NEW YEAR = NEW RULES
California Public Contract Code section 9204 (PCC § 9204”) took effect January 1, 2017, and has significantly changed the public works’ claim process. California contractors need to familiarize themselves with these new provisions.
Prior to the adoption of PCC §9204, there was no consistency between public entities for claims dispute resolution. Contracts for public works projects often vary greatly. The law did not require a public entity to make timely payments for claims for extra work – even when the entity had requested the work, approved the work, and acknowledged payment was owed for the work. This unregulated framework impacted not only prime contractors but also lower tier subcontractors. With this backdrop, California Legislature enacted Section 9204 to ensure timely and full payment for all undisputed construction work on public works projects.
Contractor’s Claim
PCC § 9204 provides, for all contracts entered into on or after January 1, 2017, a claims resolution process applicable to any claim by a contractor on a public works project, including claims for: (i) a time extension, including, without limitation, for relief from damages or penalties for delay; (ii) money or damages arising from work done by, or on behalf of, the contractor and payment for which is not otherwise expressly provided or to which the claimant is not otherwise entitled; and (iii) payment of an amount that is disputed by the public entity. PCC § 9204 applies to all public works of improvement for all public agencies, with the exception of projects under the jurisdiction of the Department of Water Resources, the Department of Transportation, the Department of Parks and Recreation, the Department of Corrections and Rehabilitation, the Military Department, the Department of General Services, and the High-Speed Rail Authority. Claims must be sent by registered or certified mail with return receipt requested, and the claimant shall furnish reasonable documentation to support the claim.
Public Entity 45 Day Review Period
Upon receipt of a claim, the public entity shall conduct a reasonable review of the claim and, within a period not to exceed 45 days, shall provide the claimant a written statement identifying what portion of the claim is disputed and what portion is undisputed. Upon receipt of the demand, the contractor and the public entity may mutually agree to extend the 45 day timeframe. Should the public entity require approval from its governing body to provide the claimant a written statement, and the governing body does not meet within the 45 days or within the mutually agreed to extension of time, the public entity shall have up to three days following the next duly publicly noticed meeting of the governing body after the 45-day period, or extension, expires to provide the claimant a written statement. Any payment due on an undisputed portion of the claim shall be processed and made within 60 days after the public entity issues its written statement.
Contractor’s Demand for Informal Settlement Conference
Failure by the public entity to respond to a claim from a contractor within the time periods described in this subdivision or to otherwise meet the time requirements of this section shall result in the claim being deemed rejected in its entirety. If the claimant disputes the public entity’s written response, or if the public entity fails to respond, the claimant may demand in writing an informal conference to meet and confer for settlement of the issues in dispute. Upon receipt of a such demand, the public entity shall schedule a meet and confer conference within 30 days for settlement of the dispute. Within 10 business days following the conclusion of the meet and confer conference, if the claim or any portion of the claim remains in dispute, the public entity shall provide the claimant a written statement identifying the portion of the claim that remains in dispute and the portion that is undisputed. Any payment due on an undisputed portion of the claim shall be processed and made within 60 days after the public entity issues its written statement.
Nonbinding Mediation
Any disputed portion of the claim that remains, as identified by the contractor in writing, shall be submitted to nonbinding mediation, with the public entity and the claimant sharing the associated costs equally. The public entity and claimant shall mutually agree to a mediator within 10 business days after the disputed portion of the claim has been identified in writing. If the parties cannot agree upon a mediator, each party shall select a mediator and those mediators shall select a qualified neutral third party to mediate with regard to the disputed portion of the claim. If mediation is unsuccessful, the parts of the claim remaining in dispute shall be subject to applicable procedures outside this section.
Subcontractor Claims
If a subcontractor or a lower tier subcontractor lacks legal standing to assert a claim against a public entity, the contractor may present to the public entity a claim on behalf of a subcontractor or lower tier subcontractor. A subcontractor may request in writing, either on his or her own behalf or on behalf of a lower tier subcontractor, that the contractor present a claim for work which was performed by the subcontractor or by a lower tier subcontractor on behalf of the subcontractor. The subcontractor requesting that the claim be presented to the public entity shall furnish reasonable documentation to support the claim. Within 45 days of receipt of this written request, the contractor shall notify the subcontractor in writing as to whether the contractor presented the claim to the public entity and, if the original contractor did not present the claim, provide the subcontractor with a statement of the reasons for not having done so
The Contractor’s Enforcement Rights
No law is complete without a motive for compliance and / or a means to enforce it. Generally speaking, the size of the stick directly correlates to the level of compliance. Under PCC § 9204, a public entities failure to comply results in 7% interest accruing on all unpaid claim amounts. Of course, to actually recover the 7% penalty, a contractor likely will have to prove its case in subsequent litigation or arbitration proceedings. The better outcome – the one envisioned by the California Legislature and the impetus for passing PCC § 9204 in the first place – is that public entities will now have the necessary motivation to pay contractor’s claims in a timely manner.
Conclusion
No law is perfect, but PCC § 9204 is a step in the right direction to give contractor’s rights to undisputed payments, and to prevent public entities from holding undisputed funds hostage. As always, if you have any questions or concerns regarding your claim rights, this claim procedure or any legal matter, feel free to contact SMTD Law LLP at info@smtdlaw.com.