BILL ANALYSIS
AB 2036
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Date of Hearing: May 12, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 2036 (Bill Berryhill) - As Amended: April 27, 2010
Policy Committee: JudiciaryVote:9-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill limits the existing right of a public entity, when a
stop notice is received, to withhold payment to contractors and
subcontractors-in order to provide for the public entity's
reasonable litigation costs associated with the stop notice-such
that the right could be exercised only if the original
contractor fails to promptly accept an offer to defend the
public entity in the litigation.
FISCAL EFFECT
The Department of General Services (DGS) will incur minor
administrative costs associated with processing tenders of
defense to contractors in response to stop notices. (DGS is a
fee-for-service agency, and must therefore recover all its costs
through charges to client agencies.) Neither Caltrans nor the
University of California identified any specific costs
associated with the bill. Any additional costs to local
governments would again be nonreimbursable.
COMMENTS
1)Background and Purpose . Under existing law, it is the duty of
public entities, upon receipt of a stop notice from a
contractor, to withhold payment from the original contractor
of an amount sufficient to answer the claim stated in the stop
notice and to provide for the public entity's reasonable cost
of any litigation. This bill, sponsored by several contractor
organizations, would limit this right by specifying that a
public entity shall withhold for covering litigation costs
only if the original contractor fails to promptly accept a
tender of defense of the public entity in the litigation.
AB 2036
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According to some of the sponsors, "Subcontractors often serve
lawsuits to foreclose stop notices on public agencies as a
vehicle to get attention; in essence, to be the squeaky wheel,
to assure prompt payment. Until recently, the public agencies
have routinely tendered the defense of any such lawsuits on
those stop notices to the prime contractor, who then usually
works out a settlement with the subcontractor." The sponsor
assert that outside counsel are using this process as a means
to charge prime contractors attorney fees that should never
have been incurred.
2)Prior Legislation . In 2010, AB 396 (Fuentes), which included
the same provision as AB 2036, was held on this committee's
Suspense file. At the time, Caltrans had identified potential
significant cost to the stop notice provision. Caltrans no
longer believes it will incur additional costs.
Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081