BILL ANALYSIS
AB 1119
Page 1
Date of Hearing: April 21, 2009
ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS
Mary Hayashi, Chair
AB 1119 (Emmerson) - As Introduced: February 27, 2009
SUBJECT : Works of improvement: payments.
SUMMARY : Revises, recasts, and consolidates the provisions
governing the timely payment of progress payments, retention
proceeds, and final payments under a contract for a public or
private work of improvement, and subjects a licensed contractor
to disciplinary action by the Contractors' State License Board
(CSLB) for a violation of these provisions. Specifically, this
bill :
1)Requires a public utility or a state agency to release
retention proceeds withheld from any payment within a 45-day
period, rather than a 60-day period.
2) Requires an original contractor to pay his or her
subcontractors within seven days of receipt of specified
payments, rather than within 10 days or as agreed upon in
writing.
3)Makes the 2% penalty on the amount due per month of funds that
are improperly withheld applicable to all owners of private
and public works of improvement.
4)Provides that the prevailing party in any action for the
collection of funds wrongfully withheld is entitled to
attorney's fees and costs.
5)Subjects a licensed contractor to disciplinary action by the
CSLB for a violation of these provisions.
EXISTING LAW :
1)Provides for the licensing and regulation of contractors by
the CSLB.
2)Requires an owner of a private work of improvement to release
retention proceeds withheld from any payment within 45 days
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after the date of completion, and requires a public entity to
release retention proceeds entity within 60 days after the
date of completion.
3)Requires an original contractor to pay any subcontractor
within 10 days of receipt of a progress payment, unless
otherwise agreed to in writing.
4) Requires an original contractor to pay any subcontractor
within 10 days of receipt of any portion of retention
proceeds.
5)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.
6)Requires a person who has contracted to do business with a
public utility to pay any subcontractor within 15 days of
receipt of each progress payment from the public utility,
except as specified.
7)Requires a state agency that fails to make any progress
payment within 30 days after receipt of a payment request to
pay interest at the rate of 10% per year.
FISCAL EFFECT : Unknown
COMMENTS :
Purpose of the bill . According to the author's office, "Current
law requires that there must be timely payments to general
contractors by project owners and to subcontractors by general
contractors in several code sections. However, these provisions
are not only inconsistent but lead to confusion, misapplication,
missed deadlines, and delays in both payments and recourse.
"AB 1119 addresses inconsistencies in various codes regarding
prompt payments by shortening the prompt payment deadline to
seven days for all projects, whereas currently only public works
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projects have that deadline. Furthermore, in construction
projects this bill ensures that cash flows quickly so supplies
can be purchased, employees can be paid and projects can stay on
schedule."
Background . Retention proceeds represent a percentage of the
amount of a contract that is withheld from a progress payment by
the public entity to the original contractor or the original
contractor from one its subcontractors. By withholding a
percentage of a contract, the public entity or the original
contractor maintains a degree of financial control over a
project.
The Los Angeles Unified School District (LAUSD) has expressed
concern with several provisions of AB 1119 stating, "The [LAUSD]
is concerned with the mandatory monetary penalties if progress
and retention proceed payments are late. It will be extremely
difficult, if not impossible, for a school district to meet the
30-day requirement for progress payments and 45-day requirement
for retention proceeds.
"Under current law, the two-percent-per-month penalty is
discretionary, as it only applies to wrongfully withheld
retention payments and currently has no application to progress
payments made by a public entity. Given the realistic time
constraints and processing requirements necessary to issue
payments, the LAUSD would consider these penalties punitive."
Support . The California Landscape Contractors Association
writes in support, "California laws known as 'prompt pay'
statutes have long required property owners, prime contractors,
and subcontractors to promptly pay 'downstream' subcontractors
for completed and undisputed work performed. As economic
conditions have deteriorated and credit has become difficult to
obtain, it has become critically important for subcontractors to
be paid for their work in a timely fashion. Any delays in
anticipated payments could force the contractor to borrow funds
to pay for labor and materials, paying high interest rates or
perhaps finding that no credit is available."
Related legislation . AB 396 (Fuentes) of 2009 modifies recasts
and consolidates various provisions governing the timely payment
of progress payments, retention proceeds, and final payments
under a contract for a public or private work of improvement.
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SB 629 (Liu) of 2009 caps retention proceeds at 5% for all
private works construction contracts entered into on or after
January 1, 2010, and requires any retention proceeds withheld,
together with accrued interest, to be released within 45 days
after completion of the applicable work.
SB 802 (Leno) of 2009 is nearly identical to SB 619 (Migden) of
2008 which died in Assembly Appropriations.
Previous legislation . SB 1449 (Calderon) of 2008 was a
substantially similar bill to AB 396 that died in the Assembly
Judiciary Committee.
SB 619 (Migden) of 2008 caps retention proceeds at 5% for all
public works construction contracts entered into on or after
January 1, 2010, and limits Department of General Services'
withholding to a maximum of 5% of the contract price until final
completion and acceptance of the project. SB 619 died in
Assembly Appropriations.
Double-referred . This bill is double-referred to the Assembly
Judiciary Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
California Landscape Contractors Association
Opposition
None on file.
Analysis Prepared by : Whitney Clark / B. & P. / (916)
319-3301