BILL NUMBER: AB 1119 INTRODUCED
BILL TEXT
INTRODUCED BY Assembly Member Emmerson
FEBRUARY 27, 2009
An act to amend Section 7108.5 of the Business and Professions
Code, to amend Sections 3260, 3260.1, and 3262.5 of, and to add
Section 3260.05 to, the Civil Code, and to amend Sections 7107,
10261.5, 10262, and 10262.5 of the Public Contract Code, relating to
works of improvement.
LEGISLATIVE COUNSEL'S DIGEST
AB 1119, as introduced, Emmerson. Works of improvement: payments.
Existing law requires an owner of a private work of improvement to
release retention proceeds withheld from any payment within 45 days
after the date of completion. Existing law requires a public entity
to release retention proceeds withheld from any payment by the public
entity within 60 days after the date of completion. Existing law
requires an original contractor to pay any subcontractor within 10
days from the time that all or any portion of retention proceeds are
received by the original contractor. Existing law requires an
original contractor or subcontractor to pay any subcontractor within
10 days from the time of receipt of each progress payment, unless
otherwise agreed to in writing. Existing law imposes a penalty of 2%
on the amount due per month on funds that are improperly withheld in
a contract dispute relating to public and private works of
improvement, as specified. The Contractors' State License Law
provides for the licensing and regulation of contractors by the
Contractors' State License Board.
Existing law requires any person or corporation that has
contracted to do business with a public utility to pay any
subcontractor within 15 working days of receipt of each progress
payment from the public utility, except as specified. Existing law
also requires a state agency that fails to make any progress payment
within 30 days after receipt of the payment request to pay interest
at the rate of 10% per year.
This bill would revise, recast, and consolidate the above
provisions governing the timely payment of progress payments,
retention proceeds, and final payments under a contract for a public
or private work of improvement with respect to contracts entered into
on or after January 1, 2010, and would subject a licensed contractor
under the Contractors' State License Law to disciplinary action by
the Contractors' State License Board for a violation of these
provisions. The bill would require all owners, including a public
utility or a state agency, to release retention proceeds withheld
from any payment within a 45-day period, and, upon receipt of all or
any portion of the retention proceeds or final payment, or any
progress payment, would require an original contractor or
subcontractor to pay his or her subcontractors within a 7-day period.
The bill would also make the 2% penalty described above applicable
to all owners of private and public works of improvement. The bill
would additionally provide that the prevailing party in any action
for the collection of funds wrongfully withheld is entitled to
attorney's fees and costs.
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 7108.5 of the Business and Professions Code is
amended to read:
7108.5. A (a) With
respect to a contract entered into prior to January 1, 2010, a
prime contractor or subcontractor shall pay to any subcontractor, not
later than 10 days of receipt of each progress payment, unless
otherwise agreed to in writing, 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.
(b) A contract entered into on or after January 1, 2010, shall be
governed by Section 3260.05 of the Civil Code and by subdivisions (c)
to (e), inclusive.
Any
(c) Any violation of this section
or subdivision (d), (e), or (f) of Section 3260.05 of the Civil
Code by a licensee shall constitute a cause for disciplinary
action and shall subject the licensee to a penalty, payable
to the subcontractor, 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
the penalty specified in subdivision (g) of Section 3260.05 of the
Civil Code .
The
(d) The sanctions authorized
under this section shall be separate from, and in addition to, all
other remedies either civil, administrative, or criminal.
This
(e) This section applies to all
private works of improvement and to all public works of improvement,
except where Section 10262 of the Public Contract Code applies.
SEC. 2. Section 3260 of the Civil Code is amended to read:
3260. (a) This section is applicable with respect to all
contracts entered into on or after July 1, 1991, and prior to
January 1, 2010, relating to the construction of any private
work of improvement. However, the amendments made to this section
during the 1992 portion of the 1991-92 Regular Session of the
Legislature are applicable only with respect to contracts entered
into on or after January 1, 1993, relating to the construction of any
private work of improvement. Moreover, the amendments made to this
section during the 1993 portion of the 1993-94 Regular Session of the
Legislature are applicable only with respect to contracts entered
into on or after January 1, 1994, relating to the construction of any
private work of improvement.
(b) The retention proceeds withheld from any payment by the owner
from the original contractor, or by the original contractor from any
subcontractor, shall be subject to this section.
(c) Within 45 days after the date of completion, the retention
withheld by the owner shall be released. "Date of completion," for
purposes of this section, means any of the following:
(1) The date of issuance of any certificate of occupancy covering
the work by the public agency issuing the building permit.
(2) The date of completion indicated on a valid notice of
completion recorded pursuant to Section 3093.
(3) The date of completion as defined in Section 3086.
