California Assembly Bill AB1119 Amended / Bill

 BILL NUMBER: AB 1119AMENDED BILL TEXT AMENDED IN ASSEMBLY APRIL 22, 2009 INTRODUCED BY Assembly Member Emmerson FEBRUARY 27, 2009  An act to amend Section 7108.5 of the Business and Professions Code, to amend Sections 3260, 3260.1, and 3262.5 of, and to add Section 3260.05 to, the Civil Code, and to amend Sections 7107, 10261.5, 10262, and 10262.5 of the Public Contract Code, relating to works of   An act to add Section 3260.05 to the Civi   l Code, relating to works of  improvement. LEGISLATIVE COUNSEL'S DIGEST AB 1119, as amended, Emmerson. Works of improvement: payments. Existing law requires an owner of a private work of improvement to release retention proceeds withheld from any payment within 45 days after the date of completion. Existing law requires a public entity to release retention proceeds withheld from any payment by the public entity within 60 days after the date of completion. Existing law requires an original contractor to pay any subcontractor within 10 days from the time that all or any portion of retention proceeds are received by the original contractor. Existing law requires an original contractor or subcontractor to pay any subcontractor within 10 days from the time of receipt of each progress payment, unless otherwise agreed to in writing. Existing law imposes a penalty of 2% on the amount due per month on funds that are improperly withheld in a contract dispute relating to public and private works of improvement, as specified. The Contractors' State License Law provides for the licensing and regulation of contractors by the Contractors' State License Board. Existing law requires any person or corporation that has contracted to do business with a public utility to pay any subcontractor within 15 working days of receipt of each progress payment from the public utility, except as specified. Existing law also requires a state agency that fails to make any progress payment within 30 days after receipt of the payment request to pay interest at the rate of 10% per year. This bill would  revise, recast, and consolidate the above provisions governing the timely payment of progress payments, retention proceeds, and final payments under   , notwithstanding any other provision   s, require the owner to pay the contractor within 30 days of a demand for payment, except as specified, for  a contract for a public or private work of improvement with respect to contracts entered into on or after January 1, 2010, and would subject a licensed contractor under the Contractors' State License Law to disciplinary action by the Contractors' State License Board for a violation of these provisions. The bill would require all owners  , including a public utility or a state agency,  to release retention proceeds withheld from any payment within a 45-day period, and, upon receipt of all or any portion of the retention proceeds or final payment, or any progress payment, would require an original contractor or subcontractor to pay his or her subcontractors within a 7-day period. The bill would also make the 2% penalty described above applicable to all owners of private and public works of improvement. The bill would additionally provide that the prevailing party in any action for the collection of funds wrongfully withheld is entitled to attorney's fees and costs. Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:  SECTION 1.   Section 7108.5 of the Business and Professions Code is amended to read: 7108.5. (a) With respect to a contract entered into prior to January 1, 2010, a prime contractor or subcontractor shall pay to any subcontractor, not later than 10 days of receipt of each progress payment, unless otherwise agreed to in writing, the respective amounts allowed the contractor on account of the work performed by the subcontractors, to the extent of each subcontractor's interest therein. In the event that there is a good faith dispute over all or any portion of the amount due on a progress payment from the prime contractor or subcontractor to a subcontractor, then the prime contractor or subcontractor may withhold no more than 150 percent of the disputed amount. (b) A contract entered into on or after January 1, 2010, shall be governed by Section 3260.05 of the Civil Code and by subdivisions (c) to (e), inclusive. (c) Any violation of this section or subdivision (d), (e), or (f) of Section 3260.05 of the Civil Code by a licensee shall constitute a cause for disciplinary action and shall subject the licensee to the penalty specified in subdivision (g) of Section 3260.05 of the Civil Code. (d) The sanctions authorized under this section shall be separate from, and in addition to, all other remedies either civil, administrative, or criminal. (e) This section applies to all private works of improvement and to all public works of improvement, except where Section 10262 of the Public Contract Code applies.   SEC. 2.   