BILL ANALYSIS �
Bill No: AB
2471
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Lou Correa, Chair
2013-2014 Regular Session
Staff Analysis
AB 2471 Author: Frazier
As Proposed to be Amended in Committee
Hearing Date: June 24, 2014
Consultant: Paul Donahue
SUBJECT
Public works contracts: change orders
DESCRIPTION
Requires a public entity, when authorized to order changes
or additions to the work in a public works contract to
issue a change order promptly. Specifically, this bill:
1)Requires a public entity or its representative,<1> when
additional work is needed, to issue change orders for
authorized work promptly, and in no event later than 60
days after the extra work is complete and an agreement is
reached concerning the merit, conditions, cost and time
for performance.
2)Specifies that the original contractor shall respond
promptly to a request from the public entity
representative for documentation to support a request for
a change order.
3)Requires each public agency to specify in the public
works contract the information that the contractor will
be required to provide in support of any requested change
order.
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<1> A duly authorized representative of the public entity
is defined to mean, in the case of a local public agency,
an officer or employee of the agency authorized to order
extra work.
AB 2471 (Frazier) continued
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4)Authorizes the original contractor to present to the
public entity a request for a change order for extra work
from a subcontractor.
5)Authorizes the original contractor, upon failure of the
public entity to issue a change order for authorized work
within specified time limits, to bill for the completed
extra work in accordance with any provisions governing
change orders contained in the public works contract.
6)Sets an exception to the 60-day requirement if a change
order is subject to approval by the governing body of a
public entity and that body is not scheduled to meet in
the 60 days after the performance of the extra work.
7)Specifies the process for meeting the 60-day requirement
for school districts and community colleges when change
orders are subject to approval by the Division of the
State Architect within the Department of General Services
(DGS).
8)Specifies that, in addition to other remedies that may be
available to the original contractor, the contractor may
enforce the change order rules by writ of mandate.
EXISTING LAW
The Public Contract Code contains a body of law relating to
contracts let by a public entity for the performance of
public works of improvement, including provisions for the
payment of progress payments and the disbursing and
withholding of retention proceeds.
Until January 1, 2016, existing law prohibits progress
payments upon state contracts from being made in excess of
100% of the percentage of actual work completed, and
authorizes DGS to withhold not more than 5% of the contract
price until final completion and acceptance of the project,
except as specified.
BACKGROUND
Purpose of the bill : According to the author's office,
California businesses depend on being paid on time for
their survival. Delay by state or local public agencies in
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paying for construction work creates financial burdens on
construction contractors and subcontractors, many of which
are small businesses. Agency delays in approving and paying
change orders are a serious problem, according to the
author, who is concerned that some public agencies put off
approving and paying change orders for months, and
sometimes more than a year. The sponsors fear that some
contracting agencies delay approving and paying for change
orders to gain leverage so that they can demand that
legitimate bills for extra work be discounted to below
actual cost.
Change orders : A change order is an amendment to the
original public contract that agencies must approve when
the scope of work needs to be adjusted. A change order
obviously increases the cost of the project, so public
agencies must review whether the additional work is
necessary, and negotiate a fair and reasonable price. Until
the change order is approved, no additional work has been
authorized, and the contractor is bound by the scope of the
original contract. AB 2471 does not address a "prompt
payment"<2> issue, because until the change order has been
issued, the contractor is under no obligation to perform
the extra work. Prompt payment only applies to work within
the scope of a contract. Until a change order is issued,
the work is not within the scope of work.
Summary of the amendments : In response to public agency
criticisms, the author and the sponsor have agreed to adopt
certain amendments to AB 2471, as it appeared in print on
May 23, 2014. The proposed amendments appear in the
attached mockup. It is unclear whether all parties have
agreed to all of the proposed changes, but it appears that
many of the reasonable objections of the parties will be
addressed by these amendments.
First and foremost, the public entities insisted on having
a change order process that specifies that an agreement
shall be reached between the contractor and the agency
concerning the merit of the change order, the conditions
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<2> The Prompt Payment Act requires State agencies to pay
properly submitted, undisputed invoices within 45 calendar
days of initial receipt. If the requirement is not met,
State departments must automatically calculate and pay the
appropriate late payment penalties. (See Govt. Code � 927
et seq.)
AB 2471 (Frazier) continued
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under which it will be carried out, the costs associated
with the change order, and the time for performance of the
extra work. Conversely, proponents of the bill prefer a
change order protocol which triggers the public agency
change order processing obligations once the original
contractor has submitted a clear and complete description
of the extra work sufficient to allow identification of the
claimed cost elements. This issue is of particular
importance to both proponents and opponents of AB 2471.
Some opponents object to the amount of pre-judgment
interest (7%) because it allegedly creates an incentive to
withhold documentation to process the change order so that
it can go into the dispute resolution phase. However, the
mockup provides for a process that would require the
contractor and the agency to reach an agreement on the
terms and conditions of a change order, which would seem to
alleviate the concern that change orders will end up in
arbitration, alternative dispute resolution or the courts.
Some of the opponents to AB 2471 raise a continuing
objection to a provision that allows an aggrieved original
contractor to take up a writ of mandate to enforce the
provisions of the bill. Nevertheless, in the interests of
balancing the equities in order to advance the bill, this
provision remains in AB 2471.
PRIOR/RELATED LEGISLATION
AB 1705 (Williams), 2013-2014 Session. Limits the
circumstances under which public agencies may withhold more
than 5% of total payment amounts for time and materials on
substantially complex public works projects. (Senate Third
Reading)
AB 748 (Eggman), Chapter 424, Statutes of 2013. Provides
that, unless another provision of law provides a different
interest rate, interest accrues in a tax or fee claim
against a public entity that results in a judgment against
the public entity at a rate equal to the weekly average one
year constant maturity United States Treasury yield, not to
exceed 7% per annum.
SUPPORT:
Air Conditioning & Refrigeration Contractors Association
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Air Conditioning Sheet Metal Association
Air Conditioning Trade Association
American Subcontractors Association California
Associated Builders and Contractors - San Diego Chapter
Associated General Contractors
Building Industry Credit Association
California Concrete Contractors Association
California Legislative Conference, Plumbing, Heating and
Piping Industry
California Professional Association of Specialty
Contractors
California State Association of Electrical Workers
California State Council of Laborers
California State Pipe Trades Council
Construction Employers Association
National Electrical Contractors Association, California
chapters
Plumbing-Heating Cooling Contractors Association of
California
Southern California Contractors Association
State Building and Construction Trades Council
Union Roofing Contractors Association
United Contractors
Western Electrical Contractors Association
Western States Council of Sheet Metal Workers
OPPOSE:
Association of California Cities - Orange County
Association of California Healthcare Districts
Association of California School Administrators
California Airports Council
California Association of Sanitation Agencies
California Association of School Business Officials
California School Boards Association
California Special Districts Association
California State Association of Counties
City of Concord
Coalition for Adequate School Housing
County of San Bernardino
County School Facilities Consortium
East Valley Water District
El Dorado Irrigation District
Kern County Superintendent of Schools
La Puente County Water District
League of California Cities
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Newhall County water District
Orange County Transportation Authority
Pico Water District
Rowland Water District
Sonoma County Water Agency
Urban Counties Caucus
FISCAL COMMITTEE: Senate Appropriations Committee
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