BILL NUMBER: AB 2021 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY MARCH 29, 2012
INTRODUCED BY Assembly Member Wagner
FEBRUARY 23, 2012
An act to amend Section 7108.5 of the Business and Professions
Code, and to amend Sections 3260 and 3260.1
8800, 8812, and 8814 of the Civil Code,
and to amend Sections 7107 and 10262.5 of the Public Contract Code,
relating to works of improvement.
LEGISLATIVE COUNSEL'S DIGEST
AB 2021, as amended, Wagner. Works of improvement: disputed
amounts.
Existing law contains various provisions relating to contracts for
the performance of private and public works of
improvement, including provisions for the withholding and
disbursement of retention proceeds. Existing law provides that, with
respect to those contracts for works of improvement, the retention
proceeds withheld from any payment may not exceed 150% of the
disputed amount.
This bill would increase the amount that may be withheld from
progress payments or final payments, depending on the circumstances,
to a sum of various amounts and percentages, as specified.
Vote: majority. Appropriation: no. Fiscal committee: no.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 7108.5 of the Business and Professions Code is
amended to read:
7108.5. (a) A prime contractor or subcontractor shall pay to any
subcontractor, not later than 10 seven
days of after receipt of each progress
payment, unless otherwise agreed to in writing, the respective
amounts allowed the contractor on account of the work performed by
the subcontractors, to the extent of each subcontractor's interest
therein. In the event that there is a good faith dispute over the
amount due on a progress payment, the prime contractor or
subcontractor may withhold from the progress payment an amount not to
exceed the sum of the following:
(1) The liquidated damages owed by the subcontractor.
(2) One hundred fifty percent of the estimated cost of repair or
replacement of subcontract work that was not performed according to
the subcontract.
(b) Any violation of this section shall constitute a cause for
disciplinary action and shall subject the licensee to a penalty,
payable to the subcontractor, of 2 percent of the amount due per
month for every month that payment is not made. In any action for the
collection of funds wrongfully withheld, the prevailing party shall
be entitled to his or her attorney's fees and costs.
(c) The sanctions authorized under this section shall be separate
from, and in addition to, all other remedies, either civil,
administrative, or criminal.
(d) This section applies to all private works of improvement and
to all public works of improvement, except where Section 10262 of the
Public Contract Code applies.
SEC. 2. Section 3260 of the Civil Code is
amended to read:
3260. (a) This section is applicable with respect to all
contracts entered into on or after July 1, 1991, relating to the
construction of any private work of improvement. However, the
amendments made to this section during the 1992 portion of the
1991-92 Regular Session of the Legislature are applicable only with
respect to contracts entered into on or after January 1, 1993,
relating to the construction of any private work of improvement.
Moreover, the amendments made to this section during the 1993 portion
of the 1993-94 Regular Session of the Legislature are applicable
only with respect to contracts entered into on or after January 1,
1994, relating to the construction of any private work of
improvement.
(b) The retention proceeds withheld from any payment by the owner
from the original contractor, or by the original contractor from any
subcontractor, shall be subject to this section.
(c) Within 45 days after the date of completion, the retention
withheld by the owner shall be released. "Date of completion," for
purposes of this section, means any of the following:
(1) The date of issuance of any certificate of occupancy covering
the work by the public agency issuing the building permit.
(2) The date of completion indicated on a valid notice of
completion recorded pursuant to Section 3093.
(3) The date of completion as defined in Section 3086.
However, release of retentions withheld for any portion of the
work of improvement which ultimately will become the property of a
public agency, may be conditioned upon the acceptance of the work by
the public agency. In the event of a dispute between the owner and
the original contractor, the owner may withhold from the final
payment an amount not to exceed the sum of all of the following:
(A) The liquidated damages owed by the contractor.
(B) The amounts that may be withheld pursuant to Section 3153.
(C) One hundred fifty percent of the estimated cost of uncompleted
contract work, except for those costs that are withheld under
subparagraph (B).
(D) One hundred fifty percent of the estimated cost to repair or
replace contract work that was not performed according to the
contract, except for those costs that are withheld under subparagraph
(B) or (C).
