Legal Alerts Dec 02, 2016

Claims Resolution Procedure Changes

Public Works Contract Disputes Impacted by New California Law

Claims Resolution Procedure Changes

Claims resolution procedures for public contracts in California will change under a new law that takes effect Jan. 1. Assembly Bill 626, recently signed by Gov. Jerry Brown, establishes a claims resolution process applicable to any contractor claim, as defined, filed in connection with a public works project for contracts entered into on or after Jan. 1, 2017.

Public Contract Code section 20104, which remains in place and establishes a dispute resolution procedure for local agencies, only applies to public works claims of $375,000 or less; however, AB 626 will apply to all public works claims, regardless of the amount.

Within 45 days of receipt of any claim, AB 626 requires specified public entities to provide a written statement to the claimant identifying the disputed and undisputed portions of the claim. If a written response is not timely issued, the entire claim is deemed rejected. If the claimant disputes the public entity’s response, the claimant may demand a meet-and-confer conference, and any portion of the claim that the parties continue to dispute following the conference is subject to nonbinding mediation.

Payment due on undisputed portions of a claim must be processed within 60 days, and unpaid claim amounts accrue interest at 7 percent per annum. AB 626 also establishes a formal process for subcontractors and lower tier subcontractors that lack standing to assert claims to request the prime contractor to pass through claims, and imposes requirements on the prime contractor with regard to any such requests. AB 626 does not affect other existing claims resolution procedures, such as the Government Claims Act.

Moving forward, this process must be included in the plans or specifications for all public works projects. Best Best & Krieger LLP will issue additional, detailed guidance to clients regarding incorporating these provisions into contract documents. If you have any questions about this legislation or how it may impact your agency, please contact the attorney authors of this Legal Alert, or your BB&K attorney.

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Disclaimer: BB&K Legal Alerts are not intended as legal advice. Additional facts or future developments may affect subjects contained herein. Seek the advice of an attorney before acting or relying upon any information in this communiqué.

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