April 17, 2017
I. Summary
Public works contracts entered into between January 1, 2017 and January 1, 2020 must incorporate the newly enacted contractor claims procedures that are set forth in Public Contract Code Section 9204 (“Section 9204”). Assembly Bill 626 (“AB 626”) enacted Section 9204 and requires a public entity to respond to a contractor’s claim within 45 days, identify disputed and undisputed portions of the claim, pay undisputed portions within 60 days, meet and confer over disputed amounts, and engage in nonbinding mediation if the amount is still in dispute. Section 9204 requires these claim procedures to be set forth in the plans and specifications for the project, and sets the interest rate on unpaid claims at 7%.
II. Discussion
Claim Procedure
Applicable to both charter and general law cities, Section 9204 is designed to ensure that undisputed portions of claims from contractors on public works projects are paid in a timely manner and that there is a mechanism in place to resolve disputed claim amounts. Section 9204 defines a “claim” as a “separate demand by a contractor sent by registered mail or certified mail with return receipt requested, for one or more of the following:[1]”
- A time extension, including relief from penalties for delay;
- Payment by the public entity of money damages under the terms of the contract;
- Payment of an amount that is disputed by the public entity.
The claim must be supported by “reasonable documentation,”[2] and the public entity has 45 days within which to review it and provide a written statement to the contractor identifying the disputed and undisputed portions of the claim.[3] Payment of the undisputed portion of the claim must be made within 60 days of issuing the statement,[4] and if the public entity fails to issue this written statement, the claim is deemed rejected in its entirety.[5]
If the contractor disputes the written response, or if the public entity fails to issue a written response, the contractor may demand in writing an informal conference to meet and confer for possible settlement of the claim. The public entity must schedule the meet and confer conference within 30 days, and within 10 business days of the meet and confer, the public entity must again provide a written statement identifying the remaining disputed and undisputed portions of the claim. Again, payment on the undisputed portion must be made within 60 days of issuing this statement.[6]
If there remains a disputed portion of the claim after the meet and confer, the parties must submit the matter to nonbinding mediation, agree to a mediator within 10 business days after issuing the written statement, and share mediation costs equally. If mediation is unsuccessful, then the terms of the contract or other applicable law will govern final resolution of the dispute.[7]
Miscellaneous Provisions
Section 9204 also provides that amounts not paid in a timely manner bear interest at 7% per annum,[8] that subcontractors may submit claims via this procedure through the general contractor,[9] and that the text of Section 9204 or a summary be set forth in the plans or specifications for a public works project.[10] The parties to a public works contract generally cannot waive this claim procedure, but may waive the requirement to mediate. [11] Finally, public entities may enact additional reasonable claims resolution procedures that are consistent with Section 9204.[12]
Information on www.jones-mayer.com is for general use and is not legal advice. The posting of this Municipal Law Update is not intended to create, and receipt of it does not constitute, an attorney-client-relationship. Should you have any questions or require further clarification of the above, please contact Keith F. Collins at our office at (714) 446-1400, or by email kfc@jones-mayer.com.
[1] Cal. Pub. Cont. § 9204(c).
[2] Cal. Pub. Cont. § 9204(d)(1)(B).
[3] Cal. Pub. Cont. § 9204(d)(a)(A). The public entity and contractor may agree to extend this period beyond 45 days.
[4] Cal. Pub. Cont. § 9204(d)(1)(D).
[5] Cal. Pub. Cont. § 9204(d)(3).
[6] Cal. Pub. Cont. § 9204(d)(2)(A)-(B).
[7] Cal. Pub. Cont. § 9204(d)(2)(B). Public entities may still require arbitration of unresolved disputes under private arbitration or through the Public Works Contract Arbitration Program if mediation does not resolve the dispute.
[8] Cal. Pub. Cont. § 9204(d)(4).
[9] Cal. Pub. Cont. § 9204(d)(5).
[10] Cal. Pub. Cont. § 9204(e).
[11] Cal. Pub. Cont. § 9204(f).
[12] Id.