(d) Subject to subdivision (e), within 10 days from the time that
all or any portion of the retention proceeds are received by the
original contractor, the original contractor shall pay each of its
subcontractors from whom retention has been withheld, each
subcontractor's share of the retention received. However, if a
retention payment received by the original contractor is specifically
designated for a particular subcontractor, payment of the retention
shall be made to the designated subcontractor, if the payment is
consistent with the terms of the subcontract.
(e) If a bona fide dispute exists between a subcontractor and the
original contractor, the original contractor may withhold from that
subcontractor with whom the dispute exists its portion of the
retention proceeds. The amount withheld from the retention payment
shall not exceed the sum of all of the following:
(1) The liquidated damages owed by the subcontractor.
(2) That portion of any mechanic's lien or stop notice claim by
the subcontractor for which the subcontractor has already been paid.
(3) One hundred fifty percent of the estimated cost of uncompleted
subcontract work, except for those costs that are withheld under
paragraph (2).
(4) One hundred fifty percent of the estimated cost to repair or
replace subcontract work that was not performed according to the
subcontract, except for those costs that are withheld under paragraph
(2) or (3).
(f) Within 10 days of receipt of written notice by the owner from
the original contractor or by the original contractor from the
subcontractor, as the case may be, that any work in dispute has been
completed in accordance with the terms of the contract, the owner or
original contractor shall advise the notifying party of the
acceptance or rejection of the disputed work. Within 10 days of
acceptance of the disputed work, the owner or original contractor, as
the case may be, shall release the retained portion of the retention
proceeds.
(g) In the event that retention payments are not made within the
time periods required by this section, the owner or original
contractor withholding the unpaid amounts shall be subject to a
charge of 2 percent per month on the improperly withheld amount, in
lieu of any interest otherwise due. Additionally, in any action for
the collection of funds wrongfully withheld, the prevailing party
shall be entitled to his or her attorney's fees and costs.
(h) It shall be against public policy for any party to require any
other party to waive any provision of this section.
(i) This section shall not be construed to apply to retentions
withheld by a lender in accordance with the construction loan
agreement.
SEC. 3. Section 3260.1 of the Civil Code is
amended to read:
3260.1. (a) This section is applicable with respect to all
contracts entered into on or after January 1, 1992, relating to the
construction of any private work of improvement.
(b) Except as otherwise agreed in writing, the owner shall pay to
the contractor, within 30 days following receipt of a demand for
payment in accordance with the contract, any progress payment due
thereunder as to which there is no good faith dispute between the
parties. In the event of a dispute between the owner and the
contractor, the owner may withhold from the progress payment an
amount not to exceed the sum of both of the following:
(1) The liquidated damages owed by the contractor.
(2) One hundred fifty percent of the estimated cost of repair or
replacement of contract work that was not performed according to the
contract.
If any amount is wrongfully withheld in violation of this
subdivision, the contractor shall be entitled to the penalty
specified in subdivision (g) of Section 3260.
(c) Nothing in this section shall be deemed to supersede any
requirement of Section 3260 respecting the withholding of retention
proceeds.
SEC. 4. Section 7107 of the Public Contract
Code is amended to read:
7107. (a) This section is applicable with respect to all
contracts entered into on or after January 1, 1993, relating to the
construction of any public work of improvement.
(b) The retention proceeds withheld from any payment by the public
entity from the original contractor, or by the original contractor
from any subcontractor, shall be subject to this section.
(c) (1) Within 60 days after the date of completion of the work of
improvement, the retention withheld by the public entity shall be
released. In the event of a dispute between the public entity and the
original contractor, the public entity may withhold from the final
payment an amount not to exceed the sum of all of the following:
(A) The liquidated damages owed by the original contractor.
(B) The amounts that may be withheld pursuant to Section 3186.
(C) One hundred fifty percent of the estimated cost of uncompleted
contract work, except for those costs that are withheld under
subparagraph (B).
(D) One hundred fifty percent of the estimated cost to repair or
replace contract work that was not performed according to the
contract, except for those costs that are withheld under subparagraph
(B) or (C).
