BILL NUMBER: AB 2084 CHAPTERED
BILL TEXT
CHAPTER 857
FILED WITH SECRETARY OF STATE SEPTEMBER 25, 1998
APPROVED BY GOVERNOR SEPTEMBER 24, 1998
PASSED THE ASSEMBLY AUGUST 28, 1998
PASSED THE SENATE AUGUST 27, 1998
AMENDED IN SENATE AUGUST 25, 1998
AMENDED IN SENATE JUNE 25, 1998
AMENDED IN SENATE JUNE 4, 1998
AMENDED IN ASSEMBLY APRIL 13, 1998
INTRODUCED BY Assembly Member Miller
FEBRUARY 18, 1998
An act to amend Section 3248 of the Civil Code, and to amend
Sections 3400, 7107, 10121, 10127, 10140, 10240.1, 10261, 10262,
10262.5, 10263, and 22300 of, and to add Section 7200 to, the Public
Contract Code, relating to public works contracts.
LEGISLATIVE COUNSEL'S DIGEST
AB 2084, Miller. Public works contracts.
(1) Existing law requires a contractor in a public works contract
to file a payment bond with the public entity in specified amounts
depending on the value of the contract.
This bill would revise the amounts of the bond.
(2) Existing law governs the distribution of retention proceeds in
a public works contract and requires an original contractor to pay
subcontractors from whom a retention has been withheld within 10 days
of receipt from the public agency of retention proceeds.
This bill would reduce that period to 7 days.
(3) Existing law sets forth the requirements respecting
disbursement of retention proceeds withheld from any payment by a
public entity to the original contractor for a work of improvement,
or withheld from any payment by the original contractor to a
subcontractor.
This bill would additionally specify that, with respect to a
contract for the construction of any public work of improvement
entered into on or after January 1, 1999, in a contract between the
original contractor and a subcontractor, and in a contract between a
subcontractor and any subcontractor thereunder, the percentage of the
retention proceeds withheld may not exceed the percentage specified
in the contract between the public entity and the original
contractor, except as specified. It would also prohibit any party
from requiring any other party to waive any of these provisions.
(4) The State Contract Act requires that the director of the
respective state agency approve project plans, specifications, and
estimates of cost.
This bill would delete that requirement.
(5) The act provides for arbitration of claims arising under
project contracts.
This bill would shorten the time in which a claimant may initiate
arbitration.
(6) The bill would make other changes with regard to the
substitution of securities for any moneys withheld by a public agency
to ensure performance under a contract, and would also require a
contractor who elects to receive interest on moneys withheld in
retention by a public agency to offer that option to subcontractors.
The bill would provide that its provisions shall apply only with
respect to contracts entered into on or after January 1, 1999.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 3248 of the Civil Code is amended to read:
3248. In order to be approved, the payment bond shall satisfy all
of the following requirements:
(a) The bond shall be in a sum not less than that prescribed in
the following paragraph which is applicable to the total amount
payable:
(1) One hundred percent of the total amount payable by the terms
of the contract when the total amount payable does not equal or
exceed five million dollars ($5,000,000).
(2) Fifty percent of the total amount payable by the terms of the
contract when the total amount payable is not less than five million
dollars ($5,000,000) and does not exceed ten million dollars
($10,000,000).
(3) Twenty-five percent of the total amount payable by the terms
of the contract if the contract exceeds ten million dollars
($10,000,000).
(b) The bond shall provide that if the original contractor or a
subcontractor fails to pay (1) any of the persons named in Section
3181, (2) amounts due under the Unemployment Insurance Code with
respect to work or labor performed under the contract, or (3) for any
amounts required to be deducted, withheld, and paid over to the
Employment Development Department from the wages of employees of the
contractor and subcontractors pursuant to Section 13020 of the
Unemployment Insurance Code with respect to the work and labor, that
the sureties will pay for the same, and also, in case suit is brought
upon the bond, a reasonable attorney's fee, to be fixed by the
court. The original contractor may require of the subcontractors a
bond to indemnify the original contractor for any loss sustained by
the original contractor because of any default by the subcontractors
under this section.
