On September 29, 2016, Assembly Bill No. 626 was filed with the California State Secretary to add and repeal the existing §9204 of the Public Contract Code.

This bill creates a new claim resolution procedure in addition to those already found in the Public Contract Code §10240 to §10240.13 (state public works arbitration) and §20104 to 20104.6 (claims against local agencies under $375,000 unless agency has elected to arbitrate under §10240, et seq.).

This bill establishes a new claim resolution process for contracts entered into on or after January 1, 2017, and is applicable to any claim by a contractor in connection with a public works project. It would expire January 1, 2020 unless it is renewed.”

It excludes contracts with the following state departments: Transportation, Corrections and Rehabilitation, Military, General Services, High-Speed Rail Authority, Water Resources, and Parks and Recreation.

Upon receipt of a claim from a contractor/claimant (sent by certified mail and with supporting documentation), the public entity must conduct a reasonable review of the claim and, within 45 days, provide the claimant a written statement identifying what portion of the claim is disputed and what portion is undisputed. The public entity and a contractor may, by mutual agreement, extend the time period provided in this subdivision.

If the public entity needs approval (from a governing body) to provide this written statement, and the governing body does not meet within the 45 days or within the mutually agreed to extension of time, the public entity shall have up to three days following the next duly publicly noticed meeting of the governing body after the 45-day period or extension expires, to provide the claimant a written statement identifying the disputed portion and the undisputed portion.

Any payment due on an undisputed portion of the claim shall be processed and made within 60 days after the public entity issues its written statement.

The public entity must include these dispute claim provisions or a summary of them in each project’s plans or specifications. The waiver of any of these provisions is void; however, public entities may add requirements for change orders, claims and dispute resolution that do not conflict with these provisions.

While public entities are supposed to pay undisputed amounts after 105 days (45 + 60), or later if the public entity’s board must meet before the written determination, the penalty for failing to make payment is only a 7 percent interest charge, and there are no attorneys’ fees recoverable to the contractor.

For a contractor, this new claims procedure could be contradictory to a timely resolution of its claim. A contractor who disputes an entity’s decision on a claim may request an informal settlement conference, yet the public entity is not required to offer anything at the settlement conference. Further, if the matter is not resolved by the informal settlement conference, the contractor can request mediation, but §9204 does not set a time by which mediation must take place. The parties also may agree in writing to avoid mediation and proceed immediately to arbitration or litigation. But again, the claimant is at the mercy of the public entity as to how quickly this dispute resolution process can actually progress.

This new law provides a step-by-step process a contractor must follow before it initiates arbitration or litigation, but it does not provide assurance of receiving payment earlier. Furthermore, when the amount of time is factored in, 105 days, or longer, the contractor could be waiving other statutes of limitation for submitting a claim for mediation or arbitration. Therefore, the contractor must be acutely aware of how this will affect other sections of the Public Contract Code, particularly §10240.1.

Ultimately, this new claim resolution process could cost a contractor more time and money, with little repercussion to the public entity for denial of a proper claim, or even timely payment of an undisputed portion of the claim. While this was touted as beneficial to contractors, the actual execution may be counterintuitive.