Bill Text: CA AB536 | 2013-2014 | Regular Session | Amended

NOTE: There are more recent revisions of this legislation. Read Latest Draft

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Bill Title: Contractors: payments.

Spectrum: Partisan Bill (Republican 1-0)

Status: (Introduced - Dead) 2014-02-03 - From committee: Filed with the Chief Clerk pursuant to Joint Rule 56. [AB536 Detail]

Download: California-2013-AB536-Amended.html

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BILL NUMBER: AB 536	AMENDED
	BILL TEXT

	AMENDED IN ASSEMBLY  APRIL 8, 2013

INTRODUCED BY   Assembly Member Wagner

                        FEBRUARY 20, 2013

   An act to amend Section 7108.5 of the Business and Professions
Code, to amend Sections 8800, 8802, 8812,  and  8814
 , and 8818  of the Civil Code, and to amend
Sections 7107 and 10262.5 of the Public Contract Code, relating to
contracts.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 536, as amended, Wagner. Contractors: payments.
   Existing law allows specified persons to withhold  for
  from  a contractor or subcontractor no more than
150% of the disputed amount if there is a good faith dispute over the
amount due on a contract payment.
   This bill would exclude specified amounts from being considered
disputed amounts  and would provide that the authorized
withholding is not wrongfully withheld  .
   Vote: majority. Appropriation: no. Fiscal committee: no.
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) A prime contractor or subcontractor shall pay to any
subcontractor, not later than seven days after 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, the prime
contractor or subcontractor may withhold no more than 150 percent of
the disputed amount.
   (b) Any violation of this section shall constitute a cause for
disciplinary action and shall subject the licensee to a penalty,
payable to the subcontractor, of 2 percent of the amount due per
month for every month that payment is not made.  The amount
withheld pursuant to subdivision (a) is not a violation of this
section and is not an amount due for purposes of this section.

   (c) In any action for the collection of funds wrongfully withheld,
the prevailing party shall be entitled to his or her 
attorney's   attorneys'  fees and costs. 
The amount withheld pursuant to subdivision (a) is not wrongfully
withheld. 
   (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.
   (f) For purposes of this section, a "disputed amount" shall not
include any of the following: 
   (1) Any amount in excess of liquidated damages owed by the
subcontractor.  
   (2) Any amount in excess of what the prime contractor or
subcontractor is allowed by law to withhold from the subcontractor on
account of a mechanics lien being recorded or a stop payment notice
being served for labor, services, equipment, or materials allegedly
provided to the project.  
   (1) With respect to liquidated damages assessed by the owner
against the prime contractor, any amount in excess of the liquidated
damages that are owed by the subcontractor.  
   (2) With respect to mechanics liens and stop payment notices for
which the subcontractor is responsible, any amount in excess of what
the owner is permitted by law to withhold from the prime contractor
on account of the mechanics lien or stop payment notice. 
   (3) The amount of any claim for additional compensation 
arising out of alleged extra work performed by the subcontractor or
an alleged breach of contract  by the  prime
contractor or  subcontractor  against the prime
contractor  .
  SEC. 2.  Section 8800 of the Civil Code is amended to read:
   8800.  (a) Except as otherwise agreed in writing by the owner and
direct contractor, the owner shall pay the direct contractor, within
30 days after notice demanding payment pursuant to the contract is
given, any progress payment due as to which there is no good faith
dispute between them. The notice given shall comply with the
requirements of Chapter 2 (commencing with Section 8100) of Title 1.
   (b) If there is a good faith dispute between the owner and direct
contractor as to a progress payment due, the owner may withhold from
the progress payment an amount not in excess of 150 percent of the
disputed amount.
   (c) An owner that violates this section is liable to the direct
contractor for a penalty of 2 percent per month on the amount
wrongfully withheld, in place of any interest otherwise due. In an
action for collection of the amount wrongfully withheld, the
prevailing party is entitled to costs and  a 
reasonable  attorney's fee   attorneys' fees
 .  The amount withheld pursuant to subdivision (b) is
not a violation of this section and is not wrongfully withheld.

   (d) This section does not supersede any requirement of Article 2
(commencing with Section 8810) relating to the withholding of a
retention.
   (e) For purposes of this section, a "disputed amount" shall not
include any of the following: 
   (1) Any amount in excess of liquidated damages owed by the direct
contractor.  
   (2) Any amount in excess of what the owner is allowed by law to
withhold from the direct contractor on account of a mechanics lien
being recorded or a stop payment notice being served for labor,
services, equipment, or materials allegedly provided to the project.
 