(c) The bond shall, by its terms, inure to the benefit of any of
the persons named in Section 3181 so as to give a right of action to
those persons or their assigns in any suit brought upon the bond.
(d) The bond shall be in the form of a bond and not a deposit in
lieu of a bond.
SEC. 2. Section 3400 of the Public Contract Code is amended to
read:
3400. (a) No agency of the state nor any political subdivision,
municipal corporation, or district, nor any public officer or person
charged with the letting of contracts for the construction,
alteration, or repair of public works shall draft or cause to be
drafted specifications for bids, in connection with the construction,
alteration, or repair of public works, (1) in such a manner as to
limit the bidding, directly or indirectly, to any one specific
concern, or (2) except in those instances where the product is
designated to match others in use on a particular public improvement
either completed or in the course of completion, calling for a
designated material, product, thing, or service by specific brand or
trade name unless the specification lists at least two brands or
trade names of comparable quality or utility and is followed by the
words "or equal" so that bidders may furnish any equal material,
product, thing, or service. In applying this section, the specifying
agency shall, if aware of an equal product manufactured in this
state, name that product in the specification. In those cases
involving a unique or novel product application required to be used
in the public interest, or where only one brand or trade name is
known to the specifying agency, it may list only one. Specifications
shall provide a period of time prior to the award of the contract
for submission of data substantiating a request for a substitution of
"an equal" item.
(b) Subdivision (a) shall not be applicable if the governing body
of one of the entities named therein by resolution makes a finding
that is included in the specifications that a particular material,
product, thing, or service is designated by specific brand or trade
name in order that a field test or experiment may be made to
determine the product's suitability for future use.
SEC. 3. Section 7107 of the Public Contract Code is amended to
read:
7107. (a) This section is applicable with respect to all
contracts entered into on or after January 1, 1993, relating to the
construction of any public work of improvement.
(b) The retention proceeds withheld from any payment by the public
entity from the original contractor, or by the original contractor
from any subcontractor, shall be subject to this section.
(c) Within 60 days after the date of completion of the work of
improvement, the retention withheld by the public entity shall be
released. In the event of a dispute between the public entity and
the original contractor, the public entity may withhold from the
final payment an amount not to exceed 150 percent of the disputed
amount. For purposes of this subdivision, "completion" means any of
the following:
(1) The occupation, beneficial use, and enjoyment of a work of
improvement, excluding any operation only for testing, startup, or
commissioning, by the public agency, or its agent, accompanied by
cessation of labor on the work of improvement.
(2) The acceptance by the public agency, or its agent, of the work
of improvement.
(3) After the commencement of a work of improvement, a cessation
of labor on the work of improvement for a continuous period of 100
days or more, due to factors beyond the control of the contractor.
(4) After the commencement of a work of improvement, a cessation
of labor on the work of improvement for a continuous period of 30
days or more, if the public agency files for record a notice of
cessation or a notice of completion.
(d) Subject to subdivision (e), within seven days from the time
that all or any portion of the retention proceeds are received by the
original contractor, the original contractor shall pay each of its
subcontractors from whom retention has been withheld, each
subcontractor's share of the retention received. However, if a
retention payment received by the original contractor is specifically
designated for a particular subcontractor, payment of the retention
shall be made to the designated subcontractor, if the payment is
consistent with the terms of the subcontract.
(e) The original contractor may withhold from a subcontractor its
portion of the retention proceeds if a bona fide dispute exists
between the subcontractor and the original contractor. The amount
withheld from the retention payment shall not exceed 150 percent of
the estimated value of the disputed amount.