(E) One hundred fifty percent of the estimated cost of claims made
by third parties for which the contractor is obligated to indemnify
the public entity.
(F) One hundred fifty percent of the estimated cost to be incurred
by the public entity as a result of the contractor's abandonment or
material default of the contract, except for those costs that are
withheld under subparagraph (B), (C), or (D).
(G) The amounts that may be withheld in accordance with other
provisions of law, including Section 1727 of the Labor Code and
Section 4110 of this code.
(2) For purposes of this subdivision, "completion" means any of
the following:
(A) The occupation, beneficial use, and enjoyment of a work of
improvement, excluding any operation only for testing, startup, or
commissioning, by the public agency, or its agent, accompanied by
cessation of labor on the work of improvement.
(B) The acceptance by the public agency, or its agent, of the work
of improvement.
(C) After the commencement of a work of improvement, a cessation
of labor on the work of improvement for a continuous period of 100
days or more, due to factors beyond the control of the contractor.
(D) After the commencement of a work of improvement, a cessation
of labor on the work of improvement for a continuous period of 30
days or more, if the public agency files for record a notice of
cessation or a notice of completion.
(d) Subject to subdivision (e), within seven days from the time
that all or any portion of the retention proceeds are received by the
original contractor, the original contractor shall pay each of its
subcontractors from whom retention has been withheld, each
subcontractor's share of the retention received. However, if a
retention payment received by the original contractor is specifically
designated for a particular subcontractor, payment of the retention
shall be made to the designated subcontractor, if the payment is
consistent with the terms of the subcontract.
(e) The original contractor may withhold from a subcontractor its
portion of the retention proceeds if a bona fide dispute exists
between the subcontractor and the original contractor. The amount
withheld from the retention payment shall not exceed the sum of all
of the following:
(1) The liquidated damages owed by the subcontractor.
(2) That portion of any stop notice claim by the subcontractor for
which the subcontractor has already been paid.
(3) One hundred fifty percent of the estimated cost of uncompleted
subcontract work, except for those costs that are withheld under
paragraph (2) or (5).
(4) One hundred fifty percent of the estimated cost to repair or
replace subcontract work that was not performed according to the
subcontract, except for those costs that are withheld under paragraph
(2), (3), or (5).
(5) The amounts withheld by the public entity on account of acts
or omissions of the subcontractor.
(f) In the event that retention payments are not made within the
time periods required by this section, the public entity or original
contractor withholding the unpaid amounts shall be subject to a
charge of 2 percent per month on the improperly withheld amount, in
lieu of any interest otherwise due. Additionally, in any action for
the collection of funds wrongfully withheld, the prevailing party
shall be entitled to attorney's fees and costs.
(g) If a state agency retains an amount greater than 125 percent
of the estimated value of the work yet to be completed pursuant to
Section 10261, the state agency shall distribute undisputed retention
proceeds in accordance with subdivision (c). However,
notwithstanding subdivision (c), if a state agency retains an amount
equal to or less than 125 percent of the estimated value of the work
yet to be completed, the state agency shall have 90 days in which to
release undisputed retentions.
(h) Any attempted waiver of the provisions of this section shall
be void as against the public policy of this state.
SEC. 5. Section 10262.5 of the Public Contract
Code is amended to read:
10262.5. (a) Notwithstanding any other law, a prime contractor or
subcontractor shall pay to any subcontractor, not later than 10 days
of receipt of each progress payment, the respective amounts allowed
the contractor on account of the work performed by the
subcontractors, to the extent of each subcontractor's interest
therein. In the event that there is a good faith dispute over the
amount due on a progress payment, the prime contractor or
subcontractor may withhold from the progress payment an amount not to
exceed the sum of both of the following:
(1) The liquidated damages owed by the subcontractor.
(2) One hundred fifty percent of the estimated cost of repair or
replacement of the subcontract work that was not performed according
to the subcontract.
Any contractor who violates this section shall pay to the
subcontractor a penalty of 2 percent of the amount due per month for
every month that payment is not made. In any action for the
collection of funds wrongfully withheld, the prevailing party shall
be entitled to his or her attorney's fees and costs.