   (1) With respect to liquidated damages assessed by the owner, any
amount in excess of the liquidated damages assessment.  
   (2) With respect to mechanics liens and stop payment notices, any
amount in excess of what the owner is permitted by law to withhold
from the direct contractor on account of the mechanics lien or stop
payment notice. 
   (3) The amount of any claim for additional compensation 
arising out of alleged extra work performed  by the direct
contractor  or an alleged breach of contract by 
 against  the owner.
  SEC. 3.  Section 8802 of the Civil Code is amended to read:
   8802.  (a) This section applies to a contract between a public
utility and a direct contractor for all or part of a work of
improvement.
   (b) Unless the direct contractor and a subcontractor otherwise
agree in writing, within 21 days after receipt of a progress payment
from the public utility the direct contractor shall pay the
subcontractor the amount allowed the direct contractor on account of
the work performed by the subcontractor to the extent of the
subcontractor's interest in the work. If there is a good faith
dispute over all or part of the amount due on a progress payment from
the direct contractor to a subcontractor, the direct contractor may
withhold an amount not in excess of 150 percent of the disputed
amount.
   (c) A direct contractor that violates this section is liable to
the subcontractor for a penalty of 2 percent of the disputed amount
due per month for every month that payment is not made. In an action
for collection of the amount wrongfully withheld, the prevailing
party is entitled to costs and  a  reasonable
 attorney's fee   attorneys' fees  .
 The amount withheld pursuant to subdivision (b) is not a
violation of this section and is not wrongfully withheld. 
   (d) This section does not limit or impair a contractual,
administrative, or judicial remedy otherwise available to a
contractor or subcontractor in a dispute involving late payment or
nonpayment by the contractor or deficient performance or
nonperformance by the subcontractor.
   (e) For purposes of this section, a "disputed amount" shall not
include any of the following: 
   (1) Any amount in excess of liquidated damages owed by the
subcontractor.  
   (2) Any amount in excess of what the direct contractor is allowed
by law to withhold from the subcontractor on account of a mechanics
lien being recorded or a stop payment notice being served for labor,
services, equipment, or materials allegedly provided to the project.
 
   (1) With respect to liquidated damages assessed by the public
utility against the direct contractor, any amount in excess of the
liquidated damages that are owed by the subcontractor.  
   (2) With respect to mechanics liens and stop payment notices for
which the subcontractor is responsible, any amount in excess of what
the public utility is permitted by law to withhold from the direct
contractor on account of the mechanics lien or stop payment notice.

   (3) The amount of any claim for additional compensation 
arising out of alleged extra work performed by the subcontractor or
an alleged breach of contract by the direct contractor. 
 by the subcontractor against the direct contractor. 
  SEC. 4.  Section 8812 of the Civil Code is amended to read:
   8812.  (a) If an owner withholds a retention from a direct
contractor, the owner shall, within 45 days after completion of the
work of improvement, pay the retention to the contractor.
   (b) If part of a work of improvement ultimately will become the
property of a public entity, the owner may condition payment of a
retention allocable to that part on acceptance of the part by the
public entity.
   (c) If there is a good faith dispute between the owner and direct
contractor as to a retention payment due, the owner may withhold from
final payment an amount not in excess of 150 percent of the disputed
amount. This withheld amount shall not be considered wrongfully
withheld.
   (d) For purposes of this section, a "disputed amount" shall not
include any of the following: 
   (1) Any amount in excess of liquidated damages owed by the direct
contractor.  
   (2) Any amount in excess of what the owner is allowed by law to
withhold from the direct contractor on account of a mechanics lien
being recorded or a stop payment notice being served for labor,
services, equipment, or materials allegedly provided to the project.
 
   (1) With respect to liquidated damages assessed by the owner, any
amount in excess of the liquidated damages assessment. 
   (2) With respect to mechanics liens and stop payment notices, any
amount in excess of what the owner is permitted by law to withhold
from the direct contractor on account of the mechanics lien or stop
payment notice. 
   (3) The amount of any claim for additional compensation 
arising out of alleged extra work performed  by the direct
contractor or an alleged breach of contract by  
against  the owner.
  SEC. 5.  Section 8814 of the Civil Code is amended to read:
   8814.  (a) If a direct contractor has withheld a retention from
one or more subcontractors, the direct contractor shall, within 10
days after receiving all or part of a retention payment, pay to each
subcontractor from whom retention has been withheld that
subcontractor's share of the payment.
   (b) If a retention received by the direct contractor is
specifically designated for a particular subcontractor, the direct
contractor shall pay the retention payment to the designated
subcontractor, if consistent with the terms of the subcontract.
   (c) If a good faith dispute exists between the direct contractor
and a subcontractor, the direct contractor may withhold from the
retention to the subcontractor an amount not in excess of 150 percent
of the estimated value of the disputed amount.  This
withheld amount shall not be considered wrongfully withheld.