(f) In the event that retention payments are not made within the
time periods required by this section, the public entity or original
contractor withholding the unpaid amounts shall be subject to a
charge of 2 percent per month on the improperly withheld amount, in
lieu of any interest otherwise due. Additionally, in any action for
the collection of funds wrongfully withheld, the prevailing party
shall be entitled to attorney's fees and costs.
(g) If a state agency retains an amount greater than 125 percent
of the estimated value of the work yet to be completed pursuant to
Section 10261, the state agency shall distribute undisputed retention
proceeds in accordance with subdivision (c). However,
notwithstanding subdivision (c), if a state agency retains an amount
equal to or less than 125 percent of the estimated value of the work
yet to be completed, the state agency shall have 90 days in which to
release undisputed retentions.
(h) Any attempted waiver of the provisions of this section shall
be void as against the public policy of this state.
SEC. 4. Section 7200 is added to the Public Contract Code, to
read:
7200. (a) (1) This section shall apply with respect to all
contracts entered into on or after January 1, 1999, between a public
entity and an original contractor, between an original contractor and
a subcontractor, and between all subcontractors thereunder, relating
to the construction of any public work of improvement.
(2) For purposes of this section, "public entity" means the state,
including every state agency, office, department, division, bureau,
board, or commission, a city, county, city and county, including
chartered cities and chartered counties, 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.
(b) In a contract between the original contractor and a
subcontractor, and in a contract between a subcontractor and any
subcontractor thereunder, the percentage of the retention proceeds
withheld may not exceed the percentage specified in the contract
between the public entity and the original contractor.
(c) When a performance and payment bond is required in the
solicitation for bids, subdivision (b) shall not apply to either of
the following:
(1) The original contractor, if the subcontractor fails or refuses
to provide a performance and payment bond, issued by an admitted
surety insurer, to the original contractor.
(2) The subcontractor, if a subcontractor thereunder fails or
refuses to provide a performance and payment bond, issued by an
admitted surety insurer, to the subcontractor.
(d) No party identified in subdivision (b) shall require any other
party to waive any provision of this section.
(e) In the event that the contractor elects to substitute
securities in lieu of retentions, the contractor may withhold from
his or her subcontractors, who have not elected to substitute
securities in lieu of retentions, the amount of retentions that would
have otherwise been withheld.
SEC. 5. Section 10121 of the Public Contract Code is amended to
read:
10121. The original draft or a certified copy of the plans,
specifications, and estimates of cost shall be filed permanently in
the office of the department before further action is taken.
SEC. 6. Section 10127 of the Public Contract Code is amended to
read:
10127. The department may, with the approval of the State Public
Works Board, receive bids for the construction of several public
works projects as a single project. Where more than one
appropriation has been made for the several projects united as a
single project under the provisions of this section, payments for the
single project shall be made from the separate appropriations on the
proportional basis that may be determined by the department and
approved by the Department of Finance. In the case of several
projects united as a single project pursuant to this section, those
projects shall be within 100 miles of one another.
SEC. 7. Section 10140 of the Public Contract Code is amended to
read:
10140. Public notice of a project shall be given by publication
once a week for at least two consecutive weeks or once a week for
more than two consecutive weeks if the longer period of advertising
is deemed necessary by the department, as follows:
(a) In a newspaper of general circulation published in the county
in which the project is located, or if located in more than one
county, in such a newspaper in a county in which a major portion of
the work is to be done.
(b) In a trade paper of general circulation published in San
Francisco for projects located in County Group No. 1, as defined in
Section 187 of the Streets and Highways Code, or in Los Angeles for
projects located in County Group No. 2, as defined in said Section
187, devoted primarily to the dissemination of contract and building
news among contracting and building materials supply firms.
The department may publish the notice to bidders for a project in
additional trade papers or newspapers of general circulation that it
deems advisable.
