BILL ANALYSIS
AB 1119
Page 1
Date of Hearing: April 28, 2009
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 1119 (Emmerson) - As Amended: April 22, 2009
PROPOSED CONSENT (As Proposed to be Amended)
SUBJECT : Works of Improvement: Payments
KEY ISSUE : Should THE LEGISLATURE STATE ITS INTENT TO
RECONSIDER STATUTES governing PROMPT payment for public and
private works TO AID IN CLARITY AND APPLICATION?
FISCAL EFFECT : As currently in print this bill is keyed fiscal.
SYNOPSIS
Existing law governing deadlines for progress payments,
retention proceeds, and final payments for works of public and
private improvement are scattered throughout the Civil, Business
and Professions, and Public Contract codes. In general, these
provisions require that payments from owners to general
contractors, and from general contractors to subcontractors, are
made in a timely fashion. However, the different code
provisions have slightly different time tables, especially for
public and private works of improvement, and their scattered
nature can make for confusion for parties trying to follow the
law. This bill would state the intent of the Legislature to
reconsider these statutes to aid in their clarity and
application.
SUMMARY : States the intent of the Legislature to reconsider
prompt payment statutes regarding public and private works of
improvement to aid in their clarity and application.
EXISTING LAW :
1)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, and requires a public entity to
release retention proceeds within 60 days after the date of
completion. (Civil Code Section 3260.1 (c) and Public
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Contract Code Section 7107 (c).)
2)Requires an original contractor on a private work of public
improvement to pay any subcontractor within 10 days of receipt
of a progress payment, unless otherwise agreed to in writing.
(Business & Professions Code Section 7108.5.)
3)Requires an original contractor on a public work of
improvement to pay any subcontractor within 10 days of receipt
of a progress payment. (Public Contract Code Section 10262.)
4)Provides that if retention payments are not made within the
required time periods, the owner or original contractor
withholding the unpaid amounts shall be subject to a 2 percent
charge on the improperly held amount, in lieu of any interest
otherwise due. (Civil Code Section 3260.)
5)Requires a state agency to make any progress payment within 30
days after receipt of a properly submitted payment request and
subjects the state agency to interest penalties, as specified,
for failure to do so. (Public Contract Code Section 10261.5.)
COMMENTS : Existing law governing deadlines for progress
payments, retention proceeds, and final payments for works of
public and private improvement are scattered throughout the
Civil, Business and Professions, and Public Contract codes. In
general, these provisions require that payments from owners to
general contractors, and from general contractors to
subcontractors, are made in a timely fashion. However, the
different code provisions have slightly different time tables,
especially for public and private works of improvement, and
their scattered nature can make for confusion for parties trying
to follow the law. For example, if payments are improperly
withheld, some provisions impose a penalty of 2% per month of
the amount improperly held in lieu of any interest owed, while
other provisions appear to charge this 2% in addition to any
AB 1119
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interest owed. Some require a general contractor to pay
subcontractors within 10 days of receipt of progress payments
from the owner, while others require payment within 10 days or
as otherwise agreed to in writing. Existing law requires the
owner of a private work of improvement to release any retention
proceeds within 45 days of completion, while requiring a public
entity to release any retention proceeds within 60 days of
completion. In addition to bringing these provisions into a
single Civil Code Section for contracts entered into after
January 1, 2010, this bill generally opts for shorter time
frames when resolving inconsistencies.
According to the author, the multiple existing provisions "are
not only inconsistent but lead to confusion, misapplication,
missed deadlines, and delays in both payments and recourse."
The author seeks in this measure to address unreasonable
inconsistencies and promote cash flows insofar as possible to
allow supplies to be purchased, employees to be paid and
projects to stay on schedule.
ARGUMENTS IN 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."
Author's Amendment. In light of concerns raised regarding the
bill as most recently amended the author proposes to replace the
current contents of the bill with the following statement of
intent in order to meet legislative deadlines as further
discussions continue among various authors and contractor and
subcontractor groups: "It is the intent of the Legislature to
reconsider prompt payment statutes regarding public and private
works of improvement to aid in their clarity and application."
Related Legislation . AB 396 (Fuentes) of 2009 also modifies,
recasts, and consolidates various provisions governing retention
caps and related issues for contract for a public or private
work of improvement.
AB 1119
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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, discussed below.
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.
REGISTERED SUPPORT / OPPOSITION :
Support
American Subcontractors' Association of California (sponsor)
California Landscape Contractors Association
Opposition
None on file (as proposed to be amended)
Analysis Prepared by : Thomas Clark / JUD. / (916) 319-2334