Section 3260 of the Civil Code is amended to read: 3260. (a) This section is applicable with respect to all contracts entered into on or after July 1, 1991, and prior to January 1, 2010, relating to the construction of any private work of improvement. However, the amendments made to this section during the 1992 portion of the 1991-92 Regular Session of the Legislature are applicable only with respect to contracts entered into on or after January 1, 1993, relating to the construction of any private work of improvement. Moreover, the amendments made to this section during the 1993 portion of the 1993-94 Regular Session of the Legislature are applicable only with respect to contracts entered into on or after January 1, 1994, relating to the construction of any private work of improvement. (b) The retention proceeds withheld from any payment by the owner from the original contractor, or by the original contractor from any subcontractor, shall be subject to this section. (c) Within 45 days after the date of completion, the retention withheld by the owner shall be released. "Date of completion," for purposes of this section, means any of the following: (1) The date of issuance of any certificate of occupancy covering the work by the public agency issuing the building permit. (2) The date of completion indicated on a valid notice of completion recorded pursuant to Section 3093. (3) The date of completion as defined in Section 3086. However, release of retentions withheld for any portion of the work of improvement which ultimately will become the property of a public agency, may be conditioned upon the acceptance of the work by the public agency. In the event of a dispute between the owner and the original contractor, the owner may withhold from the final payment an amount not to exceed 150 percent of the disputed amount. (d) Subject to subdivision (e), within 10 days from the time that all or any portion of the retention proceeds are received by the original contractor, the original contractor shall pay each of its subcontractors from whom retention has been withheld, each subcontractor's share of the retention received. However, if a retention payment received by the original contractor is specifically designated for a particular subcontractor, payment of the retention shall be made to the designated subcontractor, if the payment is consistent with the terms of the subcontract. (e) If a bona fide dispute exists between a subcontractor and the original contractor, the original contractor may withhold from that subcontractor with whom the dispute exists its portion of the retention proceeds. The amount withheld from the retention payment shall not exceed 150 percent of the estimated value of the disputed amount. (f) Within 10 days of receipt of written notice by the owner from the original contractor or by the original contractor from the subcontractor, as the case may be, that any work in dispute has been completed in accordance with the terms of the contract, the owner or original contractor shall advise the notifying party of the acceptance or rejection of the disputed work. Within 10 days of acceptance of the disputed work, the owner or original contractor, as the case may be, shall release the retained portion of the retention proceeds. (g) In the event that retention payments are not made within the time periods required by this section, the owner or original contractor withholding the unpaid amounts shall be subject to a charge of 2 percent per month on the improperly withheld amount, in lieu of any interest otherwise due. Additionally, in any action for the collection of funds wrongfully withheld, the prevailing party shall be entitled to his or her attorney's fees and costs. (h) It shall be against public policy for any party to require any other party to waive any provision of this section. (i) This section shall not be construed to apply to retentions withheld by a lender in accordance with the construction loan agreement. (j) Contracts entered into on or after January 1, 2010, shall be governed by Section 3260.05.   SEC. 3.   SECTION 1.  Section 3260.05 is added to the Civil Code, to read: 3260.05. (a) Notwithstanding  Sections 3260, 3260.1, and 3262.5 of this code, Section 7108.5 of the Business and Professions Code, and Sections 7107, 10261.5, 10262, and 10262.5 of the Public Contract Code, or  any other provision of law, this section applies to all contracts entered into on or after January 1, 2010, relating to the construction of any private or public work of improvement. (b) This section applies to contractual obligations between all of the following: (1) Owners and original contractors. (2) Original contractors and subcontractors. (3) Subcontractors and subcontractors. (c) The owner shall pay to the contractor, within 30 days following receipt of a demand for payment, any progress payment due as to which there is no good faith dispute between the parties. In the event of a dispute between the owner and the contractor, the owner may withhold from the progress payment an amount not to exceed 150 percent of the disputed amount. If any amount is wrongfully withheld in violation of this subdivision, the contractor shall be entitled to the penalty specified in subdivision (g). (d) Subject to subdivision (f), within seven days from the date that all or any portion of any progress payment is received by the original contractor or subcontractor, the original contractor or subcontractor shall pay to any subcontractor, unless otherwise agreed to in writing, the respective amounts allowed the subcontractor on