BILL NUMBER: AB 1410 AMENDED
BILL TEXT
AMENDED IN SENATE SEPTEMBER 2, 1999
AMENDED IN SENATE AUGUST 17, 1999
AMENDED IN SENATE JULY 7, 1999
AMENDED IN ASSEMBLY MAY 19, 1999
AMENDED IN ASSEMBLY MAY 6, 1999
INTRODUCED BY Assembly Member Margett
(Coauthors: Assembly Members Longville and Mazzoni)
FEBRUARY 26, 1999
An act to amend Section 3260.1 of the Civil Code, and to amend
Section 20104.50 of, and to repeal and add Section 10261.5 of, the
Public Contract Code, relating to construction contracts.
LEGISLATIVE COUNSEL'S DIGEST
AB 1410, as amended, Margett. Construction contracts: progress
payments.
(1) Under the State Contract Act and the Local Agency Public
Construction Act, an agency, or in certain circumstances, the
Controller, that fails to make a progress payment within 30 days of
an undisputed request for payment must pay interest at an annual rate
of 10% of the unpaid amount.
This bill would instead require the state or local agency to pay a
penalty of 2% of the unpaid amount per 30-day period that the
undisputed amount remains unpaid, unless the delay in payment is
caused by unforeseeable circumstances, as defined.
The bill would also provide that the prevailing party is entitled
to costs and attorney's fees incurred in collecting payment.
(2) Existing law provides, with respect to construction contracts
for private works of improvement, for the payment of a specified
penalty for the wrongful withholding of any amount from a progress
payment under the contract.
This bill would correct an erroneous cross-reference in these
provisions.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 3260.1 of the Civil Code is amended to read:
3260.1. (a) This section is applicable to all contracts entered
into on or after January 1, 1992, relating to the construction of any
private work of improvement.
(b) Except as otherwise agreed in writing, the owner shall pay to
the contractor, within 30 days following receipt of a demand for
payment in accordance with the contract, any progress payment due
thereunder as to which there is no good faith dispute between the
parties. In the event of a dispute between the owner and the
contractor, the owner may withhold from the progress payment an
amount not to exceed 150 percent of the disputed amount. If any
amount is wrongfully withheld in violation of this subdivision, the
contractor shall be entitled to the penalty specified in subdivision
(g) of Section 3260.
(c) Nothing in this section supersedes any requirement of Section
3260 respecting the withholding of retention proceeds.
SEC. 2. Section 10261.5 of the Public Contract Code is repealed.
SEC. 3. Section 10261.5 is added to the Public Contract Code, to
read:
10261.5. (a) Any state agency that fails to make any progress
payment within 30 days after receipt of an undisputed and properly
submitted payment request from a contractor on a construction
contract shall pay a penalty of 2 percent on the unpaid portion of
the payment per 30-day period, in lieu of interest otherwise due.
The prevailing party shall be entitled to costs and attorney's fees
incurred in the collection of payment under this section.
(b) Upon receipt of a payment request, each state agency shall act
in accordance with both of the following:
(1) Each payment request shall be reviewed by the state agency as
soon as practicable after receipt for the purpose of determining that
the payment request is a proper payment request.
(2) Any payment request determined not to be a proper payment
request suitable for payment shall be returned to the contractor as
soon as practicable, but not later than seven days after receipt. A
request returned pursuant to this paragraph shall be accompanied by a
document setting forth in writing the reasons why the payment
request is not proper.
(c) The number of days available to a state agency to make a
payment without incurring interest pursuant to this section shall be
reduced by the number of days by which a state agency exceeds the
seven-day return requirement set forth in paragraph (2) of
subdivision (b).
(d) For purposes of this article:
(1) A "progress payment" includes all payments due contractors,
except that portion of the final payment designated by the contract
as retention earnings.
(2) A payment request shall be considered properly executed if
funds are available for payment of the payment request and payment is
not delayed due to an audit inquiry by the financial officer of the
state agency.
(e) Each state agency shall require that this article, or a
summary thereof, be set forth in the terms of any contract subject to
this article.
