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NEW CONSTRUCTION LAWS FOR 2015
Over 4200 bills were introduced by the California Legislature in the 2013-2014 session. Below are summaries of some of the more important bills affecting contractors in their roles as contractors, effective January 1, 2015 unless otherwise noted.
Each of the summaries are brief, focusing on the gist of the bill, while most of the bills have additional provisions that are not mentioned. Links are provided to the full text of each of the bills for those wanting to know in detail the provisions of the new law. Lastly, reference is made to failed bills that are likely to be revisited next session.
Many other bills will impact contractors in other roles, such as being businesses, taxpayers, and employers. For changes in the laws affecting employers in 2015, please visit the Employment Law Notes page of the McLennon Law Corp. website.
This article was provided by Daniel F. McLennon of McLennon Law Corp. (MLC) Dan is the Chairman of the ASAC Government Relations Committee and a member of both the ASAC and Bay Area Chapter ASA Boards of Directors. Special thanks to ASAC Legislative Advocate Skip Daum of Capitol Communications Group for his assistance in sifting through and summarizing bills.
RETENTION CAP PROTECTION
5% retention cap loophole closed. AB 1705 (Williams D)
SB 293 last year capped, through the end of 2015, public works retention at 5% with certain exceptions including a finding by the public entity that the project is "substantially complex". Entities started immediately abusing this law by finding essentially every project to be "substantially complex". This law extends the operation of these provisions to January 1, 2018 and requires that the bid documents include details explaining the basis for any "substantially complex" finding. This transparency will allow contractors to challenge unfounded findings and enforce the 5% retention cap.
This bill was sponsored by ASA California -- scroll down for more information about it.
Design-build projects continue to gain ground in California.
New health care district authorized to use design-build. SB 268 (Gaines R)
Each health care district has specific duties and powers respecting the creation, administration, and maintenance of the districts, including to purchase, receive, take, hold, lease, use, and enjoy property of every kind and description within and without the limits of the district. This law authorizes the Last Frontier Health Care District to use this design-build process when contracting for the construction of a building and improvements directly related to a hospital or health facility building at the Modoc Medical Center.
Transit design-build authority extended. SB 1433 (Hill D)
The Local Agency Public Construction Act until January 1, 2015, authorizes a transit operator, as defined, to enter into a design-build contract, as specified. Current law requires certain information submitted in this regard to be provided under penalty of perjury. This law extends the authorization for a transit operator to enter into a design-build contract until January 1, 2017.
Specified deposits allowed lieu of surety payment bond. AB 1856 (Wilk R)
This law allows all bonds and notes of the United States or the State of California and cashier's checks, payable to the officer, to be deposited with the officer in lieu of a bond, as specified. Payment bond claimants may have to deal with the entity's contracting officer instead of a surety in event of nonpayment.
Prevailing Wage Contractor Protection
Contractor protected from late prevailing wage notice. AB 1939 (Daly D)
This law empowers a contractor to sue a private owner for increased costs, including labor costs, penalties, and legal fees incurred as a result of any decision by the Department of Industrial Relations, the Labor and Workforce Development Agency, or a court that classifies the project or any part thereof as a public work after bid acceptance, contract signing, or start of work, except under circumstances specified. This law shifts from contractor to owner the risk if improperly failing to classify the project as public work.
Public Works Builder's Risk Insurance
Notice of deductible on master builder's risk policy required. AB 2376 (Weber D)
This law requires public entities to outline in requests for bids or proposals the contractor's deductible under the Director of General Services' master builders' risk insurance program for state construction projects during construction.
CSLB gains site access and citation authority. SB 315 (Lieu D)
This law requires employers to grant free access to all places of labor to the CSLB's enforcement division when participating in the activities of the Joint Enforcement Strike Force on the Underground Economy. Further, the CSLB's authorized persons are empowered to issue written notices to appear in court.
Contractor license applicants must provide tax ID numbers. SB 1159 (Lara)
No later than January 1, 2016, this bill requires the State Contractors Licensing Board to require an applicant to provide the Board either an individual tax identification number or social security number if the applicant is an individual. The bill would require the CSLB to report to the Franchise Tax Board, and subject a licensee to a penalty, for failure to provide that information.
Prequalification process required for school lease-leasebacks. AB 1581 (Buchanan D)
Requires, until January 1, 2019, the lease instrument and the agreement with the lowest responsible bidder to include a requirement for the above-described prequalification questionnaire and financial statement requirements when the agreement is for a public project using moneys received pursuant to the Leroy F. Greene School Facilities Act of 1998 or moneys from future state school bonds that involves a projected expenditure of $1,000,000 or more. Requires a school district using lease-lease back construction procurement to use the same prequalification process as required for design-bid-build construction.
