BILL ANALYSIS �
AB 2471
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Date of Hearing: May 14, 2014
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 2471 (Frazier) - As Amended: April 24, 2014
Policy Committee:
AccountabilityVote:13-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill requires prompt payment of change orders on public
works contracts. Specifically, this bill:
1) Requires any state or local public entity to issue
change orders on public works contracts promptly, or no
later than 60 days after the extra work is performed.
2) Authorizes a prime contractor to present to the public
entity a change order request for extra work performed by a
subcontractor.
3) Stipulates that, upon failure of a public entity to
promptly issue a change order per (1), the contractor may
bill for work already performed and the public entity shall
be liable for that work.
4) Stipulates that, if there is a dispute regarding the
need for the change order, the public entity must pay for
the portion of the work not in dispute.
5) Provides that prejudgment interest shall accrue at 10%
annually on any amount that a public entity fails to issue
a change order or fails to pay.
6) Authorizes a contractor to enforce the above through a
writ of mandate.
FISCAL EFFECT
Costs to state and local agencies cannot be quantified, and
AB 2471
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would depend on the extent to which: (a) the bill deviates from
any agency's current contracting practices; (b) agencies are
able to meet the required timelines and how much interest costs
would accrue for noncompliance; and (c) agencies incur
additional administrative costs to comply with the bill's
requirements. The bill could also subject agencies to additional
litigation costs. Given the tens of billions of dollars in
annual public works contracting throughout California, these
costs would likely be at least in the tens of millions of
dollars.
COMMENTS
1)Purpose . According to United Contractors (sponsor),
contractors usually cannot bill for extra work until the
agency issues a change order. The sponsor explains that if the
agency does not prepare a change order, it can delay paying
for the extra work, which can result in months or even years
of payment delays. In such cases, the original contractor must
continue to pay employees and subcontractors for their work
while waiting for payment from public entities.
2)Opposition . Local governments contend this bill places an
unreasonable burden on local agencies with the 60-day
requirement, raises the financial risk associated with public
works contracts, and would lead to unnecessary and costly
litigation. The California State University raises similar
concerns.
At the time of this analysis, the parties were attempting to
reach agreement on amendments. One apparent flaw in the bill
is tying the deadline for issuing a change order to the
performance of the work without placing any onus on the
contractor to timely submit their costs for the work along
with adequate supporting documentation.
Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081