   (d) For purposes of this section, a "disputed amount" shall not
include any of the following: 
   (1) Any amount in excess of liquidated damages owed by the
subcontractor.  
   (2) Any amount in excess of what the direct contractor is allowed
by law to withhold from the subcontractor on account of a mechanics
lien being recorded or a stop payment notice being served for labor,
services, equipment, or materials allegedly provided to the project.
 
   (1) With respect to liquidated damages assessed by the owner
against the direct contractor, any amount in excess of the liquidated
damages that are owed by the subcontractor.  
   (2) With respect to mechanics liens and stop payment notices for
which the subcontractor is responsible, any amount in excess of what
the owner is permitted by law to withhold from the direct contractor
on account of the mechanics lien or stop payment notice. 
   (3) The amount of any claim for additional compensation 
arising out of alleged extra work performed  by the
subcontractor  or an alleged breach of the subcontract by
  against  the direct contractor. 
  SEC. 6.    Section 8818 of the Civil Code is
amended to read:
   8818.  If an owner or direct contractor does not make a retention
payment within the time required by this article:
   (a) The owner or direct contractor is liable to the person to
which payment is owed for a penalty of 2 percent per month on the
amount wrongfully withheld, in place of any interest otherwise due.
   (b) In an action for collection of the amount wrongfully withheld,
the prevailing party is entitled to costs and reasonable attorney's
fees.
   (c) Amounts authorized to be withheld pursuant to this article are
not a payment required to be made and are not wrongfully withheld.

   SEC. 7.   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, 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   attorneys'
 fees and costs.  Amounts authorized to be withheld
pursuant to this section are not a payment required to be made and
are not wrongfully withheld. 
   (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) For purposes of this section, a "disputed amount"  and
"bona fide dispute"  shall not include any of the following:

   (1) Any amount in excess of liquidated damages owed by the
original contractor.  
   (2) Any amount in excess of what the public entity is allowed by
law to withhold from the original contractor on account of a stop
payment notice being served for labor, services, equipment, or
materials allegedly provided to the project.  
   (1) With respect to liquidated damages assessed by the public
entity, any amount in excess of the liquidated damages assessment.
 
   (2) With respect to mechanics liens and stop payment notices for
which the subcontractor is responsible, any amount in excess of what
the owner is permitted by law to withhold from the prime contractor
on account of the mechanics lien or stop payment notice. 
   (3) The amount of any claim for additional compensation 
arising out of alleged extra work performed  by the original
contractor or  an alleged breach of contract by the public
entity.   subcontractor. 
   SEC. 8.   SEC. 7.   Section 10262.5 of
the Public Contract Code is amended to read:
   10262.5.  (a) (1) Notwithstanding any other law, a prime
contractor or subcontractor shall pay to any subcontractor, not later
than seven days after 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.
   (2) 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  
attorneys'  fees and costs.  The amount withheld
pursuant to paragraph (1) is not a violation of this section and is
not wrongfully withheld. 
   (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) For purposes of this section, a "disputed amount" shall not
include any of the following: 
   (1) Any amount in excess of liquidated damages owed by the
subcontractor.  
   (2) Any amount in excess of what the prime contractor or
subcontractor is allowed by law to withhold from the subcontractor on
account of a stop payment notice being served for labor, services,
equipment, or materials allegedly provided to the project. 

   (1) With respect to liquidated damages assessed by the public
entity against the prime contractor, any amount in excess of the
liquidated damages that are owed by the subcontractor.  
   (2) With respect to stop payment notices for which the
subcontractor is responsible, any amount in excess of what the public
entity is permitted by law to withhold from the prime contractor on
account of the stop payment notice. 
   (3) The amount of any claim for additional compensation 
arising out of alleged extra work performed by the subcontractor or
an alleged breach of the subcontract by the prime contractor or
subcontractor.   by the subcontractor against the prime
contractor.