However, release of retentions withheld for any portion of the
work of improvement which ultimately will become the property of a
public agency, may be conditioned upon the acceptance of the work by
the public agency. In the event of a dispute between the owner and
the original contractor, the owner may withhold from the final
payment an amount not to exceed 150 percent of the disputed amount.
(d) Subject to subdivision (e), within 10 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) If a bona fide dispute exists between a subcontractor and the
original contractor, the original contractor may withhold from that
subcontractor with whom the dispute exists its portion of the
retention proceeds. The amount withheld from the retention payment
shall not exceed 150 percent of the estimated value of the disputed
amount.
(f) Within 10 days of receipt of written notice by the owner from
the original contractor or by the original contractor from the
subcontractor, as the case may be, that any work in dispute has been
completed in accordance with the terms of the contract, the owner or
original contractor shall advise the notifying party of the
acceptance or rejection of the disputed work. Within 10 days of
acceptance of the disputed work, the owner or original contractor, as
the case may be, shall release the retained portion of the retention
proceeds.
(g) In the event that retention payments are not made within the
time periods required by this section, the owner 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 his or her attorney's fees and costs.
(h) It shall be against public policy for any party to require any
other party to waive any provision of this section.
(i) This section shall not be construed to apply to retentions
withheld by a lender in accordance with the construction loan
agreement.
(j) Contracts entered into on or after January 1, 2010, shall be
governed by Section 3260.05.
SEC. 3. Section 3260.05 is added to the Civil Code, to read:
3260.05. (a) Notwithstanding any other provision of law, this
section applies to all contracts entered into on or after January 1,
2010, relating to the construction of any private or public work of
improvement.
(b) This section applies to contractual obligations between all of
the following:
(1) Owners and original contractors.
(2) Original contractors and subcontractors.
(3) Subcontractors and subcontractors.
(c) The owner shall pay to the contractor, within 30 days
following receipt of a demand for payment, any progress payment due
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).
(d) Subject to subdivision (f), within seven days from the date
that all or any portion of any progress payment is received by the
original contractor or subcontractor, the original contractor or
subcontractor shall pay to any subcontractor, unless otherwise agreed
to in writing, the respective amounts allowed the subcontractor on
account of the work performed by the subcontractor, to the extent of
each subcontractor's interest therein.
(e) The retention proceeds or final payment withheld from any
payment by the owner from the original contractor, or by the original
contractor from any subcontractor, shall be subject to the following
requirements:
(1) (A) Within 45 days after the date of completion, or 100 days
after cessation of labor, the retention proceeds or final payment
withheld by the owner shall be released. "Date of completion," for
purposes of this subdivision, means any of the following:
(i) The date of issuance of any certificate of occupancy covering
the work by the public agency issuing the building permit.
(ii) The date of completion indicated on a valid notice of
completion recorded pursuant to Section 3093.
(iii) The date of completion, as defined in Section 3086.
(B) Notwithstanding subparagraph (A), the release of retention
proceeds or final payments withheld for any portion of the work of
improvement that ultimately will become the property of a public
agency, may be conditioned upon the acceptance of the work by the
public agency.
(2) Subject to subdivision (f), within seven days from the date
that all or any portion of the retention proceeds or final payment is
received by the original contractor, the original contractor shall
pay, to each of its subcontractors from which the retention proceeds
or final payment has been withheld, each subcontractor's share of the
retention proceeds or final payment received. However, if the
retention proceeds or final payment received by the original
contractor is specifically designated for a particular subcontractor,
payment of the retention proceeds or final payment shall be made to
the designated subcontractor.
(f) (1) If a bona fide dispute exists between an owner and
original contractor, between the original contractor and a
subcontractor, or between two subcontractors, the owner, original
contractor, or subcontractor, as applicable, may withhold from the
party with whom the dispute exists an amount not to exceed 150
percent of the disputed amount. The amount withheld shall not exceed
150 percent of the estimated value of the disputed amount. If any
amount is wrongfully withheld in violation of this subdivision, the
aggrieved party shall be entitled to the penalty specified in
subdivision (g).
(2) Within seven days of receipt by the owner, original
contractor, or subcontractor, as applicable, of written notice from
the party with whom the dispute exists pursuant to paragraph (1),
that any work in dispute has been completed in accordance with the
terms of the contract, the owner or original contractor shall advise
the notifying party of the acceptance or rejection of the disputed
work. Within seven days of acceptance of the disputed work, the owner
or original contractor shall release the retained portion of the
disputed payment.
(g) If any payment is not made within the time periods required by
this section, the owner, original contractor, or subcontractor
withholding the unpaid amount shall be subject to a charge of 2
percent per month on the improperly withheld amount, in addition to
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.
