BILL ANALYSIS �
AB 1705
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Date of Hearing: April 30, 2014
ASSEMBLY COMMITTEE ON ACCOUNTABILITY AND ADMINISTRATIVE REVIEW
Jim Frazier, Chair
AB 1705 (Williams) - As Amended: March 28, 2014
SUBJECT : Public contracts: payment.
SUMMARY : Clarifies the circumstances under which a public
agency may withhold more than 5% of a contract price until final
completion of a public works project. Specifically, this bill :
1)Clarifies that a public agency may retain more than 5% of the
contract price in public works projects under the following
circumstances:
a) The director of a state department awarding the contract
makes a finding prior to the bid that the project is
substantially complex and includes an explanation of the
basis of this finding and the actual retention amount in
the bid documents; or,
b) The governing body of a local government entity awarding
the contract adopts the same procedures as in (a) above.
Projects awarded by local entities must make the
substantially complex finding on a project by project
basis.
2)Specifies that the deeming of a substantially complex project
does not include maintenance projects and work that is
regularly, customarily, or routinely performed by the public
agency or by licensed contractors.
EXISTING LAW :
1)Prohibits a public agency from retaining more than 5% of a
contract price until final completion of a project.
2)Provides an exemption to the above prohibition by allowing a
public agency to withhold more than 5% of the contract price
if a project is deemed to be substantially complex under
specified circumstances. Current law does not require the
agency to explain in the bid documents why it finds the
project to be substantially complex.
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3)Prohibits retention proceeds from exceeding the retention
percentage specified in the contract between the public agency
and the contractor.
4)Sunsets these retention provisions on January 1, 2016.
FISCAL EFFECT : None
COMMENTS : Withholding a percentage of a contract allows a
public agency to maintain a degree of control over a project to
ensure that the contractor performs the work well, on time, and
on budget. Pursuant to SB 293 (Padilla), Chapter 700, Statutes
of 2011, the maximum amount of money that public agencies can
withhold from a contractor prior to completion of the job is 5%
of the total contract. However, current law allows a higher
percentage to be retained if an agency, after a proper hearing,
finds a project to be "substantially complex," provided that the
finding itself and the actual retention amount are included in
the bid documents. This bill requires an explanation of the
basis for the finding to be included in the bid documents and
requires local agencies specifically to approve a substantially
complex finding on a project by project basis.
Current law does not define the types of projects that
constitute "substantially complex." The sponsors of this bill,
representing the construction industry, assert that this lack of
a definition means that some public entities, particularly
school districts, have been applying this exception broadly to
encompass all construction projects in order to withhold a
higher retention rate, typically 10%. The sponsors contend that
this is inconsistent with what was meant to be a reasonable
exemption for very unique and large scale construction projects,
such as waste water treatment facilities or dams and bridges.
This bill would bring clarity to the substantially complex
exception by requiring public entities to explain the reasons
why a project is complex in the bid documents and prohibiting
maintenance projects and routine work commonly performed by
licensed contractors, such as upgrading parking lot lights or
installing bleachers or chain link fencing, from being included
in the exception.
Opponents, representing water and irrigation districts, argue
that the provision in this bill specifying the types of projects
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that are not substantially complex is a counter intuitive
approach that will only lead to more litigation and further
hamper local agency decision-making.
The statutes mandating the 5% retention limit and granting the
substantially complex exception are due to expire on January 1,
2016. The author may wish to consider extending the sunset on
these provisions as this bill moves through the legislative
process.
REGISTERED SUPPORT / OPPOSITION :
Support
American Subcontractors Association California (sponsor)
California Association of Sheet Metal & Air Conditioning
Contractors National Association (sponsor)
National Electrical Contractors Association California Chapters
(sponsor)
American Fence Association, California Chapter
California Fence Contractors' Association
California Landscape Contractors Association
California Legislative Conference of the Plumbing, Heating and
Piping Industry
California State Association of Electrical Workers
California State Pipe Trades Council
Flasher Barricade Association
Marin Builders Association
United Contractors
Western States Council of Sheet Metal Workers
Opposition
El Dorado Irrigation District
La Puente County Water District
Newhall County Water District
Pico Water District
Rowland Water District
Analysis Prepared by : Cassie Royce / A. & A.R. / (916)
319-3600
AB 1705
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