BILL NUMBER: AB 2275	CHAPTERED
	BILL TEXT

	CHAPTER   916
	FILED WITH SECRETARY OF STATE   SEPTEMBER 28, 1998
	APPROVED BY GOVERNOR   SEPTEMBER 28, 1998
	PASSED THE ASSEMBLY   AUGUST 24, 1998
	PASSED THE SENATE   AUGUST 20, 1998
	AMENDED IN SENATE   AUGUST 3, 1998
	AMENDED IN SENATE   JUNE 15, 1998

INTRODUCED BY   Assembly Member Kuykendall
   (Coauthor:  Senator Kopp)

                        FEBRUARY 19, 1998

   An act to add Chapter 4.5 (commencing with Section 927) to Part 3
of Division 3.6 of Title 1 of, and to repeal Sections 926.15, 926.17,
and 926.18 of, the Government Code, relating to state contracts.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 2275, Kuykendall.  State contracts:  claims against the state.
   Existing law provides that a state agency that fails to make any
payment for goods and services to certain entities pursuant to a
contract shall be subject to an interest penalty fee, according to
specified criteria.
   This bill would recast these provisions and specify that these
provisions may not be waived, altered, or limited by the state agency
with respect to a contract entered into on or after January 1, 1999,
or by the person or business contracting on or after that date with
the state agency.
   This bill would require that in order to avoid late payment
penalties, state agencies shall pay promptly submitted, undisputed
invoices within 45 days, and would specify procedures and exclusions
relating to that requirement.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  SECTION 1.  Section 926.15 of the Government Code, as added by
Section 1 of Chapter 360 of the Statutes of 1997, is repealed.
  SEC. 2.  Section 926.15 of the Government Code, as amended by
Section 2 of Chapter 360 of the Statutes of 1997, is repealed.
  SEC. 3.  Section 926.17 of the Government Code is repealed.
  SEC. 4.  Section 926.18 of the Government Code is repealed.
  SEC. 5.  Chapter 4.5 (commencing with Section 927) is added to Part
3 of Division 3.6 of Title 1 of the Government Code, to read:

      CHAPTER 4.5.  PROMPT PAYMENT OF CLAIMS

   927.  (a) This chapter shall be known and may be cited as the
California Prompt Payment Act.
   (b) It is the intent of the Legislature that state agencies pay
properly submitted, undisputed invoices within 45 days of receipt, or
automatically calculate and pay the appropriate late payment
penalties as specified in this chapter.
   (c) Notwithstanding any other provision of law, this chapter shall
apply to all state agencies, including, but not limited to, the
Public Employees' Retirement System, the State Teachers' Retirement
System, the Treasurer, and the Department of General Services.
   927.1.  (a) A state agency that acquires property or services
pursuant to a contract with a business, including any approved change
order or contract amendment, shall make payment to the person or
business on the date required by the contract or be subject to a late
payment penalty.
   (b) Except in the event of an emergency as provided in Section
927.11, effective January 1, 1999, the late payment penalties
specified in this chapter may not be waived, altered, or limited by a
state agency acquiring property or services pursuant to a contract
or by any person or business contracting with a state agency to
provide property or services.
   927.2.  The following definitions apply to this chapter:
   (a) "Claim schedule" means a schedule of invoices prepared and
submitted by a state agency to the Controller for payment to the
named claimant.
   (b) "Invoice" means a bill or claim that requests payment on a
contract under which a state agency acquires property or services.
   (c) "Medi-Cal program" means the program established pursuant to
Chapter 7 (commencing with Section 14000) of Part 3 of Division 9 of
the Welfare and Institutions Code.
   (d) "Nonprofit public benefit corporation" means a corporation, as
defined by subdivision (b) of Section 5046 of the Corporations Code,
that has registered with the Department of General Services as a
small business.
   (e) "Reasonable cause" means a determination by a state agency
that any of the following conditions are present:
   (1) There is a discrepancy between the invoice or claimed amount
and the provisions of the contract.
   (2) There is a discrepancy between the invoice or claimed amount
and either the contractor's actual delivery of property or services
to the state or the state's acceptance of those deliveries.
   (3) Additional evidence supporting the validity of the invoice or
claimed amount is required to be provided to the state agency by the
contractor.
   (4) The invoice has been improperly executed or needs to be
corrected by the contractor.
   (f) "Required payment approval date" means the date on which
payment is due as specified in a contract or, if a specific date is
not established by the contract, 30 calendar days following the date
upon which an undisputed invoice is received by a state agency.
   (g) "Received by a state agency" means the date an invoice is
delivered to the state location or party specified in the contract
or, if a state location or party is not specified in the contract,
wherever otherwise specified by the state agency.
   (h) "Revolving fund" means a fund established pursuant to Article
5 (commencing with Section 16400) of Division 4 of Title 2.
   (i) "Small business" means a business certified as a "small
business" in accordance with subdivision (c) of Section 14837.
   (j) "Small business" and "nonprofit organization" mean, in
reference to providers under the Medi-Cal program, a business or
organization that meets all of the following criteria:
   (1) The principal office is located in California.
   (2) The officers, if any, are domiciled in California.
   (3) If a small business, it is independently owned and operated.
   (4) The business or organization is not dominant in its field of
operation.
   (5) Together with any affiliates, the business or organization has
gross receipts from business operations that do not exceed three
million dollars ($3,000,000) per year, except that the Director of
Health Services may increase this amount if the director deems that
this action would be in furtherance of the intent of this chapter.
   927.3.  Except where payment is made directly by a state agency
pursuant to Section 927.6, any undisputed invoice received by a state
agency shall be submitted to the Controller for payment by the
required payment approval date.  A state agency may dispute an
invoice submitted by a contractor for reasonable cause if the state
agency notifies the contractor within 15 working days from receipt of
the invoice, or delivery of the property or services, whichever is
later.  No state employee shall dispute an invoice, on the basis of
minor or technical defects, in order to circumvent or avoid the
general intent or any of the specific provisions of this chapter.
   927.4.  Except as otherwise provided in this chapter, to avoid
late payment penalties, the maximum time from state agency receipt of
an undisputed invoice to issuance of a warrant for payment is 45
calendar days, including not more than 30 calendar days from the
state agency to submit a correct claim schedule to the Controller,
and not more than 15 calendar days for the Controller to issue the
warrant.
   927.5.  This chapter shall not apply to claims for reimbursement
for health care services provided under the Medi-Cal program, unless
the Medi-Cal health care services provider is a small business or
nonprofit organization.  In applying this section to claims submitted
to the state, or its fiscal intermediary, by providers of services
or equipment under the Medi-Cal program, payment for claims shall be
due 30 days after a claim is received by the state or its fiscal
intermediary, unless reasonable cause for nonpayment exists.  With
regard to Medi-Cal claims, reasonable cause shall include review of
claims to determine medical necessity, review of claims for providers
subject to special prepayment fraud and abuse controls, and claims
that require review by the fiscal intermediary or State Department of
Health Services due to special circumstances.  Claims requiring
special review as specified above shall not be eligible for a late
payment penalty.
   927.6.  (a) State agencies shall pay applicable penalties, without
requiring that the contractor submit an additional invoice for these