(f) A state agency is not subject to the interest
penalty imposed by subdivision (a) if the
failure to pay is due to an unforeseeable event such as a natural
disaster or major computer failure outside the control of the state
agency, or if the state agency demonstrates that it has made a good
faith effort to pay the debt. During the period when a
payment owed remains unpaid under circumstances described in this
subdivision, the agency is subject to interest at the legal rate
until those circumstances terminate. Once those circumstances
terminate, the state agency has 15 days to make the payment owed,
including interest. If payment is not made during the 15-day period,
the state agency is liable for interest under subdivision (a),
commencing 30 days after receipt of the payment request.
faith effort to make the payment. An unforeseeable event or a
demonstration of good faith effort shall be declared in writing
within 30 days of receipt of a payment request. During the period
when a payment owed remains unpaid under circumstances described in
this subdivision, the agency is subject to interest at the legal rate
set forth in subdivision (a) of Section 685.010 of the Code of Civil
Procedure.
SEC. 4. Section 20104.50 of the Public Contract Code is amended to
read:
20104.50. (a) (1) It is the intent of the Legislature in enacting
this section to require all local governments to pay their
contractors on time so that these contractors can meet their own
obligations. In requiring prompt payment by all local governments,
the Legislature hereby finds and declares that the prompt payment of
outstanding receipts is not merely a municipal affair, but is,
instead, a matter of statewide concern.
(2) It is the intent of the Legislature in enacting this article
to fully occupy the field of public policy relating to the prompt
payment of local governments' outstanding receipts. The Legislature
finds and declares that all government officials, including those in
local government, must set a standard of prompt payment that any
business in the private sector that may contract for services should
look towards for guidance.
(b) Any local agency that fails to make any progress payment
within 30 days after receipt of an undisputed and properly submitted
payment request from a contractor on a construction contract shall
pay a penalty of 2 percent on the unpaid portion of the payment per
30-day period, in lieu of interest otherwise due. The prevailing
party shall be entitled to costs and attorney's fees incurred in the
collection of payment under this section.
(c) Upon receipt of a payment request, each local agency shall act
in accordance with both of the following:
(1) Each payment request shall be reviewed by the local agency as
soon as practicable after receipt for the purpose of determining that
the payment request is a proper payment request.
(2) Any payment request determined not to be a proper payment
request suitable for payment shall be returned to the contractor as
soon as practicable, but not later than seven days after receipt. A
request returned pursuant to this paragraph shall be accompanied by a
document setting forth in writing the reasons why the payment
request is not proper.
(d) The number of days available to a local agency to make a
payment without incurring interest pursuant to this section shall be
reduced by the number of days by which a local agency exceeds the
seven-day return requirement set forth in paragraph (2) of
subdivision (c).
(e) For purposes of this article:
(1) A "local agency" includes, but is not limited to, a city,
including a charter city, a county, and a city and county, and is any
public entity subject to this part.
(2) A "progress payment" includes all payments due contractors,
except that portion of the final payment designated by the contract
as retention earnings.
(3) A payment request shall be considered properly executed if
funds are available for payment of the payment request and payment is
not delayed due to an audit inquiry by the financial officer of the
local agency.
(f) Each local agency shall require that this article, or a
summary thereof, be set forth in the terms of any contract subject to
this article.
(g) A local agency is not subject to the interest
penalty imposed by subdivision (b) if the
failure to pay is due to an unforeseeable event such as a natural
disaster or major computer failure outside the control of the local
agency, or if the local agency demonstrates that it has made a
good faith effort to pay the debt. During the period when a
payment owed remains unpaid under circumstances described in this
subdivision, the agency is subject to interest at the legal rate
until those circumstances terminate. Once those circumstances
terminate, the local agency has 15 days to make the payment owed,
including interest. If payment is not made during the 15-day period,
the local agency is liable for interest under subdivision (b),
commencing 30 days after receipt of the payment request.
faith effort to make the payment. An unforeseeable event or a
demonstration of good faith effort shall be declared in writing
within 30 days of receipt of a payment request. During the period
when a payment owed remains unpaid under circumstances described in
this subdivision, the agency is subject to interest at the legal rate
set forth in subdivision (a) of Section 685.010 of the Code of Civil
Procedure.