BILL ANALYSIS                                                                                                                                                                                                    �



                                                                  AB 1671
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          Date of Hearing:   April 25, 2012

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                Felipe Fuentes, Chair

                AB 1671 (Huffman) - As Introduced:  February 14, 2012 

          Policy Committee:                              Business and 
          Professions  Vote:                            9-0

          Urgency:     No                   State Mandated Local Program: 
          No     Reimbursable:               

           SUMMARY  

          This bill extends, until January 1, 2020, the sunset date 
          prohibiting Caltrans from withholding retention proceeds on 
          progress payments to contractors.

           FISCAL EFFECT  

          Continued minor administrative cost savings.

          Pursuant to federal law, Caltrans is prohibited from withholding 
          retention proceeds on federally-funded projects, but absent 
          extension to the current January 1, 2014 sunset date, Caltrans 
          would have to resume withholding retention on non-federally 
          funded contracts (roughly 10% to 15% of Caltrans' projects).  
          Continuing the prohibition on retention for non-federal 
          projects, and thus maintaining a uniform contract payment system 
          in this regard, will provide ongoing savings in contract 
          administration and avoid the one-time administrative costs of 
          reestablishing a different payment system for non-federally 
          funded projects.

           COMMENTS  

           1)Background  . Retention proceeds represent a percentage of the 
            amount of a contract that is withheld from a progress payment 
            by the public entity to the original contractor, or the 
            original contractor from one its subcontractors.  Through 
            retention the public entity or the original contractor 
            maintains a degree of financial control over a project. In 
            general, the public entity or the original contractor 
            withholds at least 5% of payment until the contract is 








                                                                  AB 1671
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            completed to the satisfaction of the public entity or original 
            contractor.

           2)Purpose  . SB 593 (Margett)/Chapter 341 of 2008, prohibited 
            Caltrans from withholding retention proceeds until January 1, 
            2014. This bill, sponsored by several contractor associations, 
            extends this prohibition until 2020.  According to the 
            sponsors, "?Since the law has always required contractors to 
            file payment and performance bonds to guarantee both the 
            completion of the work and to ensure that all workers and 
            subcontractors have been paid, retentions are unnecessarily 
            burdensome on contractors. Profit margins on these contracts 
            typically do not exceed two to four percent at best, so 
            retention creates significant cash flow problems for many 
            contractors?CalTrans has not experienced any problems since 
            the enactment of SB 593..."

           Analysis Prepared by  :    Chuck Nicol / APPR. / (916) 319-2081