Update on SB 293 (Retention) and SB 474 (Indemnification)

Earlier this week Governor Brown signed a number of bills including SB 293 by Senator Alex Padilla (D - Pacoima) and SB 474 by Senator Noreen Evans (D - Santa Rosa).  As mentioned in a previous post, SB 293 caps retention on public projects at 5% and provides for quicker payment.  SB 474 limits liability on projects by allocating damages and related costs to those contractors who caused those damages.  The below summary of the bills was taken from an email distributed by the American Subcontractors Association.

SB 293 takes effect January 1, 2012. It:

1. Decreases, from 10 to 7, the number of days by which a prime contractor or subcontractor must pay a subcontractor after receiving a progress payment, unless otherwise agreed to in writing.

2. Requires a subcontractor to give written notice to the surety and bond principal that he or she is enforcing a claim prior to completion or recordation of the Notice of Completion of a project, except as specified, if the 20-day public works preliminary notice was required by any person that has no direct contractual relationship with the contractor and who has not given notice as provided in Civil Code Section 3098, that person may enforce a claim by giving written notice to the surety and bond principal within 15 days after recordation of a notice of completion. If no notice of completion has been recorded, the time for giving written notice to the surety and the bond principal is extended to 75 days after completion of the work of improvement. This provision would not apply in the event that all progress payments, other than those disputed in good faith, have been made to a subcontractor who has a direct contractual relationship with the general contractor to whom the

claimant has provided materials or services, or in the case of a subcontractor who has been terminated from the project pursuant to the contract, all such progress payments have been made as of the termination date, except those disputed in good faith.

3. Exempts a laborer from preliminary notice requirements to a surety and bond principal and any deadline to enforce a claim after the completion of a project for private works of improvement.

4. Prohibits a public entity from retaining more than five percent of a contract price until final completion and acceptance of a project.

5. Requires that retention proceeds between an original contractor and a subcontractor, or between two subcontractors, not exceed five percent of payment or contract price. Does not apply if the contractor provides written notice to the subcontractor, prior to or at the time that the bid is requested, that a bond may be required and the subcontractor subsequently is unable or refuses to furnish to the contractor a performance or payment bond issued by an admitted surety insurer.

6. Prohibits progress payments on public works contracts from being made in excess of 100 percent of the percentage of actual work completed.

7. Authorizes a public entity to retain more than five percent of the contract price in public works projects under the following conditions:

A.   For certain projects awarded by state departments, the project is substantially complex and the department includes this finding and the actual retention amount in the bid documents;

B.   For projects awarded by local entities, the governing body of the local public entity, or its designee, has approved or ratified by a majority vote during a properly noticed and normally scheduled public hearing prior to bid that the project is substantially complex, and includes this finding and the actual retention amount in the bid documents;

and,

C.  Retention proceeds between an original contractor and a subcontractor, or between two subcontractors, shall not exceed the specified retention percentage in the contract between the public entity and the original contractor.

1. Sunsets these retention provisions on January 1, 2016.

2. Defines "public entity" to mean the state, including every state agency, office, department, division, bureau, board, or commission, the California State University, the University of California, a city, county, city and county, including chartered cities and chartered counties, district, special district, public authority, political subdivision, public corporation, or nonprofit transit corporation wholly owned by a public agency and formed to carry out the purposes of the public agency. 

SB 474 takes effect on January 1, 2013
 

SB 474's staff synopsis as enrolled and sent to the Governor:

  

1. Prohibits construction contracts requiring indemnity, insurance, or defense obligations by a subcontractor for the active negligence or willful misconduct of a general contractor, his/her agents, or certain other subcontractors.

2. Provides that, unless otherwise prohibited under this bill, the parties to a construction contract can freely contract for other protections and obligations of each party, but allows numerous exemptions, including residential construction contracts, direct contracts with a public agency or owner, and insurance contracts for project wrap up and workers' compensation.

3. Requires an insurer to uphold their contractual obligations to additional insureds pursuant to Presley Homes, Inc. v. American State Insurance Company (2001) 90 Cal.App.4th 571.

4. Provides that an insurer maintains reimbursement rights from a general contractor or other subcontractor pursuant to the holding in Buss v. Superior Court (1997) 16 Cal.4th 35.

5. Provides a defense or settlement option for commercial construction contracts similar to existing law regarding residential construction contracts under which a subcontractor, after receiving claim information from the general contractor, has the option to defend the claim or pay its portion of the claim.

6. Provides that in the event a contractor fails to maintain its obligations to defend or pay its portion of the claim, the general contractor may make a claim for compensatory and consequential damages and reasonable attorney's fees.

7. Clarifies that a public agency is prohibited from shifting its liability for its active negligence to a contractor, subcontractor, or materials supplier.

8. Establishes that a project owner, not acting as a project manager, general contractor, or materials supplier, is prohibited from shifting liability for its active negligence to a contractor, subcontractor, or materials supplier.

9. Provides that these new rights and obligations shall be construed to affect the obligation, if any, of either a contractor or construction manager to indemnify, including defending or paying the costs to defend, a public agency against any claim arising from the alleged active negligence of the public agency under Civil Code Section 2782(b) or to indemnify, including defending or paying the costs to defend, an owner of privately owned real property to be improved against any claim arising from the alleged active negligence of the owner under Civil Code Section 2782(c).

10. Provides that the foregoing changes shall not be construed to affect the obligation, if any, of either a contractor or construction manager to provide or maintain insurance covering the acts or omissions of the promisor, including additional insurance endorsements covering the acts or omissions of the promisor during ongoing and completed operations pursuant to a construction contract with a public agency under Civil Code Section 2782(b) or an owner of privately owned real property to be improved under Civil Code Section 2782(c).