account of the work performed by the subcontractor, to the extent of each subcontractor's interest therein. (e) The retention proceeds or final payment withheld from any payment by the owner from the original contractor, or by the original contractor from any subcontractor, shall be subject to the following requirements: (1) (A) Within 45 days after the date of completion, or 100 days after cessation of labor, the retention proceeds or final payment withheld by the owner shall be released. "Date of completion," for purposes of this subdivision, means any of the following: (i) The date of issuance of any certificate of occupancy covering the work by the public agency issuing the building permit. (ii) The date of completion indicated on a valid notice of completion recorded pursuant to Section 3093. (iii) The date of completion, as defined in Section 3086. (B) Notwithstanding subparagraph (A), the release of retention proceeds or final payments withheld for any portion of the work of improvement that ultimately will become the property of a public agency, may be conditioned upon the acceptance of the work by the public agency. (2) Subject to subdivision (f), within seven days from the date that all or any portion of the retention proceeds or final payment is received by the original contractor, the original contractor shall pay, to each of its subcontractors from which the retention proceeds or final payment has been withheld, each subcontractor's share of the retention proceeds or final payment received. However, if the retention proceeds or final payment received by the original contractor is specifically designated for a particular subcontractor, payment of the retention proceeds or final payment shall be made to the designated subcontractor. (f) (1) If a bona fide dispute exists between an owner and original contractor, between the original contractor and a subcontractor, or between two subcontractors, the owner, original contractor, or subcontractor, as applicable, may withhold from the party with whom the dispute exists an amount not to exceed 150 percent of the disputed amount. The amount withheld shall not exceed 150 percent of the estimated value of the disputed amount. If any amount is wrongfully withheld in violation of this subdivision, the aggrieved party shall be entitled to the penalty specified in subdivision (g). (2) Within seven days of receipt by the owner, original contractor, or subcontractor, as applicable, of written notice from the party with whom the dispute exists pursuant to paragraph (1), that any work in dispute has been completed in accordance with the terms of the contract, the owner or original contractor shall advise the notifying party of the acceptance or rejection of the disputed work. Within seven days of acceptance of the disputed work, the owner or original contractor shall release the retained portion of the disputed payment. (g) If any payment is not made within the time periods required by this section, the owner, original contractor, or subcontractor withholding the unpaid amount shall be subject to a charge of 2 percent per month on the improperly withheld amount, in addition to any interest otherwise due. Additionally, in any action for the collection of funds wrongfully withheld, the prevailing party shall be entitled to attorney's fees and costs. (h) As applied to licensees under the Contractors' State License Law (Chapter 9 (commencing with Section 7000) of Division 3 of the Business and Professions Code), a violation of this section shall also constitute a cause for disciplinary action under that chapter, and the sanctions authorized under this section shall be enforced by the Contractors' State License Board. (i) The remedies authorized pursuant to this section are separate from, and in addition to, any other remedy authorized by law, and shall also be enforceable by civil, administrative, or criminal proceedings. (j) It shall be against public policy for any party to require any other party to waive any provision of this section.  SEC. 4.   Section 3260.1 of the Civil Code is amended to read: 3260.1. (a) This section is applicable with respect to all contracts entered into on or after January 1, 1992, and prior to January 1, 2010, relating to the construction of any private work of improvement. (b) Except as otherwise agreed in writing, the owner shall pay to the contractor, within 30 days following receipt of a demand for payment in accordance with the contract, any progress payment due thereunder as to which there is no good faith dispute between the parties. In the event of a dispute between the owner and the contractor, the owner may withhold from the progress payment an amount not to exceed 150 percent of the disputed amount. If any amount is wrongfully withheld in violation of this subdivision, the contractor shall be entitled to the penalty specified in subdivision (g) of Section 3260. (c) Nothing in this section shall be deemed to supersede any requirement of Section 3260 respecting the withholding of retention proceeds. (d) Contracts entered into on or after January 1, 2010, shall be governed by Section 3260.05.   SEC. 5.   