BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 2216|
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THIRD READING
Bill No: AB 2216
Author: Fuentes (D)
Amended: 7/15/10 in Senate
Vote: 21
SENATE JUDICIARY COMMITTEE : 3-1, 6/29/10
AYES: Corbett, Hancock, Leno
NOES: Harman
NO VOTE RECORDED: Walters
SENATE APPROPRIATIONS COMMITTEE : 7-0, 8/2/10
AYES: Kehoe, Alquist, Ashburn, Corbett, Price, Wolk, Yee
NO VOTE RECORDED: Emmerson, Leno, Walters, Wyland
ASSEMBLY FLOOR : 71-0, 5/20/10 - See last page for vote
SUBJECT : Works of improvement: progress payments:
notice:
retention proceeds
SOURCE : Associated General Contractors of California
Construction Employers Association
National Electric Contractors Association
DIGEST : This bill (1) requires that for private and
public works of improvement, a prime contractor or
subcontractor pay to any subcontractor, not later than
seven days (currently ten days) after receipt of each
progress payment, the respective amount allowed the
contractor on account of the work performed by the
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subcontractors; (2) requires, with regard to a contract
entered into on or after January 1, 2011, that written
notice given to the surety and the bond principal be given
prior to the completion of the project, or recordation of a
notice of completion, as specified; (3) prohibits retention
proceeds from exceeding five percent of the payment for
those contracts entered into on or after January 1, 2011,
between a public entity, as defined, and an original
contractor, between an original contractor and a
subcontractor, and between all subcontractors. This
section would be repealed as of January 1, 2105; and (4)
prohibits progress payments upon public works contracts
from being made in excess of 100 percent (currently 95
percent) of the percentage of actual work completed, and
would require the Department of General Services to
withhold not more than five percent (currently not less) of
the contract price until final completion and acceptance of
the project. This section would return to current law
after January 1, 2015.
ANALYSIS : Existing law 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.
This bill, instead, requires that those amounts be paid not
later than seven days after receipt of each progress
payment.
Existing law requires, with regard to a contract entered
into on or after January 1, 1995, 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.
This bill, instead, with regard to a contract entered into
on or after January 1, 2011, requires that the written
notice to be given to the surety and the bond principal be
given prior to the completion, as defined, of the project,
or recordation of a notice of completion.
Existing law authorizes the Department of General Services
(DGS), or any other department with authority to enter into
contracts, to contract with suppliers for goods and
services and for public works. Existing law provides that
in a contract relating to the construction of a public work
of improvement between the public entity and original
contractor, the original contractor and a subcontractor,
and in a contract between a subcontractor and any
subcontractor thereunder, the percentage of retention
proceeds withheld cannot exceed the percentage specified in
the contract between the public entity and the original
contractor.
This bill, instead, prohibits retention proceeds from
exceeding five percent of the payment, as specified, for
those contracts entered into on or after January 1, 2011,
between a public entity, as defined, and an original
contractor, between an original contractor and a
subcontractor, and between all subcontractors thereunder.
Existing law contains various provisions relating to
contracts for the performance of public works of
improvement, including provisions for the payment of
progress payments and the disbursing and withholding of
retention proceeds. Existing law prohibits progress
payments upon these contracts from being made in excess of
95 percent of the percentage of actual work completed plus
a like percentage of the value of material delivered, as
specified, and requires DGS to withhold not less than five
percent of the contract price until final completion and
acceptance of the project.
This bill, until January 1, 2015, instead, prohibits
progress payments upon these contracts from being made in
excess of 100 percent of the percentage of actual work
completed, and requires DGS to withhold not more than five
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percent of the contract price until final completion and
acceptance of the project.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12
2012-13 Fund
Change in limits on Unknown, likely minor, if any,
new costs; General/
retention proceeds potential reduction in project
costs Bond/
and progress payments
Special
SUPPORT : (Verified 8/11/10)
Associated General Contractors of California (co-source)
Construction Employers Association (co-source)
National Electric Contractors Association (co-source)
Associated General Contractors of San Diego
California Legislative Conference of the Plumbing, Heating
and Piping Industry
National Electrical Contractors Association
OPPOSITION : (Verified 8/11/10)
American Subcontractors Association California, Inc.
