HomeMy WebLinkAboutMINUTES - 04142015 - C.32RECOMMENDATION(S):
OPPOSE AB 1347 (Chiu): Public Contracts Claims Process, a bill that establishes for state and local public contracts
entered into or on or after January 1, 2016, a claim resolution process applicable to all public entity contracts, as
recommended by the Public Works Director.
AUTHORIZE the County Administrator's Office to send a letter to the author communicating the "oppose" position
of the Board of Supervisors on the bill.
FISCAL IMPACT:
Unknown.
BACKGROUND:
The California State Association of Counties (CSAC) is opposed to AB 1347, by Assembly Member David Chiu,
which would mandate a new overly-broad claims resolution process on all public contracts with unfeasible timelines,
disproportionate requirements and remedies, and it is duplicative of existing processes in current public contracts.
Moreover, this measure would force taxpayers to bear the costs when a contractor has failed to fully vet and
understand the terms of a contract with a public agency, especially including any terms related to claims resolution
procedures. The County Public Works Director concurs with opposition to this bill. (See
APPROVE OTHER
RECOMMENDATION OF CNTY ADMINISTRATOR RECOMMENDATION OF BOARD COMMITTEE
Action of Board On: 04/14/2015 APPROVED AS RECOMMENDED OTHER
Clerks Notes:
VOTE OF SUPERVISORS
AYE:John Gioia, District I
Supervisor
Candace Andersen, District II
Supervisor
Mary N. Piepho, District III
Supervisor
Karen Mitchoff, District IV
Supervisor
ABSENT:Federal D. Glover, District V
Supervisor
Contact: L. DeLaney, 925-335-1097
I hereby certify that this is a true and correct copy of an action taken and entered on the minutes of the
Board of Supervisors on the date shown.
ATTESTED: April 14, 2015
David Twa, County Administrator and Clerk of the Board of Supervisors
By: June McHuen, Deputy
cc:
C. 32
To:Board of Supervisors
From:David Twa, County Administrator
Date:April 14, 2015
Contra
Costa
County
Subject:Oppose Position on AB 1347 (Chiu) Public Contracts Claims Process
BACKGROUND: (CONT'D)
Attachment.)
This is the CSAC housing, land use, and transportation policy area’s highest-priority oppose bill right now. CSAC
encourages all counties to review this measure and consider taking an oppose position as well. The bill is set for
hearing before the Assembly Accountability and Administrative Review Committee on Wednesday, April 15.
Duplicative Requirements. Counties already include a clearly defined claims resolution process in public
contracts. Public contracts also define how and when a public agency will respond to requests for information. In
the case of road projects, many counties use the California Department of Transportation’s Standard
Specifications, which includes a claims resolution process that has been refined and improved over decades and
used countless times. Importantly, whether it is the Caltrans process or another mechanism, a dispute resolution
processes agreed to by both parties through the execution of a mutually agreed-upon contract inherently results in
a process that is fair to both parties. This measure would instead skew the process in favor of contractors by
adding additional burdens, paperwork, and process with no public benefit.
Overly Broad. AB 1347 would apply to a “written demand or assertion,” which is defined as “a request for
modification, contract amendment, or change order, seeking an adjustment or interpretation of the terms of the
contract documents, payment of money, extension of time, or other relief, including a determination of disputes or
matters arising out of, or related to, the contract documents or the performance of work on a public contract.” This
list includes a majority of the interactions between public agencies and contractors. It would not only be
impossibly burdensome and unrealistic, but also costly and time consuming to have to communicate via certified
mail for all of the aforementioned exchanges. Moreover, contracts should be vetted, reviewed, and fully
understood by both parties prior to execution. It defeats the purpose of having a contract at all if one party can
unilaterally change the content and administration of a contract after the final agreement and signatures.
One-Sided and Unfeasible Timelines. The measure would require public agencies to complete certain actions
within unworkably rigid timelines without imposing similar burdens on contractors. First, an agency would have
to respond to a written demand within 30 days addressing what portions of the claim are disputed or undisputed.