Raised threshold for competitive bidding on UC projects. SB 502 (Block D)
Current law provides that where the Regents of the University of California are of the view that a project of $100,000 or less does not require the application of all provisions of law relating to competitive bidding by the university, the regents shall solicit bids in writing and award the work to the lowest responsible bidder or reject all bids. This bill raises this dollar threshold for the cost of a project to $640,000. This bill contains other related provisions and other existing laws.
Gas Pipeline Work Notice
Gas pipeline work notice required. AB 1937 (Gordon)
Requires a gas corporation to provide not less than 3 working days' notice to a school or hospital prior to undertaking nonemergency excavation or construction of a gas pipeline when the work is located within 500 feet of the school or hospital.
Recycled Paving Materials
Recycled paving materials use requirements. AB 2355 (Levine)
Requires, by January 1, 2017, a local agency that has jurisdiction over a street or highway to 1) either adopt the standards developed by the Department of Transportation for recycled paving materials and for recycled base, sub-base, and pervious backfill materials, or 2) discuss at a regularly scheduled public hearing of the local agency's legislative or other governing body why the standards are not being adopted.
OSHA Safety Violations
OSHA violations abatement rules. AB 1634 (Skinner)
Enacts various provisions of law related to an employer's obligation to abate an alleged workplace safety and health hazard. Prohibits the Division of Occupational Safety and Health from granting for serious violations, abatement or credit for abatement unless the employer has abated the violation or has submitted a statement to the division in accordance with existing law, and would additionally require supporting evidence with the statement where necessary. The bill would authorize the division to grant such a modification only if the violation has been abated or the signed statement and supporting evidence is received within 10 working days after the end of the period fixed for abatement.
Failed Bills Likely to be Revisited
Los Angeles Unified School District: best value procurement: pilot. AB 1971 (Bocanegra D) Would establish a pilot program to authorize the Los Angeles Unified School District to use, before person, firm, or corporation that constructs a building to be leased and used by the school district upon a designated site, including, but not limited to, the prime contractor and, if used, electrical, mechanical, and plumbing subcontractors, to comply with theJanuary 1, 2017, a best value procurement method for bid evaluation and selection for public projects that exceed $1,000,000. The bill would establish various requirements applicable to the use of the best value procurement method under this authorization. These provisions would be repealed on January 1, 2020. This bill contains other related provisions.
Public contracts: change orders. AB 2471 (Frazier D)
Would require a public entity, as defined, when authorized to order changes or additions to the work in a public works contract awarded to the lowest bidder, to issue a change order promptly, and no later than 60 days after the extra work is performed and documentation has been submitted, as specified. The bill would, if this requirement is not met, make the public entity liable to the original contractor for the completed extra work.
(Updated January 15, 2015)
California Court Fixes One Problem -- Another Crops Up
Article Provided By ASAC Legal Counsel
E. Scott Holbrook, Jr.
Crawford & Bangs, LLP
Direct Dial 626.858.4207
I recently wrote that ASA and ASAC submitted to the California Supreme Court a request that the California Supreme Court review a recent California Court of Appeals ruling in Golden State Boring & Pipe Jacking, Inc. v. Eastern Municipal Water District that impacted Stop Payment Notice rights in California. I can happily report that the California Supreme Court de-certified this case. As a result subcontractors can continue to safely serve stop payment notices before the end of a construction project to protect their stop payment notice rights.
Unfortunately another case has recently been published that again impairs payment protection for subcontractors and as a result ASA and ASAC again submitted to the California Supreme Court a request that the California Supreme Court review the California Court of Appeals ruling in Moorefield Construction v. Intervest-Mortgage Investment Company.
This case implicates the California Constitutional Right to Mechanics Liens. The Court of Appeals ruled that a general contractor was allowed by contract to subrogate its mechanics lien rights despite specific language in then existing Civil Code Section 3262 that prohibited impairing lien rights. ASA wrote an amicus letter to the California Supreme Court because it is deeply concerned that allowing subordination of mechanics lien rights by contract has severe implications to payment protection in the construction industry and contrary to the intent of the California Mechanic's Lien laws threatens security for payment to all who improve real property.
