BILL ANALYSIS
AB 216
Page 1
Date of Hearing: May 20, 2009
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Kevin De Leon, Chair
AB 216 (Beall) - As Amended: May 6, 2009
Policy Committee: JudiciaryVote:8-2
Urgency: No State Mandated Local Program:
Yes Reimbursable: Yes
SUMMARY
This bill revises the pre-litigation dispute resolution process
for local government public works contracts entered into after
January 1, 2010. Specifically, this bill:
1)Expands the dispute resolution process, which currently
applies to claims with local agencies, to include change
orders and other contract disputes and to encompass charter
cities and charter counties, and expands the process to claims
of any dollar amount, not just those under $375,000 as per
current law.
2)Makes the following modifications for claims exceeding $50,000
involving a local agency, charter city, or charter county that
does not have an alternative dispute resolution process
provided by contract, ordinance, or policy:
a) Requires the local entity to make a determination within
45 days after receipt of the claim whether any portion is
undisputed, to satisfy the undisputed portion, and request
any additional information from the contractor within
initial 30 days of receipt. (Current law requires a
written response within 60 days after receiving a claim and
also requires any additional information to be requested
within 30 days.)
b) Establishes a maximum time that the local entity or
contractor has to provide a final written determination in
response to a claim to 105 days, unless the parties
mutually agree to extend the time.
c) Allows either party, if any portion of a claim remains
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unresolved following the written response, to request a
meet and confer conference within five days of exhausting
the maximum allowable time, and requires the conference to
be scheduled within 20 days, unless the parties mutually
agree to a longer time. (Current law allows the contractor
to demand a meet and confer conference and requires the
conference be scheduled within 30 days of the request.)
d) Allows the party submitting the claim, after the meet
and confer conference period has been exhausted, to demand
mediation within 30 days, and requires that the mediation
be for no less than four hours, with costs to be shared
equally by both parties.
e) Stipulates that failure of a local entity or a
contractor to respond to a claim within the required time
periods results in the claim being deemed approved in its
entirety, and in the case of local entity, requires
processing for payment within five days from the expiration
of the time period in which the local entity is required to
act. (Under current law, if any portion of a claim remains
in dispute following a meet and confer conference, the
claimant may file an action in court.)
f) Makes a local entity failing to respond to a claim
within the required time periods also subject to a penalty
payment of 2% per month for every month the payment is not
made.
g) Provides that in any action to collect funds wrongfully
withheld, the prevailing party shall be entitled to
reasonable attorney's fee and costs.
FISCAL EFFECT
1)This bill would likely result in significant state
reimbursable costs by: (a) mandating the pre-litigation
dispute process requirements on charter cities and charter
counties; (b) expanding the process requirements to involve
change orders and other contract-related disputes; (c)
mandating the process on claims exceeding $375,000; (d)
requiring local agencies to participate in mediation upon
demand of the claimant; and (e) modifying existing deadlines
and adding new deadlines for compliance with various tasks
within the process.
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These costs, which would involve additional administrative and
legal activities, are unknown, but could be in the millions of
dollars, given that there are over 5,500 cities, counties,
special districts and school districts in California. It is
unknown how many of these agencies use alternative dispute
resolution processes and would therefore be exempt from the
bill's requirements.
2)Local agencies could also incur significant additional,
nonreimbursable cost to the extent their failure to respond to
claims within the required time periods results in the claim
being deemed approved and for any mandated penalties attached
to late claims payments.
3)The above costs could be reduced over time to the extent more
local agencies adopt alternative dispute resolution processes.
The above costs could also be offset to some extent by
reduced litigation-related costs for claims that would
otherwise be settled through court proceedings, thus also
reducing cost pressures on the courts.
COMMENTS
1)Purpose . The sponsor, the Construction Employers Association
(CEA), contends that the current mechanisms governing the
resolution of disputes lead to significant delays and costly
litigation. The bill seeks to prevent these costly delays by
requiring that requests for additional documentation be
reasonable, that the meet and confer conferences be scheduled
within 20 days of the request for the conference, by allowing
claimants to compel mediation in the event that the meet and
confer conference does not fully resolve the dispute, by
deeming claims allowed in their entirety if a party failed to
meet a deadline and by imposing an additional financial
penalty on local agencies equal to 2% of the amount due each
month for failure to respond to a claim. The bill exempts
parties that have adopted a separate alternative dispute
resolution process.
2)Opposition . The Regional Council of Rural Counties (RCRC),
the California Special Districts Association (CSDA), and the
California State Association of Counties (CSAC), assert that
the vast majority of contracts and disputes are handled or
resolved without involving the superior courts. These
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organizations believe the 2% penalty provision inappropriately
places a new financial penalty on local agencies without
addressing contractors who fail to perform to contract
standards. Similarly, the Kern, Los Angeles, Los Rios, Rio
Hondo, San Jose-Evergreen, and West Kern Community College
Districts argue that in mandating a mediation process, this
bill "would deprive local agencies, including community
college districts, and contractors of the flexibility to
address major public works disputes in a timely and cost
effective manner."
The League of California Cities contends the bill creates an
"unreasonable deadline for public agencies to respond to
claims, and will result in cities having to pay merit-less
claims because of the public agency's administrative
capacity."
The Coalition for Adequate School Housing (C.A.S.H.) opposes
the bill for similar reasons as expressed above.
3)Prior Legislation . In 2008, a similar bill, SB 1642 (Yee),
was held on Suspense in Senate Appropriations. The sponsor
indicates that, unlike SB 1642, this bill does not have a
mandatory arbitration process.
Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081