(b) This section shall not be construed to limit or impair any
contractual, administrative, or judicial remedies otherwise available
to a contractor or a subcontractor in the event of a dispute
involving late payment or nonpayment by a contractor or deficient
subcontract performance or nonperformance by a subcontractor.
(c) On or before September 1 of each year, the head of each state
agency shall submit to the Legislature a report on the number and
dollar volume of written complaints received from subcontractors and
prime contractors on contracts in excess of three hundred thousand
dollars ($300,000), relating to violations of this section.
SEC. 2. Section 8800 of the Civil Code
is amended to read:
8800. (a) Except as otherwise agreed in writing by the owner and
direct contractor, the owner shall pay the direct contractor, within
30 days after notice demanding payment pursuant to the contract is
given, any progress payment due as to which there is no good faith
dispute between them. The notice given shall comply with the
requirements of Chapter 2 (commencing with Section 8100) of Title 1.
(b) If there is a good faith dispute between the owner and direct
contractor as to a progress payment due, the owner may withhold from
the progress payment an amount not in excess of 150 percent
of the disputed amount. the sum of bot h of
the following:
(1) The liquidated damages owed by the contractor.
(2) One hundred fifty percent of the estimated cost of repair or
replacement of contract work that was not performed according to the
contract.
(c) An owner that violates this section is liable to the direct
contractor for a penalty of 2 percent per month on the amount
wrongfully withheld, in place of any interest otherwise due. In an
action for collection of the amount wrongfully withheld, the
prevailing party is entitled to costs and a reasonable attorney's
fee.
(d) This section does not supersede any requirement of Article 2
(commencing with Section 8810) relating to the withholding of a
retention.
SEC. 3. Section 8812 of the Civil Code
is amended to read:
8812. (a) If an owner withholds a retention from a direct
contractor, the owner shall, within 45 days after completion of the
work of improvement, pay the retention to the contractor.
(b) If part of a work of improvement ultimately will become the
property of a public entity, the owner may condition payment of a
retention allocable to that part on acceptance of the part by the
public entity.
(c) If there is a good faith dispute between the owner and direct
contractor as to a retention payment due, the owner may withhold from
final payment an amount not in excess of 150 percent of the
disputed amount. the sum of all of the following:
(1) The liquidated damages owed by the contractor.
(2) The amounts that are withheld pursuant to Sections 8470 and
8522.
(3) One hundred fifty percent of the estimated cost of uncompleted
contract work, except for those costs that are withheld under
paragraph (2).
(4) One hundred fifty percent of the estimated cost to repair or
replace contract work that was not performed according to the
contract, except for those costs that are withheld under paragraph
(2) or (3).
SEC. 4. Section 8814 of the Civil Code
is amended to read:
8814. (a) If a direct contractor has withheld a retention from
one or more subcontractors, the direct contractor shall, within 10
days after receiving all or part of a retention payment, pay to each
subcontractor from whom retention has been withheld that
subcontractor's share of the payment.
(b) If a retention received by the direct contractor is
specifically designated for a particular subcontractor, the direct
contractor shall pay the retention payment to the designated
subcontractor, if consistent with the terms of the subcontract.
(c) If a good faith dispute exists between the direct contractor
and a subcontractor, the direct contractor may withhold from the
retention to the subcontractor an amount not in excess of
150 percent of the estimated value of the disputed amount.
the sum of all of the following:
(1) The liquidated damages owed by the subcontractor.
(2) That portion of any mechanics lien or stop payment notice
claim by the subcontractor for which the subcontractor has already
been paid.
(3) The amount that would have been withheld by the owner pursuant
to Section 8470 or 8522, but for a bond provided by the direct
contractor pursuant to Section 8424 or 8510.
(4) One hundred fifty percent of the estimated cost of uncompleted
subcontract work, except for those costs that are withheld under
paragraph (2).
(5) One hundred fifty percent of the estimated cost to repair or
replace subcontract work that was not performed according to the
subcontract, except for those costs that are withheld under paragraph
(2) or (3).