Section 3262.5 of the Civil Code is amended to read: 3262.5. (a) With respect to contracts entered into prior to January 1, 2010, any person or corporation that has contracted to do business with a public utility, hereafter referred to in this section as a contractor, shall pay any subcontractors within 15 working days of receipt of each progress payment from the public utility, unless otherwise agreed in writing by the parties, the respective amounts allowed the contractor on account of the work performed by the subcontractors, to the extent of each of the subcontractors' interest in that work. In the event that there is a good faith dispute over all or any portion of the amount due on a progress payment from a contractor to a subcontractor, then the contractor may withhold no more than 150 percent of the disputed amount. (b) Any contractor who violates this section shall pay to the subcontractor a penalty of 2 percent of the disputed amount due per month for every month that payment is not made. In any action for the collection of funds wrongfully withheld, the prevailing party shall be entitled to his or her attorney's fees and costs. (c) This section shall not be construed to limit or impair any contractual, administrative, or judicial remedies otherwise available to a contractor or a subcontractor in the event of a dispute involving late payment or nonpayment by a contractor, or deficient performance or nonperformance by a subcontractor. (d) Contracts entered into on or after January 1, 2010, shall be governed by Section 3260.05.   SEC. 6.   Section 7107 of the Public Contract Code is amended to read: 7107. (a) This section is applicable with respect to all contracts entered into on or after January 1, 1993, and prior to January 1, 2010, relating to the construction of any public work of improvement. (b) The retention proceeds withheld from any payment by the public entity from the original contractor, or by the original contractor from any subcontractor, shall be subject to this section. (c) Within 60 days after the date of completion of the work of improvement, the retention withheld by the public entity shall be released. In the event of a dispute between the public entity and the original contractor, the public entity may withhold from the final payment an amount not to exceed 150 percent of the disputed amount. For purposes of this subdivision, "completion" means any of the following: (1) The occupation, beneficial use, and enjoyment of a work of improvement, excluding any operation only for testing, startup, or commissioning, by the public agency, or its agent, accompanied by cessation of labor on the work of improvement. (2) The acceptance by the public agency, or its agent, of the work of improvement. (3) After the commencement of a work of improvement, a cessation of labor on the work of improvement for a continuous period of 100 days or more, due to factors beyond the control of the contractor. (4) After the commencement of a work of improvement, a cessation of labor on the work of improvement for a continuous period of 30 days or more, if the public agency files for record a notice of cessation or a notice of completion. (d) Subject to subdivision (e), within seven days from the time that all or any portion of the retention proceeds are received by the original contractor, the original contractor shall pay each of its subcontractors from whom retention has been withheld, each subcontractor's share of the retention received. However, if a retention payment received by the original contractor is specifically designated for a particular subcontractor, payment of the retention shall be made to the designated subcontractor, if the payment is consistent with the terms of the subcontract. (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. (f) In the event that retention payments are not made within the time periods required by this section, the public entity or original contractor withholding the unpaid amounts shall be subject to a charge of 2 percent per month on the improperly withheld amount, in lieu of any interest otherwise due. Additionally, in any action for the collection of funds wrongfully withheld, the prevailing party shall be entitled to attorney's fees and costs. (g) If a state agency retains an amount greater than 125 percent of the estimated value of the work yet to be completed pursuant to Section 10261, the state agency shall distribute undisputed retention proceeds in accordance with subdivision (c). However, notwithstanding subdivision (c), if a state agency retains an amount equal to or less than 125 percent of the estimated value of the work yet to be completed, the state agency shall have 90 days in which to release undisputed retentions. (h) Any attempted waiver of the provisions of this section shall be void as against the public policy of this state. (i) Contracts entered into on or after January 1, 2010, shall be governed by Section 3260.05 of the Civil Code.   SEC. 7.   