SEC. 8. Section 10240.1 of the Public Contract Code is amended to
read:
10240.1. The claimant may initiate arbitration not later than 90
days after the date of service in person or by mail on the claimant
of the final written decision by the department on the claim. This
limitation shall not apply to any claim founded on any cost audit,
latent defect, warranty, or guarantee under the contract.
SEC. 9. Section 10261 of the Public Contract Code is amended to
read:
10261. Payments upon contracts shall be made as the department
prescribes upon estimates made and approved by the department, but
progress payments shall not be made in excess of 95 percent of the
percentage of actual work completed plus a like percentage of the
value of material delivered on the ground or stored subject to or
under the control of the state, and unused, except as otherwise
provided in this section. The department shall withhold not less
than 5 percent of the contract price until final completion and
acceptance of the project. However, at any time after 95 percent of
the work has been completed, the department may reduce the funds
withheld to an amount not less than 125 percent of the estimated
value of the work yet to be completed, as determined by the
department, if the reduction has been approved, in writing, by the
surety on the performance bond and by the surety on the payment bond.
The Controller shall draw his or her warrants upon estimates so
made and approved by the department and the Treasurer shall pay them.
The funds may be released by electronic transfer if that procedure
is requested by the contractor, in writing, and if the public entity
has, in place at the time of the request, the mechanism for the
transfer.
SEC. 10. Section 10262 of the Public Contract Code is amended to
read:
10262. The contractor shall pay to his or her subcontractors,
within 10 days of receipt of each progress payment, the respective
amounts allowed the contractor on account of the work performed by
his or her subcontractors, to the extent of each subcontractor's
interest therein. The payments to subcontractors shall be based on
estimates made pursuant to Section 10261. Any diversion by the
contractor of payments received for prosecution of a contract, or
failure to reasonably account for the application or use of the
payments constitutes ground for actions proscribed in Section 10253,
in addition to disciplinary action by the Contractors' State License
Board. The subcontractor shall notify, in writing, the Contractors'
State License Board and the department of any payment less than the
amount or percentage approved for the class or item of work as set
forth in Section 10261.
SEC. 11. Section 10262.5 of the Public Contract Code is amended to
read:
10262.5. (a) Notwithstanding any other provision of law, a prime
contractor or subcontractor shall pay to any subcontractor, not later
than 10 days of receipt of each progress payment, the respective
amounts allowed the contractor on account of the work performed by
the subcontractors, to the extent of each subcontractor's interest
therein. In the event that there is a good faith dispute over all or
any portion of the amount due on a progress payment from the prime
contractor or subcontractor to a subcontractor, then the prime
contractor or subcontractor may withhold no more than 150 percent of
the disputed amount.
Any contractor who violates this section shall pay to the
subcontractor a penalty of 2 percent of the amount due per month for
every month that payment is not made. In any action for the
collection of funds wrongfully withheld, the prevailing party shall
be entitled to his or her attorney's fees and costs.
(b) This section shall not be construed to limit or impair any
contractual, administrative, or judicial remedies otherwise available
to a contractor or a subcontractor in the event of a dispute
involving late payment or nonpayment by a contractor or deficient
subcontract performance or nonperformance by a subcontractor.
(c) On or before September 1 of each year, the head of each state
agency shall submit to the Legislature a report on the number and
dollar volume of written complaints received from subcontractors and
prime contractors on contracts in excess of three hundred thousand
dollars ($300,000), relating to violations of this section.
SEC. 12. Section 10263 of the Public Contract Code is amended to
read:
10263. (a) Provisions shall be included in any invitation for bid
and in any contract documents to permit the substitution of
securities for any moneys withheld by a public agency to ensure
performance under a contract. At the request and expense of the
contractor, securities equivalent to the amount withheld shall be
deposited with the State Treasurer or, a state or federally chartered
bank in this state, as the escrow agent, who shall then pay the
moneys to the contractor. Upon satisfactory completion of the
contract, the securities shall be returned to the contractor.