(h) As applied to licensees under the Contractors' State License
Law (Chapter 9 (commencing with Section 7000) of Division 3 of the
Business and Professions Code), a violation of this section shall
also constitute a cause for disciplinary action under that chapter,
and the sanctions authorized under this section shall be enforced by
the Contractors' State License Board.
(i) The remedies authorized pursuant to this section are separate
from, and in addition to, any other remedy authorized by law, and
shall also be enforceable by civil, administrative, or criminal
proceedings.
(j) It shall be against public policy for any party to require any
other party to waive any provision of this section.
SEC. 4. Section 3260.1 of the Civil Code is amended to read:
3260.1. (a) This section is applicable with respect to all
contracts entered into on or after January 1, 1992, and prior to
January 1, 2010, 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 shall be deemed to supersede any
requirement of Section 3260 respecting the withholding of retention
proceeds.
(d) Contracts entered into on or after January 1, 2010, shall be
governed by Section 3260.05.
SEC. 5. Section 3262.5 of the Civil Code is amended to read:
3262.5. (a) Any With respect to contracts
entered into prior to January 1, 2010, any person or
corporation which that has contracted
to do business with a public utility, hereafter referred to in this
section as a contractor, shall pay any subcontractors within 15
working days of receipt of each progress payment from the public
utility, unless otherwise agreed in writing by the parties, the
respective amounts allowed the contractor on account of the work
performed by the subcontractors, to the extent of each of the
subcontractors' interest in that work. In the event that there is a
good faith dispute over all or any portion of the amount due on a
progress payment from a contractor to a subcontractor, then the
contractor may withhold no more than 150 percent of the disputed
amount.
(b) Any contractor who violates this section shall pay to the
subcontractor a penalty of 2 percent of the disputed 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.
(c) 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
performance or nonperformance by a subcontractor.
(d) Contracts entered into on or after January 1, 2010, shall be
governed by Section 3260.05.
SEC. 6. 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, and prior to
January 1, 2010, 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.
(i) Contracts entered into on or after January 1, 2010, shall be
governed by Section 3260.05 of the Civil Code.
SEC. 7. Section 10261.5 of the Public Contract Code is amended to
read:
10261.5. (a) Any With respect to
contracts entered into prior to January 1, 2010, any state
agency which that fails to make any
progress payment within 30 days after receipt of the payment request
from a contractor on a construction contract for an undisputed
payment request, which that was
properly submitted by the contractor to the agency, shall pay
interest to the contractor equivalent to the legal rate set forth in
subdivision (a) of Section 685.010 of the Code of Civil Procedure.
Any state agency which that
independently calculates the amount due on a progress payment and
which that fails to make a progress
payment within 30 days of the first submittal of the estimate for
each contract by the engineer, shall pay interest to the contractor
equivalent to the legal rate set forth in subdivision (a) of Section
685.010 of the Code of Civil Procedure. In the event that the payment
is not made within 30 days of receipt of the contractor's request or
the first submittal by the engineer, and the Controller has
processed the payment within 14 days of receipt of the request or
submittal, the contracting state agency shall pay interest to the
contractor equivalent to the legal rate set forth in subdivision (a)
of Section 685.010 of the Code of Civil Procedure. In the event that
the payment is not made within 30 days of receipt of the contractor's
request or the first submittal by the engineer, and the contracting
state agency has processed the payment within 16 days after receipt
of the request or submittal, the Controller shall pay interest as
provided in Section 685.010 of the Code of Civil Procedure.
For purposes of this section, 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 Controller.
(b) Upon receipt of a payment request, each agency shall require:
(1) That each payment request be reviewed as soon as practicable
after receipt for the purpose of determining that a 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 as soon as
practicable, but not later than seven days, after receipt, specifying
the reasons that the payment request is not a proper payment
request.
(3) The number of days available to a state agency to make a
timely payment of payment request without incurring interest shall be
reduced by the number of days by which an agency exceeds the
requirements of paragraph (2).
(c) Contracts entered into on or after January 1, 2010, shall be
governed by Section 3260.05 of the Civil Code.
SEC. 8. Section 10262 of the Public Contract Code is amended to
read:
10262. The (a) With
respect to contracts entered into prior to January 1, 2010, 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
prescribed 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.
(b) Contracts entered into on or after January 1, 2010, shall be
governed by Section 3260.05 of the Civil Code.
SEC. 9. Section 10262.5 of the Public Contract Code is amended to
read:
10262.5. (a) Notwithstanding any other provision of law,
with respect to contracts entered into prior to January 1, 2010,
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.
(d) Contracts entered into on or after January 1, 2010, shall be
governed by Section 3260.05 of the Civil Code.