Public contracts vary in terms of size, scope and complexity. The timeline set forth in AB 1347 does not account
for differences among the variety of contracts public agencies enter into. Furthermore, counties often receive
claims with very little—sometimes no— supporting data at all. At the very least, any timeline in statute should
only start once the agency receives sufficient supporting data to ascertain the veracity of the claim.
Second, AB 1347 would require payment due on any undisputed portion of the claim to be made within seven
days after the public agency issues its written response to a written demand or assertion. This timeline is much
shorter than current prompt payment law, which requires public agencies to make a progress payments within 30
days after receipt of an undisputed and properly submitted payment request (Government Code §20104.50). Even
the largest and most sophisticated public agencies are unable to process a payment within seven days. The
treasurers of smaller public agencies may only issue treasury warrants on a bi-weekly basis. Given their fiduciary
duties as stewards of taxpayer money, public agencies have procedures in place to ensure that any payments are
made and accounted for properly. Imposing arbitrarily-short timeframes on payments would erode well-warranted
protections on the expenditure of taxpayer funds.
Usurious Interest Rate. If a public agency failed to respond to a written demand, AB 1347 would apply a 10
percent per annum. This rate is inflated above current rates than can be obtained in interest-bearing accounts,
especially considering the well-warranted limitations on types of accounts in which county treasurers may deposit
public funds. We further find this provision to be redundant, as public agencies define the amount of interest to be
paid and how it will be calculated in existing contract specifications. These provisions are tied to the requirement
of timely payments to the contractor. Indeed, in some cases counties do pay interest on late payments as outlined
in the mutually agreed-upon public contract specifications.
Deemed Approved. Especially given the aforementioned concerns with the timelines proscribed in the bill,
deeming a contract approved in its entirety is a significant overreach. However, even with more appropriate
deeming a contract approved in its entirety is a significant overreach. However, even with more appropriate
timelines, deeming a contract approved just because of a missed deadline, puts the public agency, at ultimately
the tax payers, at financial risk.
Nonbinding Mediation. Counties appreciate efforts to find resolution of disputes outside of the court system,
however, because mediation is nonbinding, one party can always object to the outcome if the proceedings go
badly from their perspective. Nonbinding mediation has the potential to add additional time and cost to the public
contracting process, but for intractable disputes would yield the same outcome: a final decision being made in
court.
False Claims Act Exemption. AB 1347 would exempt claims made under this act from the False Claims Act
(Government Code §12650). The False Claims Act is a public agency’s primary tool to address fraud against
government. It is nonsensical to exempt claims made to a government from one of the most important tools local
governments have to protect the public’s money against false claims.
Overall, CSAC is very concerned with the new claims resolution process envisioned by AB 1347 as it will only
add time and squander taxpayer funding by usurping a process that works well a significant majority of the time.
Under the framework envisioned by AB 1347, counties completing public works projects would be distracted
from their primary responsibility to protect the public’s investment in infrastructure by ensuring that projects are
built to an acceptable standard of quality and at a reasonable cost. Instead, counties would be bogged down in
contract review, responding to written demands or assertions on extremely tight timelines, and fearing interest
penalties. Finally, the existing claims process within public contracts works well: contractors have the obligation
to substantiate their claims, while public agencies are bound to be fair and reasonable stewards of taxpayer funds.
To the extent that any adjustments are needed to the existing processes, principles of subsidiarity and good sense
would dictate that contractors should address the rare issue with a specific dispute resolution procedure prior to
executing a binding contract with a public agency.
CONSEQUENCE OF NEGATIVE ACTION:
The Board of Supervisors would not have an adopted position on this bill from which to advocate.
ATTACHMENTS
Bill Text AB 1347
Draft Oppose Letter
california legislature—2015–16 regular session
ASSEMBLY BILL No. 1347
Introduced by Assembly Member Chiu
(Coauthor: Assembly Member Frazier)
February 27, 2015
An act to add Section 9204 to the Public Contract Code, relating to
public contracts.
legislative counsel’s digest
AB 1347, as introduced, Chiu. Public contracts: claims.
(1) Existing law prescribes various requirements regarding the
formation, content, and enforcement of state and local public contracts.
Existing law applicable to state public contracts generally requires that
the resolution of claims related to those contracts be subject to
arbitration. Existing law applicable to local agency contracts prescribes
a process for the resolution of claims related to those contracts of
$375,000 or less.