(b) Alternatively, the contractor may request and the owner shall
make payment of retentions earned directly to the escrow agent. The
contractor may direct the investment of the payments into securities
and the contractor shall receive the interest earned on the
investments upon the same terms provided for in this section for
securities deposited by the contractor. Upon satisfactory completion
of the contract, the contractor shall receive from the escrow agent
all securities, interest, and payments received by the escrow agent
from the owner, pursuant to the terms of this section.
(c) Alternatively, and subject to the approval and at the sole
discretion of the public agency, the payment of retentions earned may
be deposited directly with a person licensed under Division 6
(commencing with Section 17000) of the Financial Code as the escrow
agent. Upon written request of an escrow agent who has not been
approved by the public agency under this subdivision, the public
agency shall provide written notice to that escrow agent within 10
business days of receipt of the request indicating the reason or
reasons for not approving that escrow agent. An escrow agent that
has been disapproved by the public agency may not maintain any cause
of action of any nature against the state or any public agency,
officer, agent, or employee of any public agency, in connection with
the disapproval of that escrow agent. The payments shall be
deposited in a trust account with a federally chartered bank or
savings association within 24 hours of receipt by the escrow agent.
The contractor shall not place any retentions with the escrow agent
in excess of the coverage provided to that escrow agent pursuant to
subdivision (b) of Section 17314 of the Financial Code. In all
respects not inconsistent with this subdivision, the remaining
provisions of this section shall apply to escrow agents acting
pursuant to this subdivision. In addition, an escrow agent subject
to this subdivision shall maintain insurance to cover negligent acts
and omissions of the escrow agent in connection with the handling of
retentions under this section in an amount not less than one hundred
thousand dollars ($100,000) per contract, executed by an admitted
insurer and in a form satisfactory to the public agency.
(d) Securities eligible for investment under this section shall
include those listed in Section 16430 of the Government Code, bank or
savings and loan certificates of deposit, interest-bearing demand
deposit accounts, standby letters of credit, or any other security
mutually agreed to by the contractor and the public agency.
The contractor shall be the beneficial owner of any securities
substituted for moneys withheld and shall receive any interest
thereon.
Failure to include the provisions prescribed by this section in
bid and contract documents shall void any provisions for performance
retentions in a public agency contract.
(e) (1) Any contractor who elects to receive interest on moneys
withheld in retention by a public agency shall, at the request of any
subcontractor, make that option available to the subcontractor
regarding any moneys withheld in retention by the contractor from the
subcontractor. If the contractor elects to receive interest on any
moneys withheld in retention by a public agency, then the
subcontractor shall receive the identical rate of interest received
by the contractor on any retention moneys withheld from the
subcontractor by the contractor, less any actual pro rata costs
associated with administering and calculating that interest. In the
event that the interest rate is a fluctuating rate, the rate for the
subcontractor shall be determined by calculating the interest rate
paid during the time that retentions were withheld from the
subcontractor. If the contractor elects to substitute securities in
lieu of retention, then, by mutual consent of the contractor and
subcontractor, the subcontractor may substitute securities in
exchange for the release of moneys held in retention by the
contractor.
(2) This subdivision shall apply only to those subcontractors
performing more than five percent of the contractor's total bid.
(3) No contractor shall require any subcontractor to waive any
provision of this section.
(f) The Legislature hereby finds and declares that the provisions
of this section are of statewide concern and are necessary to
encourage full participation by contractors and subcontractors in
public contract procedures.
