BILL ANALYSIS �
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|SENATE RULES COMMITTEE | AB 2021|
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THIRD READING
Bill No: AB 2021
Author: Wagner (R)
Amended: 8/29/12 in Senate
Vote: 21
SENATE BUSINESS, PROF. & ECON. DEV. COMM. : 8-0, 6/25/12
AYES: Price, Emmerson, Corbett, Correa, Negrete McLeod,
Strickland, Vargas, Wyland
NO VOTE RECORDED: Hernandez
SENATE JUDICIARY COMMITTEE : 4-0, 7/3/12
AYES: Evans, Blakeslee, Corbett, Leno
NO VOTE RECORDED: Harman
ASSEMBLY FLOOR : 74-0, 5/10/12 - See last page for vote
SUBJECT : Works of improvement: disputed amounts
SOURCE : California Chapter of American Fence
Association
California Fence Contractors Association
Engineering Contractors Association
Flasher Barricade Association
Marin Builders Association
DIGEST : This bill revises the amount that an owner can
withhold from a contractor, and a contractor from a
subcontractor, for disputed private works of improvement.
Senate Floor Amendments of 8/29/12 undo an amendment taken
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on
August 23, 2012, on the Senate Floor, which moved the
statement "unless otherwise agreed to in writing" to the
end of that sentence. These amendments undo that specific
amendment to restore that sentence to existing law.
Senate Floor Amendments of 8/23/12 address concerns
regarding the disputed amounts that may be withheld from
progress, retention, or final payments in private works of
improvement, and make other clarifying changes.
ANALYSIS : Existing law, the Business and Professions
Code (BPC):
1. Licenses and regulates contractors by the Contractors
State License Board within the Department of Consumer
Affairs.
2. Requires a prime contractor or subcontractor to pay
subcontractors, to the extent of their interest therein,
within seven days of receipt of any progress payment,
unless otherwise agreed to in writing. In the event of
a "good faith" dispute over all or any portion of the
amount due, the prime contractor or subcontractor may
withhold up to 150% of the "disputed amount." (BPC
Section 7108.5)
A. Specifies that any violation of these provisions
shall constitute a cause for disciplinary action and
shall subject the licensee to a penalty, payable to
the subcontractor, of 2% of the amount due per month
for every month that payment is not made.
B. Provides that in any action for the collection of
funds wrongfully withheld, the prevailing party shall
be entitled to attorney fees and costs.
C. Applies these provisions to private and public
works of improvement, except as specified.
Existing law, the Civil Code (CIV):
1. Unless otherwise agreed in writing, an owner shall pay a
direct contractor, within 30 days after receiving a
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notice demanding payment under the contract, any
progress payment due. In the event of a "good faith"
dispute over the progress payment due, the owner may
withhold up to 150% of the disputed amount of the
progress payment. (CIV Section 8800)
2. Requires an owner who has withheld a retention payment
from a direct contractor, to pay the retention to the
contractor within 45 days after completion of the work
of improvement. In the event of a "good faith" dispute
over the retention payment due, the owner may withhold
up to 150% of the disputed amount from final payment.
(CIV Section 8812)
3. Requires a direct contractor who has withheld a
retention payment from a subcontractor, to pay the
subcontractor the appropriate share of the retention
payment within 10 days after receiving all or part of a
retention payment. In the event of a "good faith"
dispute, the direct contractor may withhold up to 150%
of the estimated value of the disputed amount. (CIV
Section 8814)
This bill:
1. Requires a prime contractor who withholds payment from a
subcontract, 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 delay damages for which the subcontractor may
be liable.
B. 150% of the estimated cost to repair or replace
contract work that was not performed according to the
contract.
C. The amount of any written claim against the prime
contractor for a violation of the Labor Code or a
collective bargaining agreement by the subcontractor
or any other person performing work required by the
subcontract.
D. That portion of any mechanics lien or stop payment
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notice claim by the subcontractor or any other person
performing work required by the subcontract for which
the subcontractor has already been paid.