This bill would establish, for contracts entered into on or after January
1, 2016, a claim resolution process applicable to all public entity
contracts. The bill would define a claim as a contractor’s written demand
or assertion, including a request for a modification, contract amendment,
or change order, seeking an adjustment or interpretation of the terms
of the contract documents, payment of money, extension of time, or
other relief, including a determination of disputes or matters arising out
of, or related to, the contract documents or the performance of work on
a public work.
The bill would require a public entity, upon receipt of a claim sent
by registered mail, to review it and, within 30 days, provide a written
statement addressing what parts of the claim are disputed and what parts
99
are undisputed. The bill would require any payment due on an
undisputed portion of the claim to be processed within 7 days, as
specified. The bill would provide an alternative procedure if the public
entity fails to issue the written statement and would require that the
claim be deemed approved in its entirety. The bill would require disputed
parts of the claim to be subject to nonbinding mediation. The bill would
provide that unpaid claim amounts accrue interest at a statutorily
prescribed rate. The bill would proscribe a procedure by which a
subcontractor or lower tier contractor may make a claim through the
contractor. The bill would require that the text of these provisions or a
summary of them to be set forth in the plans or specifications for any
public work which may give rise to a claim. The bill would except these
provisions from laws relating to false claims. The bill would specify
that a waiver of the rights granted by its provisions is void and contrary
to public policy. By increasing the duties of local agencies and officials,
this bill would impose a state-mandated local program.
(2) The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the state.
Statutory provisions establish procedures for making that reimbursement.
This bill would provide that, if the Commission on State Mandates
determines that the bill contains costs mandated by the state,
reimbursement for those costs shall be made pursuant to these statutory
provisions.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: yes.
The people of the State of California do enact as follows:
line 1 SECTION 1. Section 9204 is added to the Public Contract
line 2 Code, to read:
line 3 9204. (a) The Legislature finds and declares that it is in the
line 4 best interests of the state and its citizens to ensure that all
line 5 construction business performed on public works in the state that
line 6 is complete and not in dispute is paid in full and in a timely manner.
line 7 (b) Notwithstanding any other law, including, but not limited
line 8 to, Article 7.1 (commencing with Section 10240) of Chapter 1 of
line 9 Part 2, Chapter 10 (commencing with Section 19100) of Part 2,
line 10 and Article 1.5 (commencing with Section 20104) of Chapter 1 of
line 11 Part 3, this section shall apply to all claims by contractors in
line 12 connection with public works.
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— 2 —AB 1347
line 1 (c) For purposes of this section:
line 2 (1) “Claim” means a written demand or assertion by a contractor,
line 3 including a request for a modification, contract amendment, or
line 4 change order, seeking an adjustment or interpretation of the terms
line 5 of the contract documents, payment of money, extension of time,
line 6 or other relief, including a determination of disputes or matters
line 7 arising out of, or related to, the contract documents or the
line 8 performance of work on a public work.
line 9 (2) “Contractor” means any type of contractor within the
line 10 meaning of Chapter 9 (commencing with Section 7000) of Division
line 11 3 of the Business and Professions Code who has entered into a
line 12 direct contract with a public entity for public works.
line 13 (3) “Public entity” means, without limitation, a state agency,
line 14 department, office, division, bureau, board, or commission, the
line 15 California State University, the University of California, a city,
line 16 including a charter city, county, including a charter county, city
line 17 and county, including a charter city and county, district, special
line 18 district, public authority, political subdivision, public corporation,
line 19 or nonprofit transit corporation wholly owned by a public agency
line 20 and formed to carry out the purposes of the public agency.
line 21 (4) “Public works” has the meaning provided in Section 1720
line 22 of the Labor Code.
line 23 (5) “Subcontractor” means any type of contractor within the
line 24 meaning of Chapter 9 (commencing with Section 7000) of Division
line 25 3 of the Business and Professions Code who either is in direct
line 26 contract with a contractor or is a lower tier subcontractor.