(g) An escrow agreement used pursuant to this section shall be
null, void, and unenforceable unless it is substantially similar to
the following form:
ESCROW AGREEMENT FOR
SECURITY DEPOSITS IN LIEU OF RETENTION
This Escrow Agreement is made and entered into by and
between ____________________________________________________
______________________ whose address is ___________________
______________________ hereinafter called "owner,"
______________________ whose address is ___________________
______________________ hereinafter called "contractor," and
______________________ whose address is ___________________
______________________ hereinafter called "escrow agent."
For the consideration hereinafter set forth, the owner,
contractor, and escrow agent agree as follows:
(1) Pursuant to Section 10263 of the Public Contract Code of the
State of California, the contractor has the option to deposit
securities with the escrow agent as a substitute for retention
earnings required to be withheld by the owner pursuant to the
construction contract entered into between the owner and contractor
for ____ in the amount of ____ dated ____ (hereafter referred to as
the "contract"). Alternatively, on written request of the
contractor, the owner shall make payments of the retention earnings
directly to the escrow agent. When the contractor deposits the
securities as a substitute for the contract earnings, the escrow
agent shall notify the owner within 10 days of the deposit. The
market value of the securities at the time of the substitution shall
be at least equal to the cash amount then required to be withheld as
retention under the terms of the contract between the owner and
contractor. Securities shall be held in the name of the ____, and
shall designate the contractor as the beneficial owner.
(2) The owner shall make progress payments to the contractor for
those funds which otherwise would be withheld from progress payments
pursuant to the contract provision, provided that the escrow agent
holds securities in the form and amount specified above.
(3) When the owner makes payment of retentions earned directly to
the escrow agent, the escrow agent shall hold them for the benefit of
the contractor until such time as the escrow created under this
contract is terminated. The contractor may direct the investment of
the payments into securities. All terms and conditions of this
agreement and the rights and responsibilities of the parties shall be
equally applicable and binding when the owner pays the escrow agent
directly.
(4) The contractor shall be responsible for paying all fees for
the expenses incurred by the escrow agent in administering the escrow
account. These expenses and payment terms shall be determined by
the contractor and escrow agent.
(5) The interest earned on the securities or the money market
accounts held in escrow and all interest earned on the interest shall
be for the sole account of contractor and shall be subject to
withdrawal by contractor at any time and from time to time without
notice to the owner.
(6) The contractor shall have the right to withdraw all or any
part of the principal in the escrow account only by written notice to
the escrow agent accompanied by written authorization from the owner
to the escrow agent that the owner consents to the withdrawal of the
amount sought to be withdrawn by contractor.
(7) The owner shall have a right to draw upon the securities in
the event of default by the contractor. Upon seven days' written
notice to the escrow agent from the owner of the default, the escrow
agent shall immediately convert the securities to cash and shall
distribute the cash as instructed by the owner.
(8) Upon receipt of written notification from the owner certifying
that the contract is final and complete, and that the contractor has
complied with all requirements and procedures applicable to the
contract, the escrow agent shall release to the contractor all
securities and interest on deposit less escrow fees and charges of
the escrow account. The escrow shall be closed immediately upon
disbursement of all moneys and securities on deposit and payments of
fees and charges.
(9) The escrow agent shall rely on the written notifications from
the owner and the contractor pursuant to Sections (1) to (8),
inclusive, of this agreement and the owner and contractor shall hold
the escrow agent harmless from the escrow agent's release,
conversion, and disbursement of the securities and interest as set
forth above.
(10) The names of the persons who are authorized to give written
notice or to receive written notice on behalf of the owner and on
behalf of the contractor in connection with the foregoing, and
exemplars of their respective signatures are as follows:
On behalf of the owner: On behalf of the contractor:
________________________________
_______________________________
Title Title
________________________________
_______________________________
Name Name
________________________________
_______________________________
Signature Signature
________________________________
_______________________________
Address Address
On behalf of the escrow agent:
_______________________________
Title
_______________________________
Name
_______________________________
Signature
_______________________________
Address
At the time the escrow account is opened, the owner and
contractor shall deliver to the escrow agent a fully executed
counterpart of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
by their proper officers on the date first set forth above.