amounts, whenever the state agency fails to submit a correct claim
schedule to the Controller by the required payment approval date.
The penalty shall cease to accrue on the date the state agency
submits the claim schedule to the Controller for payment, and shall
be paid for out of the state agency's funds.  If the contractor is a
certified small business, a nonprofit organization, a nonprofit
public benefit corporation, or a small business or nonprofit
organization that provides services or equipment under the Medi-Cal
program, the state agency shall pay to the contractor a penalty of
0.25 percent of the amount due, per calendar day, from the required
payment date.  However, a nonprofit organization shall only be
eligible to receive a penalty payment if it has been awarded a
contract in an amount less than five hundred thousand dollars
($500,000).
   (b) For all other businesses, the state agency shall pay a penalty
at a rate of 1 percent above the rate accrued on June 30 of the
prior year by the Pooled Money Investment Account, not to exceed a
rate of 15 percent, except that, if the amount of the penalty is
seventy-five dollars ($75) or less, the penalty shall be waived and
not paid by the state agency.  On an exception basis, state agencies
may avoid payment of penalties, for failure to submit a correct claim
schedule to the Controller by the required payment approval date, by
paying the contractor directly, from the state agency's revolving
fund within 45 calendar days following the date upon which an
undisputed invoice is received by the state agency.
   927.7.  The Controller shall pay contractors within 15 calendar
days of receipt of a correct claim schedule from the state agency.
If the Controller fails to make payment within 15 calendar days of
receipt of the claim schedule from a state agency, the Controller
shall pay applicable penalties to the contractor without requiring
that the contractor submit an invoice for these amounts.  Penalties
shall cease to accrue on the date full payment is made, and shall be
paid for out of the Controller's funds.  If the contractor is a
certified small business, a nonprofit organization, a nonprofit
public benefit corporation, or a small business or nonprofit
organization that provides services or equipment under the Medi-Cal
program, the Controller shall pay to the contractor a penalty of 0.25
percent of the amount due, per calendar day, from the 16th calendar
day following receipt of the claim schedule from the state agency.
However, a nonprofit organization shall only be eligible to receive a
penalty payment if it has been awarded a contract in an amount less
than five hundred thousand dollars ($500,000).  For all other
businesses, the Controller shall pay penalties at a rate of 1 percent
above the rate accrued on June 30 of the prior year by the Pooled
Money Investment Account, not to exceed a rate of 15 percent, except
that, if the amount of the penalty is seventy-five dollars ($75) or
less, the penalty shall be waived and not paid by the Controller.
   927.8.  State agencies shall avoid seeking any additional
appropriation to pay penalties that accrue as a result of the agency'
s failure to make timely payments as required by this chapter.  Any
state agency that requests that the Legislature make a deficiency
appropriation for the agency shall identify what portion, if any, of
the requested amount is required because of any penalties imposed by
this chapter.
   927.9.  (a) On an annual basis, within 90 calendar days following
the end of each fiscal year, state agencies shall provide the
Director of General Services with a report on late payment penalties
that were paid by the state agency in accordance with this chapter
during the preceding fiscal year.
   (b) At a minimum, the report shall identify the total number and
dollar amount of late payment penalties paid.  State agencies may, at
their own initiative, provide the director with other relevant
performance measures.  The director shall prepare a report listing
the number and total dollar amount of all late payment penalties paid
by each state agency during the preceding fiscal year, together with
other relevant performance measures, and shall make the information
available to the public.
   927.10.  State agencies shall encourage contractors to promptly
pay their subcontractors and suppliers, especially those that are
small businesses.  In furtherance of this policy, state agencies
shall utilize expedited payment processes to enable faster payment by
prime contractors to their subcontractors and suppliers, and shall
promptly respond to any subcontractor or supplier inquiries regarding
the status of payments made to prime contractors.
   927.11.  (a) Except in the case of a contract with a certified
small business, a nonprofit organization or a nonprofit public
benefit corporation, if an invoice from a business under a contract
with the Department of Forestry and Fire Protection would become
subject to late payment penalties during the annually declared fire
season, as declared by the Director of Forestry and Fire Protection,
then the required payment approval date shall be extended by 30
calendar days.
   (b) No nonprofit public benefit corporation shall be eligible for
a late payment penalty if a state agency fails to make timely payment
because no Budget Act has been enacted.
   (c) If the Director  of Finance determines that a state agency or
the Controller is unable to promptly pay an invoice as provided for
by this chapter due to a major calamity, disaster, or criminal act,
then otherwise applicable late payment penalty provisions contained
in Section 927.7 shall be suspended except as they apply to a
contractor which is either a certified small business, a nonprofit
organization, a nonprofit public benefit corporation, or a small
business or nonprofit organization that provides services or
equipment under the Medi-Cal program.  The suspension shall remain in
effect until the Director of Finance determines that the suspended
late payment penalty provisions of this section should be reinstated.

   (d) Except as provided in subdivision (b), in the event a state
agency fails to make timely payment because no Budget Act has been
enacted, penalties shall continue to accrue until the time that the
invoice is paid.
   927.12.  Section 926.10 shall not apply to any contract covered by
this chapter.