line 27 (d) (1) Upon receipt of a claim sent by registered mail, the
line 28 public entity to which the claim applies shall conduct a reasonable
line 29 review of the claim and, within a period not to exceed 30 days,
line 30 shall provide the claimant a written statement identifying what
line 31 portion of the claim is disputed and what portion is undisputed.
line 32 Any payment due on an undisputed portion of the claim shall be
line 33 processed and made within seven days after the public entity issues
line 34 its written statement. If the public entity fails to issue a written
line 35 statement, paragraph (3) shall apply.
line 36 (2) Any disputed portion of the claim, as identified in writing,
line 37 shall be submitted to nonbinding mediation. The public entity and
line 38 contractor shall mutually agree to a mediator within 10 days after
line 39 the disputed portion of the claim has been identified in writing. If
line 40 the parties cannot agree upon a mediator, each party shall select a
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AB 1347— 3 —
line 1 mediator and those mediators shall select a qualified neutral third
line 2 party to mediate with regard to the disputed portion of the claim.
line 3 If either of the parties reject the mediator’s decision regarding all
line 4 or part of the disputed portion of the claim, the parts of the claim
line 5 remaining in dispute shall be subject to applicable procedures
line 6 outside this section.
line 7 (3) Failure by the public entity to respond to a claim from a
line 8 contractor within the 30-day period described in paragraph (1)
line 9 shall result in the claim being deemed approved in its entirety,
line 10 with the claim to be processed and paid within seven days from
line 11 the expiration of the 30-day period in paragraph (1) or as mutually
line 12 extended by the parties.
line 13 (4) Amounts not paid in a timely manner as required by this
line 14 section shall bear interest at the legal rate prescribed by subdivision
line 15 (a) of Section 685.010 of the Code of Civil Procedure.
line 16 (5) If a subcontractor or a lower tier subcontractor lacks legal
line 17 standings to assert a claim against a public entity because privity
line 18 of contract does not exist, the contractor may present to the public
line 19 entity a claim on behalf of a subcontractor or lower tier
line 20 subcontractor. A subcontractor may request in writing, either on
line 21 his or her own behalf or on behalf of a lower tier subcontractor,
line 22 that the contractor present a claim for work which was performed
line 23 by the subcontractor or by a lower tier subcontractor on behalf of
line 24 the subcontractor. The subcontractor requesting that the claim be
line 25 presented to the public entity shall furnish reasonable
line 26 documentation to support the claim. Within 45 days of receipt of
line 27 this written request, the contractor shall notify the subcontractor
line 28 in writing as to whether the contractor presented the claim to the
line 29 public entity and, if the original contractor did not present the
line 30 claim, provide the subcontractor with a statement of the reasons
line 31 for not having done so.
line 32 (e) The provisions of the California False Claims Act (Article
line 33 9 (commencing with Section 12650) of Chapter 6 or Part 2 of
line 34 Division 3 of Title 2 of Government Code) shall not apply to claims
line 35 made under this section.
line 36 (f) The text of this section or a summary of it shall be set forth
line 37 in the plans or specifications for any public works that may give
line 38 rise to a claim under this section.
line 39 (g) A waiver of the rights granted by this section is void and
line 40 contrary to public policy.
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— 4 —AB 1347
line 1 (h) This section applies to contracts entered into on or after
line 2 January 1, 2016.
line 3 SEC. 2. If the Commission on State Mandates determines that
line 4 this act contains costs mandated by the state, reimbursement to
line 5 local agencies and school districts for those costs shall be made
line 6 pursuant to Part 7 (commencing with Section 17500) of Division
line 7 4 of Title 2 of the Government Code.
O
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AB 1347— 5 —
The Board of Supervisors
County Administration Building
651 Pine Street, Room 106
Martinez, California 94553
John Gioia, 1st District
Candace Andersen, 2nd District
Mary N. Piepho, 3rd District
Karen Mitchoff, 4th District
Federal D. Glover, 5th District
April 20, 2015
The Honorable Rudy Salas Jr.
Chair, Assembly Accountability and Administrative Review
1020 N St #357
Sacramento, CA 95814
RE: AB 1347 (Chiu): Public Contracts Claims
As Introduced on February 27, 2015 – OPPOSE
Hearing 4/29/15
Dear Assembly Member Salas and Committee Members:
On behalf of the Contra Costa County Board of Supervisors, I write to convey our opposition to
Assembly Bill 1347.