Owner Contractor
________________________________
_______________________________
Title Title
________________________________
_______________________________
Name Name
________________________________
_______________________________
Signature Signature
SEC. 13. Section 22300 of the Public Contract Code is amended to
read:
22300. (a) Provisions shall be included in any invitation for bid
and in any contract documents to permit the substitution of
securities for any moneys withheld by a public agency to ensure
performance under a contract; however, substitution of securities
provisions shall not be required in contracts in which there will be
financing provided by the Farmers Home Administration of the United
States Department of Agriculture pursuant to the Consolidated Farm
and Rural Development Act (7 U.S.C. Sec. 1921 et seq.), and where
federal regulations or policies, or both, do not allow the
substitution of securities. At the request and expense of the
contractor, securities equivalent to the amount withheld shall be
deposited with the public agency, or with a state or federally
chartered bank in this state as the escrow agent, who shall then pay
those moneys to the contractor. Upon satisfactory completion of the
contract, the securities shall be returned to the contractor.
(b) Alternatively, the contractor may request and the owner shall
make payment of retentions earned directly to the escrow agent at the
expense of the contractor. At the expense of the contractor, the
contractor may direct the investment of the payments into securities
and the contractor shall receive the interest earned on the
investments upon the same terms provided for in this section for
securities deposited by the contractor. Upon satisfactory completion
of the contract, the contractor shall receive from the escrow agent
all securities, interest, and payments received by the escrow agent
from the owner, pursuant to the terms of this section.
(c) Securities eligible for investment under this section shall
include those listed in Section 16430 of the Government Code, bank or
savings and loan certificates of deposit, interest-bearing demand
deposit accounts, standby letters of credit, or any other security
mutually agreed to by the contractor and the public agency.
The contractor shall be the beneficial owner of any securities
substituted for moneys withheld and shall receive any interest
thereon.
Failure to include these provisions in bid and contract documents
shall void any provisions for performance retentions in a public
agency contract.
For purposes of this section, the term "public agency" shall
include, but shall not be limited to, chartered cities.
(d) (1) Any contractor who elects to receive interest on moneys
withheld in retention by a public agency shall, at the request of any
subcontractor, make that option available to the subcontractor
regarding any moneys withheld in retention by the contractor from the
subcontractor. If the contractor elects to receive interest on any
moneys withheld in retention by a public agency, then the
subcontractor shall receive the identical rate of interest received
by the contractor on any retention moneys withheld from the
subcontractor by the contractor, less any actual pro rata costs
associated with administering and calculating that interest. In the
event that the interest rate is a fluctuating rate, the rate for the
subcontractor shall be determined by calculating the interest rate
paid during the time that retentions were withheld from the
subcontractor. If the contractor elects to substitute securities in
lieu of retention, then, by mutual consent of the contractor and
subcontractor, the subcontractor may substitute securities in
exchange for the release of moneys held in retention by the
contractor.
(2) This subdivision shall apply only to those subcontractors
performing more than five percent of the contractor's total bid.
(3) No contractor shall require any subcontractor to waive any
provision of this section.
(e) The Legislature hereby declares that the provisions of this
section are of statewide concern and are necessary to encourage full
participation by contractors and subcontractors in public contract
procedures.
(f) The escrow agreement used hereunder shall be null, void, and
unenforceable unless it is substantially similar to the following
form:
ESCROW AGREEMENT FOR
SECURITY DEPOSITS IN LIEU OF RETENTION
This Escrow Agreement is made and entered into by and be-
tween ____________________________________________________
_____________________ whose address is __________________
_____________________ hereinafter called "Owner,"
_____________________ whose address is __________________
_____________________ hereinafter called "Contractor" and
_____________________ whose address is __________________
_____________________ hereinafter called "Escrow Agent."
For the consideration hereinafter set forth, the Owner,
Contractor, and Escrow Agent agree as follows:
(1) Pursuant to Section 22300 of the Public Contract Code of the
State of California, Contractor has the option to deposit securities
with Escrow Agent as a substitute for retention earnings required to
be withheld by Owner pursuant to the Construction Contract entered
into between the Owner and Contractor for ____ in the amount of ____
dated ____ (hereinafter referred to as the "Contract").
