Change Order Bill AB 1347 Passes State Assembly

June 4, 2015

Signatory GCs and subs advanced AB 1347 (Chiu) out of the State Assembly on a unanimous and bipartisan 76-0 vote.  The bills author Assemblymember David Chiu (D-San Francisco) was joined by Assemblymember Jim Frazier (D-Oakley) and Republican Assembly Leader Kristin Olsen (R-Modesto) in eloquent remarks on the Assembly Floor in support of the bill and why it is good public policy that contractors be paid for the work they provide public agencies on a timely basis.

The bill was amended significantly to address the many concerns of the opposing public agencies.  However, the policy of moving towards a better process to provide contractors with certainty on payment issues is intact as the bill moves over to the State Senate for consideration.

State Assembly Analysis of AB 1347 (Chiu):

This bill creates a claim resolution process for public works contracts when contractors and public entities are in  dispute.  It applies to both state and local public entities and specifies that the new section added by this bill takes precedence over the current resolution of claims processes described in  Public Contract Code Sections 10240 to 10240.13 and 20100 to 20929.

This bill defines a claim as one or more of the following: a time extension, including, without limitation, for relief from damages or penalties for delay; payment of money or damages arising from  work done by, or on behalf of, the contractor pursuant to the  contract for a public work and payment for which is not otherwise expressly provided or to which the claimant is not otherwise entitled; or payment of an amount that is disputed by the public entity.

The author explains that this bill is meant to ensure contractors are paid in a timely manner for work, which is not specified in the original contract, but becomes necessary to complete a public works project.

According to the author, this bill “addresses the indefinite delay  of payment to California’s public works contractors for extra work  performed.  There is a loophole in current prompt payment law when  it comes to resolving disputes in the claims process.”  The author  states that some contractors have to wait months or even years until they are paid.

This bill allows contractors to submit claims to public entities and requires an entity to respond within 30 days following receipt with a written statement identifying which parts of the claim are disputed and undisputed.  This bill extends the 30-day timeframe  if the public entity needs approval from its governing board and the board does not meet within the 30 days following receipt of  the claim.  In such a case, the response would instead be due  three days after the next publicly noticed meeting of the governing body.

For amounts determined to be undisputed, this bill would require the public entity to pay the contractor within 30 days after the public entity’s issuance of the written statement.  If the entity   does not reply within 30 days or the extended time provided due to governing body meeting dates, the entire claim is deemed rejected.

If a claimant disputes the public entity’s written response or if the public entity fails to respond in the specified timeframe, the claimant can demand in writing an informal conference to meet and confer in order to resolve the issues in dispute.  After receiving the demand through registered mail, the public entity must schedule a meet and confer conference within 30 days.

If the entire claim is not resolved during the meet and confer conference, this bill establishes a non-binding mediation process.  Within five days of the conclusion of the meet and confer conference, a public entity must provide the claimant a written statement identifying the disputed and undisputed portions of the claim.  Undisputed portions must be paid within 30 days after the statement is issued.

Disputed portions are submitted to nonbinding mediation in which the claimant and public entity split the mediation costs equally.  The claimant and public entity must agree to a mediator within 10  days after the disputed portion of the claim has been identified in writing.  If both sides cannot agree on a mediator, they are each required to choose a mediator and those mediators decide on a neutral third party to mediate the disputed portion of the claim.

If an agreement cannot be reached in mediation, other procedures already set forth in existing law would apply.

This bill specifies that amounts not paid in a timely manner would  accrue interest at the rate at 7% per year.

In addition to allowing contractors to submit claims, this bill lets contractors submit claims on behalf of a subcontractor.  Within 45 days of receiving the claim from a subcontractor, the contractor must notify the subcontractor in writing as to whether or not the contractor presented the claim to the public entity.  If the claim was not presented, the contractor must provide the subcontractor with a statement explaining why the claim was not submitted.