due to changes in the project, which may be
attributed to inaccurate or incomplete project plans and
specifications, the public agency orders extra work to be
performed, or unexpected difficulties arise. These increases in
costs may be submitted to the public agency for payment.
Typically, unless a change order is issued by the public agency
or its legislative body or appropriate department approving the
increase in cost, the general contractor, who may not be
responsible for the underlying cause of the increase in costs
but has accrued the expense for the sake of completing the
project, will be unable to resolve a claim dispute outside of
arbitration or civil action. Further, a subcontractor, who has
performed additional services or provided materials outside the
scope of the original contract with the general contractor but
necessary to the completion of the project, may be seeking
payment from the public agency. Multiple legislative attempts
to address pre-litigation claim disputes have failed.
Comments
The author writes:
There is no law in place requiring agencies to pay claims, in
a timely manner, made by contractors for extra work performed
and approved by the agency, even when the public agency
acknowledges that it owes the contractor for work performed.
This places contractors and their workers in difficult
financial circumstances.
Furthermore, there is a lack in uniformity for disputing a
claim. In many cases, some public agencies have no
requirements to respond to a claim or respond to a claim in a
timely manner. The breakdown of communication between the
public agency and the contractor adds to the burden on the
contractor and meeting their payroll obligations.
AB 1347 creates a process that requires agencies to respond
to a contractor's claim, to pay out portions of the work they
acknowledge and agree they owe the contractor, and to resolve
disputed portions of payment through non-binding mediation.
Prior Legislation
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AB 2471 (Frazier, 2014), which died in the Senate Appropriations
Committee, 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 is required of
the contractor or subcontractor.
AB 2096 (Miller, 2010) and AB 541 (Duvall, 2009), which both
died in the Assembly Judiciary Committee, would have allowed a
public agency and a contractor to mutually agree to resolve a
claim through independent arbitration.
AB 216 (Beall, 2009), which was held under submission in the
Assembly Appropriations Committee, would have reformed
pre-litigation claims resolution procedures for local public
works projects.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: Yes
According to the Senate Appropriations Committee, this bill
creates major costs potentially in the millions of dollars
(General Fund) to numerous state agencies engaged in significant
public works contracts. Caltrans expects it would need
additional personnel at an annual cost of approximately $11.5
million. Other agencies significantly impacted include the
Departments of General Services, Water Resources, Corrections
and Rehabilitation, the University of California, and the
California State University. This bill potentially creates
major state-reimbursable costs in the tens of millions of
dollars (General Fund) to local agencies engaged in public works
projects, including any increase in administrative costs
incurred under the existing process for resolution of claims
under $375,000. Further, this bill may result in additional
costs to state and local agencies for additional interest costs
accrued on late payments.
SUPPORT: (Verified8/28/15)
California Chapters of the National Electrical Contractors
Association (co-source)
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California-Nevada Conference of Operating Engineers (co-source)
California State Council of Laborers (co-source)
State Building and Construction Trades Council of California
(co-source)
United Contractors (co-source)
Air Conditioning Sheet Metal Association
Air-Conditioning & Refrigeration Contractors Association
Associated General Contractors
Associated General Contractors, California Chapters
Associated Plumbing & Mechanical Contractors
California Association of Sheet Metal and Air Conditioning
Contractors' National Association
California Landscape & Irrigation Council
California Legislative Conference of the Plumbing, Heating and
Piping Industry
California Plumbing and Mechanical Contractors Association
California State Association of Electrical Workers
California State Pipe Trades Council
Finishing Contractors Association of Southern California
Northern California Mechanical Contractors Association
Small Business California
Southern California Contractors Association
Union Roofing Contractors Association
Wall and Ceiling Alliance
Western States Council of Sheet Metal Workers
OPPOSITION: (Verified8/28/15)
California Chapters of the American Public Works Association
California School Boards Association
City of Camarillo
City of Indian Wells
City of San Carlos
Port of Long Beach
Santa Clara Valley Water District
ASSEMBLY FLOOR: 76-0, 6/3/15
AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom,
Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang,
Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle,
Daly, Dodd, Eggman, Frazier, Beth Gaines, Cristina Garcia,
Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray,
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Grove, Hadley, Harper, Roger Hernández, Holden, Irwin, Jones,
Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis,
McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte,
O'Donnell, Olsen, Patterson, Perea, Quirk, Rendon,
Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark
Stone, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood,
Atkins
NO VOTE RECORDED: Gallagher, Jones-Sawyer, Mayes, Thurmond
Prepared by:Tara Welch / JUD. / (916) 651-4113
9/1/15 20:25:12
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