Section 10261.5 of the Public Contract Code is amended to read: 10261.5. (a) With respect to contracts entered into prior to January 1, 2010, any state agency that fails to make any progress payment within 30 days after receipt of the payment request from a contractor on a construction contract for an undisputed payment request, that was properly submitted by the contractor to the agency, shall pay interest to the contractor equivalent to the legal rate set forth in subdivision (a) of Section 685.010 of the Code of Civil Procedure. Any state agency that independently calculates the amount due on a progress payment and that fails to make a progress payment within 30 days of the first submittal of the estimate for each contract by the engineer, shall pay interest to the contractor equivalent to the legal rate set forth in subdivision (a) of Section 685.010 of the Code of Civil Procedure. In the event that the payment is not made within 30 days of receipt of the contractor's request or the first submittal by the engineer, and the Controller has processed the payment within 14 days of receipt of the request or submittal, the contracting state agency shall pay interest to the contractor equivalent to the legal rate set forth in subdivision (a) of Section 685.010 of the Code of Civil Procedure. In the event that the payment is not made within 30 days of receipt of the contractor's request or the first submittal by the engineer, and the contracting state agency has processed the payment within 16 days after receipt of the request or submittal, the Controller shall pay interest as provided in Section 685.010 of the Code of Civil Procedure. For purposes of this section, a payment request shall be considered properly executed if funds are available for payment of the payment request, and payment is not delayed due to an audit inquiry by the Controller. (b) Upon receipt of a payment request, each agency shall require: (1) That each payment request be reviewed as soon as practicable after receipt for the purpose of determining that a payment request is a proper payment request. (2) Any payment request determined not to be a proper payment request suitable for payment shall be returned as soon as practicable, but not later than seven days, after receipt, specifying the reasons that the payment request is not a proper payment request. (3) The number of days available to a state agency to make a timely payment of payment request without incurring interest shall be reduced by the number of days by which an agency exceeds the requirements of paragraph (2). (c) Contracts entered into on or after January 1, 2010, shall be governed by Section 3260.05 of the Civil Code.   SEC. 8.   Section 10262 of the Public Contract Code is amended to read: 10262. (a) With respect to contracts entered into prior to January 1, 2010, the contractor shall pay to his or her subcontractors, within 10 days of receipt of each progress payment, the respective amounts allowed the contractor on account of the work performed by his or her subcontractors, to the extent of each subcontractor's interest therein. The payments to subcontractors shall be based on estimates made pursuant to Section 10261. Any diversion by the contractor of payments received for prosecution of a contract, or failure to reasonably account for the application or use of the payments constitutes ground for actions prescribed in Section 10253, in addition to disciplinary action by the Contractors' State License Board. The subcontractor shall notify, in writing, the Contractors' State License Board and the department of any payment less than the amount or percentage approved for the class or item of work as set forth in Section 10261. (b) Contracts entered into on or after January 1, 2010, shall be governed by Section 3260.05 of the Civil Code.   SEC. 9.   Section 10262.5 of the Public Contract Code is amended to read: 10262.5. (a) Notwithstanding any other provision of law, with respect to contracts entered into prior to January 1, 2010, a prime contractor or subcontractor shall pay to any subcontractor, not later than 10 days of receipt of each progress payment, the respective amounts allowed the contractor on account of the work performed by the subcontractors, to the extent of each subcontractor's interest therein. In the event that there is a good faith dispute over all or any portion of the amount due on a progress payment from the prime contractor or subcontractor to a subcontractor, then the prime contractor or subcontractor may withhold no more than 150 percent of the disputed amount. Any contractor who violates this section shall pay to the subcontractor a penalty of 2 percent of the amount due per month for every month that payment is not made. In any action for the collection of funds wrongfully withheld, the prevailing party shall be entitled to his or her attorney's fees and costs. (b) This section shall not be construed to limit or impair any contractual, administrative, or judicial remedies otherwise available to a contractor or a subcontractor in the event of a dispute involving late payment or nonpayment by a contractor or deficient subcontract performance or nonperformance by a subcontractor. (c) On or before September 1 of each year, the head of each state agency shall submit to the Legislature a report on the number and dollar volume of written complaints received from subcontractors and prime contractors on contracts in excess of three hundred thousand dollars ($300,000), relating to violations of this section. (d) Contracts entered into on or after January 1, 2010, shall be governed by Section 3260.05 of the Civil Code.