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Legislature Has a Y2K Problem – Which It Has Shared with the Construction Industry
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January 2000
By James Acret
Many had expected that on January 1, 2000, the sun would rise
upon a bright but orderly world of progressive laws enacted
by a Democratic California Legislature and signed by a newly
elected Democratic governor. Such fond hopes have gone
aglimmering. With one exception (Uniform Electronic
Transactions Act), new laws affecting the construction
industry are routine, pedestrian, dimwitted, wrong-minded
or just plain embarrassing!
Uniform Electronic Transactions Act
Only one statute enacted by the Legislature and signed
by the governor in 1999 excites the imagination: the Uniform
Electronic Transactions Act. Over time, this measure
will change the way business is done in the construction industry.
Commercial and governmental transactions now may be conducted
electronically.
We learned in law school that a contract is formed by an objective
manifestation of mutual assent. In the construction
industry, mutual assent usually is manifested by signature.
Assent also can be manifested orally or by conduct.
(Pumping gas is conduct that manifests an agreement to pay
for it.) Under the new law, mutual assent can be manifested
electronically. Whenever law requires a record or a
signature to be in writing, an electronic record or an electronic
signature satisfies that law.
An electronic record or an electronic signature is attributable
to a person if it was the act of the person, and the act may
be shown in any manner. If law requires a signature
to be notarized or under penalty of perjury, the notarization
or the declaration under penalty of perjury may be electronic.
Electronic information is sent when it is addressed properly
and enters an information processing system outside the control
of the sender. It is received when it enters an information
processing system from which the recipient is able to retrieve
the record. (An electronic acknowledgment can be used
to establish that a record was received.) The act applies
to transactions between parties who have agreed to conduct
transactions by electronic means. Such an agreement
may not be contained in a standard form contract. The
new law does not apply to the documentation of condominiums,
home solicitation contracts, home equity contracts, consumer
credit transactions, retail installment sales, trust deeds,
or automobile loans or leases.
If a law requires that a record be posted, displayed or transmitted
in a specific way, that law controls.
Under the new law, bids may be processed, offers may be accepted
and contracts formed electronically. Signatures transmitted
by fax are effective. County recorders are authorized
to accept documents filed electronically.
Our dreary old preliminary 20-day notices, stop notices, notices
of nonresponsibility and stop work orders still must be delivered,
mailed or posted as required by statute.
And speaking of preliminary 20-day notices. .
Mechanic's Lien Legislation
As I was going up the stair
I met a man who wasn't there.
He wasn't there again today.
I wish, I wish he'd stay away.
- Hughes Mearns
We come now to Senate Bill 914, which is an embarrassment to
the Senate Committee on Businesses and Professions; to its
author, Senator Sher; to the legislative counsel; and to
the Laborers Council and its lobbyist, Charlie Clark.
This is a labor bill that extends mechanic's lien, stop
notice, and payment bond protection to such items as vacation
pay, travel time, subsistence pay and apprenticeship funds
and also repeals Civil Code §3111.5, which had annoyed fringe
benefit trust fund administrators by requiring them to give
statements accounting for fringe benefits paid by subcontractors
for the preceding 12 months. The bill also amends
subdivision (k) of Civil Code §3097 so as to provide that
a contractor who fails to pay wages or fringes must give
written notice to the workers and their bargaining representatives
as well as to the construction lender. The Contractor's
License Law also is amended to extend the $5,000 contractors
bond to cover fringe benefits.
Comes now the problem. Subcontractors and material
suppliers hitchhiking on the bill were dumped at the last
minute. One version of SB 914 had included Article
8 entitled Home Improvement Lien Protection Fund.
Innocent homeowners who had been victimized by mechanic's
liens invoke the sympathetic interest of some members of
the Legislature. They would like to amend the mechanic's
lien law so that a homeowner who already has paid the full
contract price would be exempt from mechanic's lien claims.
Such a curtailment of mechanics lien rights horrifies the
lobbyists who represent the interests of subcontractors,
material suppliers and laborers. A scheme was therefore
evolved to protect their interests by having the Contractors
State License Board accumulate funds to protect them from
the unseemly loss that could occur by protecting homeowners
from their claims.
Article 8 would have created the "Contractor Default Recovery
Fund" to be dispensed to lien claimants to protect homeowners
who have already paid once for the improvements to their
property. Article 8 would have been bad legislation.
It would have required homeowners to record affidavits that
they had paid their original contractors in full within
30 days after receiving a notice of lien and to serve the
affidavits on claimants. The license board was to
collect $200 a year from every home improvement contractor
for deposit in the Contractor Default Recovery Fund.
Whether a homeowner had paid the original contractor in
full and whether the claimant was entitled to recover from
the fund was to be determined by a hearing officer appointed
by the license board, and the time for a claimant to bring
an action to foreclose a mechanic's lien was to be extended
to 60 days following the decision of the hearing officer.