Contra Costa County already includes a clearly defined claims resolution process in our public
contracts. In the case of road projects, we use the California Department of Transportation’s
Standard Specifications, which includes a claims resolution process that has been refined and
improved over decades and used countless times. In our building projects we include a claims
resolution process in our General Conditions on all contracts. Our contracts also define how and
when a public agency will respond to requests for information. A dispute resolution process
agreed to by both parties through the execution of a mutually agreed-upon contract inherently
results in a process that is fair to both parties.
AB 1347 would require public agencies to complete certain actions within rigid timelines. An
agency would have respond to a written demand within 30 days addressing what portions of the
claim are disputed or undisputed. This is problematic because public contracts vary in terms of
size, scope and complexity. The time needed to address a claim depends on the complexity of the
claim, type of project, completion time, financial impacts, etc. During the course of a project
there is generally an on-going discussion for any potential claim issues. Resolution is mutually
negotiated between the agency and the contractor. This process has worked well for Contra
Costa County in delivering projects.
AB 1347 would also require payment due on any undisputed portion of the claim to be made
within seven days after the public agency issues its written response to a written demand or
assertion. This timeline is much shorter than current prompt payment law which requires public
agencies to make a progress payments within 30 days after receipt of an undisputed and properly
submitted payment request (Government Code §20104.50). We have procedures in place in our
department finance systems and the County’s Auditor’s Office to ensure that payments are made
and accounted for properly. It is not possible to process a payment within seven days. Once a
David Twa
Clerk of the Board
and
County Administrator
(925) 335-1900
Contra
Costa
County
AB 1347 Pulic Contracts Claims
April 20, 2015
Page 2 of 2
claim is deemed to be payable, it is then written as a contract change order in same billing cycle
(30 day) and paid accordingly in that billing cycle.
The interest provision of AB 1347 is also concerning. If a public agency failed to respond to a
written demand, AB 1347 would apply interest at the legal rate prescribed by the Code of Civil
Procedure which is 10 percent per annum. This rate is inflated above current rates than can be
obtained in interest-bearing accounts, especially considering the well-warranted limitations on
types of accounts in which county treasurers may deposit public funds. Public agencies define
the amount of interest to be paid and how it will be calculated in existing contract specifications.
These provisions are tied to the requirement of timely payments to the contractor.
Deeming a claim approved in its entirety because the Public Agency failed to meet the
proscribed timelines is unreasonable. Some claims are not easy to resolve per proposed timelines
since the issues may be very complex and involve many entities such as design professionals,
sub-contractors, building officials and at times County Counsel for their input. Complex
situations will require meetings and conferences to fully understand the issues involved which
could take more time.
Nonbinding mediation is a mechanism that is appropriate for resolving some claim disputes.
However, requiring nonbinding mediation on any disputed portion of a claim is not reasonable
and has the potential to add additional time and cost to the public contracting process. Contra
Costa appreciates efforts to find resolution of disputes outside of the court system. However
mediation is nonbinding and one party can always object to the outcome. For intractable disputes
a final decision would be made in court.
AB 1347 would exempt claims made under this act from the False Claims Act (Government
Code §12650). The False Claims Act is a public agency’s primary tool to address fraud against
government and one of the most important tools local governments have to protect the public’s
money against false claims.
Overall, we are very concerned with the new claims resolution process envisioned by AB 1347.
The existing claims process within public contracts works well: contractors have the obligation
to substantiate their claims, while public agencies are bound to be fair. For these reasons, we
must oppose AB 1347. Please contact Julie Bueren, Public Works Director, if you would like to
discuss our position on this measure. She can be reached at 925-313-2000 or by e-mail at
jbuer@pw.cccounty.us.
Sincerely,
JOHN GIOIA
Chair, Board of Supervisors
cc: Members, Board of Supervisors
David Twa, County Administrator
Members, Assembly Accountability and Administrative Review
Julie Bueren, CCC Public Works Director
Cathy Christian, Nielsen Merksamer
Assembly Member Chiu