When talking public projects, the Miller Act or Little Miller Acts are typically the subject of discussion. This is because the Miller Act and Little Miller Acts are pivotal in the protection of subcontractors and suppliers on public projects. However, these pieces of legislation do little to protect general contractors when payment disputes arise on public works. For general contractors, there are claims resolution processes in place that guide these disputes. Outside of these, a contractor must rely on contract claims against the public entity. Recently a new claims resolution process for California public projects went into effect that provides additional protection for contractors.
Public Contract Code 9204, previously “AB 626,” went into effect earlier this year.
Claim Resolution on California Public Projects
Before going any further, it should be noted that this legislation does NOT affect projects by these state organizations:
- The Department of Water Resources
- The Department of Transportation
- The Department of Parks and Recreation
- The Department of Corrections and Rehabilitation (with respect to any project pursuant to Chapter 11 of Title 7, Part 3 of the Penal Code)
- The Military Department
- The Department of General Services
- The High-Speed Rail Authority
All other public entities and their agencies are bound by the new resolution process. The rights under this process may not be waived. However, should the parties mutually agree, the mediation process may be skipped to enter into arbitration or a civil action. Further, a public entity may prescribe additional resolution procedures and requirements as long as they do not conflict or impair the timeframes and procedures prescribed under the process.
First, a claimant shall furnish reasonable documentation to support their claim. Upon the receipt of the claim, the public entity must conduct a reasonable review of the claim and provide a written statement to the claimant within 45 days identifying disputed and undisputed portions of the claim.
The contractor and public entity may extend the 45 day period upon mutual agreement. If the public entity must first secure approval from a governing body that does not meet within the prescribed 45 day period, the public entity will have up to 3 days following the next duly publicly noticed meeting of the governing body to provide its written statement.
Within 10 days of the conference, if the dispute has not been settled, the public entity must provide the claimant a written statement that identifies which portions of the claim remain in dispute and which are undisputed. Undisputed portions shall be processed and made within 60 days.
If a public entity fails to respond to a claim within the proper amount of time, the claim is assumed to be rejected in its entirety. If, following the public entity’s statement on disputed and undisputed claims, a contractor finds that disputed claims remain, the contractor must notify the public entity in writing.
If the contractor disputes the public entity’s response, or if the public entity fails to provide a written response, the claimant may demand (in writing) an informal conference with the entity to try and settle the dispute. The public entity shall schedule such a conference within 30 days.
Should the disputed claims remain following the informal conference, disputed claims will be submitted to nonbonding mediation for which the contractor and public entity will share the cost. If the parties cannot agree on a mediator within 10 business days, each party will provide a mediator at their own cost. These mediators will then select a third party mediator to preside over the resolution, for which the parties will share the cost.
If the dispute is not resolved through mediation, the remaining claims will be subject to other statutory and contractual remedies.
Accrual of Interest
All amounts not paid in a timely manner throughout this process will accrue interest at 7% per year.
A contractor may present a claim on behalf of a subcontractor or lower tier subcontractor through this process as well. A subcontractor may request, in writing, that the contractor present their claim or a claim on behalf of a lower tiered subcontractor. Reasonable documentation must be included to support any claim. Within 45 days, a contractor must notify the subcontractor or lower tier sub (in writing) whether the contractor has presented the claim to the public entity.
For a good illustration of this process, scroll to the bottom of United Contractors’ breakdown.
While a large number of California public projects are excluded, this is big news. By filing a surety bond claim, a subcontractor or supplier receives protection similar to that of a mechanics lien when working on public projects. However, a general contractor is left to its own devices. Under this process for resolving payment disputes between contractors and public entities, there is a very structured path to payment. What’s more, subcontractors and suppliers who have gone unpaid, but not at the fault of a contractor, now have an opportunity to work with that contractor to put the pressure on a public entity. Effectively, this process calls for greater communication and transparency during payment disputes, and that is a step in the right direction towards a construction payment utopia.
For more on California construction topics, check out our California tag on the blog or head over to our California Construction Payment Resources. For more on public projects, we’ve got you covered with the Public Projects tag on the blog.