BILL ANALYSIS
AB 2216
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ASSEMBLY THIRD READING
AB 2216 (Fuentes)
As Amended May 11, 2010
Majority vote
BUSINESS & PROFESSIONS 11-0 JUDICIARY 10-0
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|Ayes:|Hayashi, Emmerson, |Ayes:|Feuer, Tran, Brownley, |
| |Conway, Eng, Hernandez, | |Evans, Hagman, Jones, |
| |Hill, Ma, Nava, Niello, | |Knight, Monning, Nava, |
| |Ruskin, Smyth | |Skinner |
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SUMMARY : Decreases the time period during which a contractor
must pay his or her subcontractors, requires a project entity to
provide written notice of pending completion, and reduces the
time available for a claimant to enforce a bond claim.
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, prior to completion or recordation of a notice of
completion, every project entity to provide written notice of
pending completion to each subcontractor who has provided a
20-day preliminary bond notice, as specified.
3)Permits, if the 20-day public works preliminary bond notice
was not given, a claimant to enforce a claim by giving written
notice to the surety and bond principal prior to a project's
completion or recordation of a notice of completion, whichever
is later.
EXISTING LAW requires:
1)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
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contractor's interest therein, as prescribed.
2)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
after completion of the work of improvement.
FISCAL EFFECT : Unknown. This bill is keyed non-fiscal.
COMMENTS : 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 requires, prior to completion
or recordation of a notice of completion, every project entity
to provide written notice of pending completion to each
subcontractor who has provided a 20-day preliminary bond notice.
This bill then revises the claim timeline to require the bond
claim be filed before the project's completion, or the final
notice of completion, whichever is later. The author's office
argues that this change avoids general contractors from being
hit by "surprise" claims.
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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.
California Legislative Conference of the Plumbing, Heating and
Piping Industry and the National Electrical Contractors
Association writes in support, "AB 2216 represents a good faith
effort between members of the construction industry 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."
American Subcontractors Association California, Inc. (ASAC)
writes in opposition, "[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."
Analysis Prepared by : Sarah Weaver / B. & P. / (916) 319-3301
AB 2216
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FN: 0004283