BILL ANALYSIS
AB 2216
Page 1
Date of Hearing: April 6, 2010
ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS
Mary Hayashi, Chair
AB 2216 (Fuentes) - As Introduced: February 18, 2010
SUBJECT : Works of improvement.
SUMMARY : Reduces the time available to a claimant to give
written notice that he or she is enforcing a claim against a
bond for a public works project, and decreases the time period
during which a contractor must pay his or her subcontractors.
Specifically, this bill :
1)Decreases, from 10 to 7, the number of days within which a
prime contractor or subcontractor must pay a subcontractor
after receiving a progress payment, unless otherwise agreed to
in writing.
2)Requires a claimant to give written notice to the surety and
bond principal that he or she is enforcing a claim prior to
completion, or recordation of notice of completion, of the
project, commencing January 1, 2011.
EXISTING LAW:
1)Requires that, for private and public works of improvement,
and in a public works contract, a prime contractor or
subcontractor pay to any subcontractor, not later than 10 days
after receipt of each progress payment, unless otherwise
agreed to in writing, the respective amount allowed the
contractor on account of the work performed by the
subcontractors, to the extent of each contractor's interest
therein, as prescribed.
2)Requires, with regard to a contract entered into on or after
January 1, 1995, that in order to enforce a claim upon any
payment bond given in connection with a public work, that a
claimant give the 20-day public works bond preliminary notice,
as provided. Existing law further authorizes a claimant, if
the 20-day public works preliminary bond notice was not given
as prescribed by statute, to enforce a claim by giving written
notice to the surety and the bond principal, as provided,
within 15 days after recordation of a notice of completion, or
if no notice of completion has been recorded, within 75 days
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after completion of the work of improvement.
FISCAL EFFECT : Unknown. This bill is keyed non-fiscal.
COMMENTS :
Purpose of the bill . According to the author's office, "With
California's economy and cash flow continuing to tighten, it is
important for contractors to keep close controls on payments,
moneys owed, as well as potential disputes."
Background . In private works, any person who provides
construction services or materials to a construction project has
the right to file a lien on the property if they are not paid;
however, prior to filing the lien, a 20-day preliminary lien
notice must be filed with the owner and general contractor
identifying the contractor and notifying the owner and general
contractor of the potential lien claim. This must be done
within 20 days from first furnishing labor or materials. After
an owner files a notice of completion, a contractor has 60 days
to record a lien and a subcontractor or materials supplier has
30 days.
In public works, instead of a lien claim, there are claims that
can be made against the surety bond, referred to as a bond
claim. The 20-day notice applies in public works, but even if
the notice is not filed, the contractor can make a claim within
15 days after recordation of a notice of completion, or if no
notice of completion has been recorded, up to 75 days after the
notice of completion. This bill revises this timeline to
require the bond claim be filed before the final notice of
completion. The author's office argues that this change avoids
general contractors from being hit by "surprise" claims.
This bill also reduces the time period a general contractor has
to pay his or her subcontractor after the general has been paid
a progress payment from the owner. This time period is reduced
from 10 to 7 days. It is unclear what percentage of payments
occur in the last 3 days of this window, and whether the
reduction to 7 days will have any significant impact.
Arguments in support . California Legislative Conference of the
Plumbing, Heating and Piping Industry and the National
Electrical Contractors Association writes, "AB 2216 represents a
good faith effort between members of the construction industry
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in California to agree on terms and conditions related to
construction contracts, bonds and payment periods.
"With California's economy and cash flow continuing to tighten,
it is important for contractors to keep close controls on
payments, money owed, as well as potential disputes. This
measure will resolve payment related issues and help struggling
contracts with cash flow problems. The solution is a balanced
approach that will expedite progress payments and ensure that
anyone that provides material and labor to public works projects
get paid for work performed and approved when they provide
notice of that work prior to the job being completed."
Arguments in opposition . American Subcontractors Association
California, Inc. (ASAC) writes, "[The elimination of the 75-day
grace period for filing a claim] is a decades old public policy
that acknowledges that the subcontractor may not know that a
project is entirely complete due to the general contractor's
failure to record a notice of completion. The 75-day grace
period was therefore established by the Legislature to enable
the subcontractors to get paid for their work." ASAC is also
opposed to section 3252 (c) of the bill, which "denies
subcontractors relief and payment for their work if they fail,
even inadvertently, to notify parties about their claim prior to
the date of completion. This is a huge problem because
subcontractors, particularly early finishing trades, have no way
of knowing when the project will be complete wand whether the
project is actually complete?. Construction management is the
general contractor's obligation."
Related legislation . AB 396 (Fuentes), 2009, reduced the time
available for a claimant to make a claim against a bond by
providing that if a claimant has not provided a 20-day public
work preliminary bond notice as specified, the claimant may
enforce a claim by giving written notice to the surety and bond
principal prior to the completion of the project or recordation
of a notice of completion. This bill died in Assembly
Appropriations Committee.
SB 802 (Leno), 2009, would have reduced the time required for a
prime contractor or subcontractor to pay any subcontractor, to
no later than seven days of receipt of each progress payment,
among other amendments. This bill was vetoed by the Governor,
who only addressed the issue of retention amounts in his veto
message.
AB 2216
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Double-referred . This bill is double-referred to Assembly
Judiciary Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
Associated General Contractors of California (sponsor)
California Legislative Conference of the Plumbing, Heating and
Piping Industry
National Electrical Contractors Association
Opposition
American Subcontractors Association California, Inc.
Analysis Prepared by : Sarah Weaver / B. & P. / (916) 319-3301