The Court of Appeals read language in the statute that refers to "owner nor original contractor" as a single term as opposed to two separate classes of contracting parties forbidden from impairing lien rights. The Court of Appeals thus mistakenly ruled that the "other persons" whose rights could not be impaired referred to in the former Civil Code Section 3262 did not include general contractors. As a result the Court of Appeals overruled the trial court's ruling that invalidated a subordination agreement by Moorefield in the prime contract. The Court of Appeals stated that Moorefield, as a general contractor, was not protected by the prohibition against owners impairing lien rights. Instead, the Court ruled that "owner nor general contractor" in Civil Code Section 3262 should be read together to prohibit "owner" and "general contractor" from impairing "other persons" lien rights.
The current Civil Code Section 8122 has added the term "subcontractors" to the "owner nor general contractor" language that was in the former Civil Code Section 3262. The implication to the construction industry of the Court of Appeals decision here is that the Court of Appeals reasoning could be applied to the new Section 8122 to exclude "subcontractors" from "other persons" protected by the statute from having their lien rights impaired by contract.
By allowing subordination via contract in a prime contract, the Court of Appeals has removed any meaningful protection against impairing mechanics lien rights other than through the prescribed statutory release forms. Such an interpretation hopelessly undermines the public policy intended by California's Legislature and the California Constitution to secure payment protection and the public policy in favor of mechanics lien claimants in California's construction industry.
In the event the case is not de-certified or overruled, subcontractors will need to be aware of clauses in subcontracts that allow mechanics lien rights to be subordinated to lenders or others in the course of construction. The concern is that subordination clauses will become common place in future construction contracts which could greatly
 The Language of Civil Code Section 3262 was moved to Civil Code Section 8122 in the modification of Mechanic's Lien Laws that went into effect in 2012.
(Updated January 15, 2015)
Change is coming to the Construction Industry - Are you Ready?
We invite your company to "Get Ready for Success" by participating in the 3rd annual
California Subcontractors Legislative Conference
Tuesday, April 21, 2015
8:30 a.m. - 4:30 p.m.
Sheraton Grand Sacramento Hotel
1230 J Street, Sacramento CA 95814
More details available soon!
(Updated January 15, 2015)
ASAC's Assembly Bill 1705 Signed by Governor !
In January of 2014 ASAC asked Assembly Member Das Williams (D, Santa Barbara) to author a bill that would close a loophole that was inadvertently created by another bill last session and which harmed subcontractors. We're very grateful that he championed the bill which Governor Brown signed.
That former bill, Senate Bill 293, limited retention to 5% on public projects. That is however, unless the project was deemed to be "sufficiently complex". Theoretically, a complex project would assume more risk. Also, that bill's retention cap policy was to expire in 2016.
But, no sooner did that bill become effective then small school districts began declaring routine and simple projects to be "sufficiently complex" (SC) and thereby getting more than 5% retainage.
AB 1705 corrected this intentional evasion of the legislature's intent. 1705 requires that the bid documents include details explaining the basis for the project owner's finding that a project is "SC", in addition to the actual retention amount. The owner shall also describe why it is a unique project that is not regularly, customarily, or routinely performed by the agency or licensed contractors. In addition, we extended the policy of 5% retention until 2018.
During the hearing process, several public agencies reappeared to fight 1705 and the 5% cap. But, they were merely fighting the same old battle which they lost when SB 293 was going through the legislature. So, subcontractors prevailed.
This is an example of ASAC taking the initiative to represent all sub-trades, both union and merit shop companies. ASAC was very capably helped by NECA and CalSMACNA which offered to co-sponsor the bill. In addition, ASAC member companies responded to our grassroots alert; you can see their names below. The industry teamwork paid off!
Consider attending ASAC's next Chapter meeting to learn more. Click here for a bill fact sheet.
These companies sent letters to the Governor and copied ASAC:
(Updated January 15, 2015)
ASAC Appreciates YOUR Help!
Once again as we work in a very active legislative session, ASAC leaders anticipate your doing your part, helping our Subcontractor community when we ask for your letters and phone calls.
Remember -- We only ask when we truly believe your efforts will be influential in determining the direction a bill or movement heads.
Those efforts do make a difference! There's strength in numbers!!!!!
Notes on the ASAC Website Layout: The American Subcontractors Association of California (ASAC) website is divided into the sections covering ASAC strengths as an association. We have our Legislative Advocacy program tracking and developing the new construction laws in Sacramento. The ASAC, also, is very fortunate to have a Judicial Advocacy program run by the finest construction attorneys up and down California to follow and try the latest construction cases in California's courts. And, lastly, ASAC has an expanding Benefits program from insurance offerings, to the website which has been developed to help keep subcontractors and suppliers informed of the latest construction issues affecting their daily business.