E. The amount that would have been withheld by the
owner pursuant to specified sections of law relating
to mechanics liens or stop payment notices, but for a
bond provided by the contractor as specified.
2. Requires an owner who withholds payment from a direct
contractor 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 assessed against the
contractor.
B. 150% of the estimated cost of repair or
replacement of contract work that was not performed
according to the contract.
C. The amount of any written claim against the owner
for a violation of the Labor Code or a collective
bargaining agreement by any contractor.
D. That portion of any mechanics lien or stop payment
notice claim by any contractor for which the direct
contractor has already been paid.
3. Requires an owner who withholds money from a contractor,
for disputed works of improvement involving retention,
to withhold from the final payment, unless already
withheld from a progress payment, an amount not to
exceed the sum of the following:
A. The liquidated damages assessed against the
contractor;
B. The amounts 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 this item; and
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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 this
bill.
E. The amount of any written claim against the owner
for a violation of the Labor Code or a collective
bargaining agreement by any contractor.
F. That portion of any mechanics lien or stop payment
notice claim by any contractor for which the direct
contractor has already been paid.
4. 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 exceed the sum of the following:
A. The delay damages for which the subcontractor may
be liable;
B. That portion of any mechanic's lien or stop
payment notice claim by the subcontractor or any
other person performing work required by the
subcontract 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 this item;
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 this bill; and
F. The amount of any written claim against the direct
contractor for a violation of the Labor Code or a
collective bargaining agreement by the subcontractor
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or any other person performing work required by the
subcontract.
Related Legislation
AB 2549 (Pacheco, 2004) was a nearly identical measure,
although it applied to both public and private projects,
while this bill relates only to private works. The bill
passed both houses unanimously only to be vetoed by
Governor Schwarzenegger, who stated in part:
While I understand the arguments behind this measure, I
believe the nuances of the changes proposed may be too
complex for many Californians who hire contractors to
perform private works of improvement on their homes and
private property.
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.
I am asking the Legislature to work on crafting a
measure that would, not only simplify existing law, but
ensure that California consumers are adequately
protected and that contractors continue to be treated
fairly while providing a consolidation and reform of
this entire body of law.
AB 341 (Huff, 2005) passed both houses unanimously and was
again going to be vetoed, so the bill was returned to the
Legislature and gutted.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 8/23/12)
California Chapter of American Fence Association
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(co-source)
California Fence Contractors Association (co-source)
Engineering Contractors Association (co-source)
Flasher Barricade Association (co-source)
Marin Builders Association (co-source)
ARGUMENTS IN SUPPORT : The author states, "The Prompt Pay
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
existing statute: Section 7107 (e) of the Public Contract
Code states: (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 150 percent of the
estimated value of the disputed amount. Unfortunately,
'disputed amount' is not defined in the statute. As a
result, virtually every construction attorney is running
into these kinds of things."
ASSEMBLY FLOOR : 74-0, 5/10/12
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall,
Bill Berryhill, Block, Blumenfield, Bonilla, Bradford,
Brownley, Buchanan, Butler, Charles Calderon, Campos,
Carter, Cedillo, Chesbro, Conway, Davis, Dickinson,
Donnelly, Eng, Feuer, Fong, Fuentes, Beth Gaines,
Galgiani, Garrick, Gatto, Gordon, Gorell, Grove, Hagman,
Halderman, Hall, Harkey, Hayashi, Roger Hern�ndez, Hill,
Huber, Hueso, Huffman, Jones, Knight, Lara, Logue, Bonnie
Lowenthal, Ma, Mansoor, Mendoza, Miller, Mitchell,
Monning, Morrell, Nestande, Nielsen, Norby, Pan, Perea,
Portantino, Silva, Skinner, Smyth, Solorio, Swanson,
Torres, Valadao, Wagner, Wieckowski, Williams, Yamada,
John A. P�rez
NO VOTE RECORDED: Cook, Fletcher, Furutani, Jeffries,
Olsen, V. Manuel P�rez
JJA:k 8/30/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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