ARGUMENTS IN SUPPORT : The author writes:
"With California's economy and case flow continuing to
tighten, it is important for contractors to keep close
controls on payments, moneys owed, as well as potential
disputes. 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
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owner and general contractor identifying the contractor
and notifying the owner and general contractor of the
potential lien claim in the event payments are not paid
for work performed or materials provided. 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 provided
that if the notice is not filed the contractor is not
penalized and can make a claim up to 75 days after the
notice of completion. This area of law has been revised
to state at a minimum, the bond claim must be filed
before the final notice of completion. This change
avoids general contractors from being hit by 'surprise'
claims from second and third tier contractors at a time
when all of the funds have already been paid to higher
tier subcontractors."
ARGUMENTS IN OPPOSITION : The American Subcontractors
Association California, Inc. states:
"The 75 day grace period for claiming payment for work
and materials is a right that was statutorily bestowed
upon subcontractors and suppliers in 1994, yet AB 2216
boldly, and without verified data proving harm, repeals
that long standing and mutually agreed upon public
policy. As such, AB 2216 is a very contentious
winner-take-all bill that has split the construction
industry. The politics behind this bill are significant
and should be removed from the debate.
"This 'right-to-payment' issue is both broad and complex
and should definitely be assigned to the CA Law Revision
Commission where it will be very carefully and fairy
considered. ASAC and you, as the Senate Member to the
CLRC, can trust that it would invite all stakeholders to
the table including material suppliers and surety
companies, both of whom have curiously not yet been heard
from.
"The CLRC's non-adversarial forum would allow for
collection of facts and data regarding alleged problems
with current law. ? facts that to date have not been in
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evidence. The CLRC just completed a huge project
concerning mechanic liens which is contained in SB 189
(Lowenthal). This topic of payment rights should have
been brought forward during that process but the sponsors
of AB 2216 thought that the legislative approach would be
more beneficial to them.
"In addition, AB 2216 was surprisingly amended during
recess on July 15, adding non-germane payment retention
cap language from SB 802 (Leno) which was vetoed. This
was presumably done to lessen our opposition and because
they believe it would be better received by the Governor
this time, despite huge fiscal hurdles at the State and
local levels.
"Lastly, the recess amendments to AB 2216 ratify the
recent appellate ruling in the Martin case (1) which
cements the vague statutory term 'disputed work' in favor
of project owners and general contractors, to the severe
detriment of subcontractors.
"Martin deals with a subcontractor's claims to a general
contractor. If a paying party in 'good faith' disputes
claims for extra work or change orders, the paying party
may withhold from retention the claimed amount plus 50%
until the matter is resolved or judgment is entered,
essentially giving the paying party an interest-free loan
for an extended period of time. Unfortunately, the
current statute allowing this withholding has no
objective standard to determine whether the withholding
is in 'good faith', and the Martin Brothers case sets a
very low standard by essentially allowing the paying
party to withhold for any reason.
"If AB 2216 is enacted, a litigant could argue that
because the Legislature knew of Martin before passing the
bill it would stand as new public policy...without open
discussion, debate and legislative scrutiny.
"In conclusion, I am respectfully requesting that you
take steps to assign this matter to the CLRC."
ASSEMBLY FLOOR :
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AYES: Adams, Ammiano, Anderson, Arambula, Bass, Beall,
Bill Berryhill, Tom Berryhill, Blakeslee, Block,
Blumenfield, Bradford, Brownley, Buchanan, Caballero,
Charles Calderon, Carter, Chesbro, Conway, Cook, Coto,
Davis, De Leon, DeVore, Emmerson, Eng, Feuer, Fong,
Fuentes, Fuller, Furutani, Gaines, Galgiani, Garrick,
Gilmore, Hagman, Hall, Hayashi, Hernandez, Hill, Huber,
Huffman, Jeffries, Jones, Knight, Lieu, Logue, Bonnie
Lowenthal, Ma, Mendoza, Miller, Monning, Nestande,
Niello, Nielsen, V. Manuel Perez, Portantino, Ruskin,
Salas, Saldana, Silva, Skinner, Smyth, Solorio, Audra
Strickland, Swanson, Torlakson, Torres, Torrico, Tran,
Yamada
NO VOTE RECORDED: De La Torre, Evans, Fletcher, Harkey,
Nava, Norby, Villines, John A. Perez, Vacancy
RJG:mw 8/11/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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