The decision of the hearing officer was to be final and
binding to the extent that the owner, original contractor
and claimant agreed to be bound. A finding that the
original contractor was paid in full but failed to pay a
claimant was to be grounds for immediate suspension of the
contractor's license. The contractor was to be given
notice of a hearing to challenge the findings of the hearing
officer. If the finding was sustained, the contractor's
license was to be immediately revoked and not reinstated
until the contractor had posted a disciplinary bond of $50,000.
Article 8 would have created an administrative monster that
would have injected hearing officers into the full panoply
of construction disputes between owners, prime contractors
and subcontractors. We can be grateful that it was
amended out of the bill.
Comes now the man who wasn't there. Part of the bill
that did pass refers to the now nonexistent Article 8.
New subparagraph (q), which is added to Civil Code §3097,
refers to nonexistent Civil Code §3155.15. Another
ghostly vestige is found in the amended NOTICE TO PROPERTY
OWNER that is a part of the preliminary 20-day notice.
The notice must now advise the property owner to protect
itself by recording an affidavit that the contractor has
been paid in full. But that affidavit was removed
from the law when Article 8 was removed from the bill.
Y2K - 1. Legislature - 0.
Moratorium on Public Contracting?
The Legislature also has egg on its face for enacting
Chapter 972, which deals with prequalification for competitive
bidding on public works. The Public Contract Code
before Chapter 972 was enacted permitted and in some cases
required state and local agencies to prequalify bidders.
Many local agencies have established their own prequalification
procedures without the sanction of any statute. Chapter
972 looks to the establishment of a uniform system of prequalification
by adding §20101 authorizing local public agencies to require
prequalification according to a standardized questionnaire
and financial statement to be worked out by the Department
of Industrial Relations after consultation with cities,
counties, the construction industry, the surety industry
and other interested parties. Agencies are to adopt
and apply a uniform system of rating bidders to determine
minimum requirements to qualify for projects of different
types and sizes. Prequalification is to be processed
quarterly and valid for one year, and agencies requiring
prequalification must establish a process allowing prospective
bidders to dispute their prospective ratings. So far,
so good. The problem is that Chapter 972 also adds
§1103 to the Public Contract Code to define "responsible
bidder" as a bidder who has demonstrated trustworthiness,
quality, fitness, capacity and experience to satisfactorily
perform the public works contract: in other words, a "responsible
bidder" now is a "prequalified bidder."
But the only way agencies can prequalify a bidder is by
following the procedures established by the Department of
Industrial Relations. Anybody who has dealt with them
knows that that may take awhile!
The term "responsible bidder" appears scores of times in
the Public Contract Code and had been assumed to mean a
contractor properly licensed and who is able to supply a
bid bond, a performance bond and a payment bond.
Fortunately, there are ways to interpret the new law to
avoid the absurdity of the plain meaning and the unintended
consequences that would ensue. This can be done by
restricting the application of the new definition to Part
1 and thus avoid the moratorium that would otherwise be
inflicted on contracting by state and local agencies.
Y2K - 2. Legislature - 0.
Public Contracts
Public agencies may use wrap-up insurance for projects
that exceed $50 million. Government Code §4420.
A contract to provide air conditioning to 150 schools illegally
awarded by the Los Angeles Unified School District is validated
ex post facto. Statutes of 1999, Chapter 521, effective
July 1998 (an urgency statute).
The Department of Transportation is authorized to pursue
design-build projects under a pilot program. Streets
and Highways Code §217.
Licensing
The obligation to stamp plans by licensed architects
and the effect of the stamp are clarified. Business
and Professions Code §5536.1.
Written contract requirements of licensed landscape architects
are revised. Business and Professions Code §5616.
The state will establish apprenticeship standards for electricians.
Labor Code §3099.
Penalties for violation of the home improvement contract
law are increased. Business and Professions Code §7159.2.
Personnel of licensees are brought into the program for
enforcement of support orders. Business and Professions
Code §30.
A new specialty classification is established for lane closures,
flagging and traffic diversions. Business and Professions
Code §7058.
Building Codes
Agencies may record liens against real property to collect
charges for the enforcement of building codes. Government
Code §44988.
Requirement of fire retardant materials for roofing is expanded.
Health and Safety Code §13132.7.
Subcontractor Listing Law
Subsection (9) is added to subsection (a) of Public
Contract Code §4107 to authorize the substitution of a subcontractor
when the awarding authority determines that a listed subcontractor
is not a responsible contractor.
Conclusion
The Democrats are in. An era of big government dawns.
Watch this space next year for new programs, new forms,
new procedures, new regulations, new funds and new fees.
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To learn more about Thelen Reid's Construction and Government Contracts Department, click here. For more information about books and other legal materials written by James Acret, click here and enter "Acret" in the Search Products Field. To learn more about topics covered in this article, contact Paul Berning at (415) 369-7229 or at pwberning@thelen.com.
©2000 Thelen Reid Brown Raysman & Steiner LLP
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