BILL ANALYSIS �
AB 2021
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Date of Hearing: April 24, 2012
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Mary Hayashi, Chair
AB 2021 (Wagner) - As Amended: March 29, 2012
SUBJECT : Works of improvement: disputed amounts.
SUMMARY : Revises the amount that an owner can withhold from a
contractor, and a contractor from a subcontractor, for disputed
private works of improvement. Specifically, this bill :
1)Requires an owner who withholds money from a contractor, and a
prime contractor or subcontractor from a subcontractor, for
disputed works of improvement involving progress payments, to
withhold an amount from a progress payment not to exceed the
sum of the following:
a) The liquidated damages owed by the contractor or
subcontractor; and,
b) 150% of the estimated cost to repair or replace contract
work that was not performed according to the contract.
2)Requires an owner who withholds money from a contractor, for
disputed works of improvement involving retention, to withhold
from the final payment an amount not to exceed the sum of the
following:
a) The liquidated damages owed by the contractor;
b) The amounts that are withheld due to a lien claim, lien
judgment, or bond payment claim;
c) 150% of the estimated cost of uncompleted work, except
for those costs withheld under (b); and,
d) 150% of the estimated cost to repair or replace contract
work that was not performed according to the contract,
except for those costs withheld under (b) and (c)
3)Requires a direct contractor who withholds money from a
subcontractor, for disputed works of improvement involving
retention, to withhold from the final payment an amount not to
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exceed the sum of the following:
a) The liquidated damages owed by the subcontractor;
b) That portion of any mechanic's lien or stop payment
notice claim by the subcontractor that has already been
paid to the subcontractor;
c) The amount that would have been withheld by the owner
due to a lien claim, lien judgment, or bond payment claim,
but for a release bond provided by the direct contractor,
as specified.
d) 150% of the estimated cost of uncompleted subcontract
work, except for those costs withheld under (b); and,
e) 150% of the estimated cost to repair or replace
subcontract work that was not performed according to the
subcontract, except for those costs withheld under (b) or
(c).
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, and 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. (Business and Professions Code Section 7108.5, Civil
Code Sections 3260 and 3260.1, and Public Contract Code Sections
7107 and10262.5)
FISCAL EFFECT : Unknown. This bill is keyed non-fiscal.
COMMENTS :
Purpose of this bill . According to the author's office, "The
Prompt Payment statutes are turning into a mess of loopholes.
They provide no relief to contractors against a sophisticated
owner. Worse, they provide those owners with excuses for
withholding more money due to a loophole within the existed
statute."
Background . Existing law authorizes an owner or contractor to
withhold up to 150% of the value of the disputed work performed
for a private work of improvement. The sponsors contend that
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existing law provides a loophole for a person or contractor to
dispute work in order to withhold payment to a contractor
because there is no definition for determining the value of
disputed work. This bill revises the amount that an owner can
withhold from a contractor, and contractor from subcontractor,
for disputed private works of improvement.
Support . According to the sponsors, the California Fence
Contractor's Association, Engineering Contractor's Association,
Flasher Barricade Association, and the Marin Builders
Association, "�The Prompt Pay statutes] provide owners with
excuses for withholding more money �from a contractor]. Here's
why: 'disputed amount' is not defined. As a result, virtually
every construction attorney is running into these kinds of
things:
"A) The owner orders time and material extra work. Daily
tickets are signed by the owner's job site representative,
confirming that the equipment and labor actually performed the
extra work. When the extra work is completed, the contractor
submits an invoice for $10,000 for the extra work? The owner
decides the total is too much, so he declares this to be a
disputed amount. Not only does the owner not pay for the extra
work, but because it is a 'disputed amount,' the owner withholds
what the law provides, which is 150% of that amount, or $15,000.
"B) The job is delayed. The causes of the delay are disputed.
The owner assesses liquated damages of $10,000. The contractor
contests this assessment. The owner, in-turn, declares this to
be a 'disputed amount' and withholds �150% of that amount, or
$15,000].
"C) A cost-plus job is performed. Under the agreement, the
owner must pay all of the costs of the work. A dispute develops
near the end of the job. In response, the owner stops paying
and the contractor pulls off the job. The owner hires another
contractor to finish the work at a cost of $10,000? to justify
withholding �150% of that amount, or] $15,000 from what is still
owed to the original contractor for costs of the work performed
by the original contractor."
Previous Legislation . AB 2549 (Pacheco) of 2004, would have
revised the law with respect to retention proceeds for works of
improvement. This bill would have increased the amount that may
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be withheld from progress payments or final payments, depending
on the circumstances, to a sum of various amounts and
percentages, as specified. The Governor vetoed this bill with
the following message:
"Existing law, including lien protections and other
prompt pay requirements, afford most contractors with
sufficient protection to ensure payment on disputed
payments. Additionally, I believe this bill will
only further complicate the various disparate statutes
regarding disputed payments between contractors and
owners. This area of law that is very important to
both the consumer and contractor has been amended
piecemeal for far too long."
Double-referred . This bill is double-referred to Assembly
Judiciary Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
California Fence Contractor's Association (co-sponsor)
Engineering Contractor's Association (co-sponsor)
Flasher Barricade Association (co-sponsor)
Marin Builders Association (co-sponsor)
Opposition
None on file.
Analysis Prepared by : Joanna Gin / B.,P. & C.P. / (916)
319-3301