Alternatively, on written request of the Contractor, the Owner shall
make payments of the retention earnings directly to the Escrow Agent.
When the Contractor deposits the securities as a substitute for
Contract earnings, the Escrow Agent shall notify the Owner within 10
days of the deposit. The market value of the securities at the time
of the substitution shall be at least equal to the cash amount then
required to be withheld as retention under the terms of the Contract
between the Owner and Contractor. Securities shall be held in the
name of ____, and shall designate the Contractor as the beneficial
owner.
(2) The Owner shall make progress payments to the Contractor for
those funds which otherwise would be withheld from progress payments
pursuant to the Contract provisions, provided that the Escrow Agent
holds securities in the form and amount specified above.
(3) When the Owner makes payment of retentions earned directly to
the Escrow Agent, the Escrow Agent shall hold them for the benefit of
the Contractor until the time that the escrow created under this
contract is terminated. The Contractor may direct the investment of
the payments into securities. All terms and conditions of this
agreement and the rights and responsibilities of the parties shall be
equally applicable and binding when the Owner pays the Escrow Agent
directly.
(4) Contractor shall be responsible for paying all fees for the
expenses incurred by Escrow Agent in administering the Escrow Account
and all expenses of the Owner. These expenses and payment terms
shall be determined by the Owner, Contractor, and Escrow Agent.
(5) The interest earned on the securities or the money market
accounts held in escrow and all interest earned on that interest
shall be for the sole account of Contractor and shall be subject to
withdrawal by Contractor at any time and from time to time without
notice to the Owner.
(6) Contractor shall have the right to withdraw all or any part of
the principal in the Escrow Account only by written notice to Escrow
Agent accompanied by written authorization from the Owner to the
Escrow Agent that Owner consents to the withdrawal of the amount
sought to be withdrawn by Contractor.
(7) The Owner shall have a right to draw upon the securities in
the event of default by the Contractor. Upon seven days' written
notice to the Escrow Agent from the owner of the default, the Escrow
Agent shall immediately convert the securities to cash and shall
distribute the cash as instructed by the Owner.
(8) Upon receipt of written notification from the Owner certifying
that the Contract is final and complete, and that the Contractor has
complied with all requirements and procedures applicable to the
Contract, Escrow Agent shall release to Contractor all securities and
interest on deposit less escrow fees and charges of the Escrow
Account. The escrow shall be closed immediately upon disbursement of
all moneys and securities on deposit and payments of fees and
charges.
(9) Escrow Agent shall rely on the written notifications from the
Owner and the Contractor pursuant to Sections (5) to (8), inclusive,
of this Agreement and the Owner and Contractor shall hold Escrow
Agent harmless from Escrow Agent's release and disbursement of the
securities and interest as set forth above.
(10) The names of the persons who are authorized to give written
notice or to receive written notice on behalf of the Owner and on
behalf of Contractor in connection with the foregoing, and exemplars
of their respective signatures are as follows:
On behalf of Owner: On behalf of Contractor:
____________________________ ____________________________
Title Title
____________________________ ____________________________
Name Name
____________________________ ____________________________
Signature Signature
____________________________ ____________________________
Address Address
On behalf of Escrow Agent:
____________________________
Title
____________________________
Name
____________________________
Signature
____________________________
Address
At the time the Escrow Account is opened, the Owner and Contractor
shall deliver to the Escrow Agent a fully executed counterpart of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement by
their proper officers on the date first set forth above.
Owner Contractor
____________________________ ____________________________
Title Title
____________________________ ____________________________
Name Name
____________________________ ____________________________
Signature Signature
SEC. 14. The provisions of this act shall apply only with respect
to contracts entered into on or after January 1, 1999.