Public Contract Code § 9204
Public Contract Code §9204 is a new law that requires a claims resolution procedure for claims arising in public contract. It became effective January 1, 2017 and was recently renewed until January 1, 2027.
It applies to nearly all public works projects in California that are entered into on or after January 1, 2017. Projects that are excepted from § 9204 include the following: Water Resources, Transportation, Parks and Recreation, Corrections and Rehabilitation, Military, General Services, and the High-Speed Rail Authority. (Cal. Pub. Contract Code § 9204(c)(3)(B)(i-vii)).
All public entities subject to § 9204 are required to include the § 9204 provisions, or an accurate summary of them, in every project plan and/or specifications.
Below is an outline of the timeline that the law requires, as well as some practical considerations for public works projects in California.
The process of § 9204 begins once a contractor submits a claim with “reasonable documentation to support the claim” to the public entity. The claim must be sent by registered mail or certified mail with return receipt requested. (Cal. Pub. Contract Code § 9204(c)(1)). The claim can be for one or more of the following: a time extension, payment by the public entity of money or damages, or payment of an amount that is disputed. (Cal. Pub. Contract Code § 9204(c)(1)(A-C)).
After the public entity receives the claim, it has 45 days to “conduct a reasonable review” of the claim and to provide the contractor with a written statement that identifies what portion of the claim is disputed and what portion is undisputed. (Cal. Pub. Contract Code § 9204 (d)(1)(A)).
If the public entity does not provide a written statement as required within the statute, it results in the claim being deemed rejected in its entirety. (Cal. Pub. Contract Code § 9204 (d)(3)).
If the public entity identifies any undisputed claims, it must pay those claims within 60 days after it issues its written statement. (Cal. Pub. Contract Code § 9204 (d)(1)(D)). If the public entity fails to make payment within those 60 days, any amounts not paid shall bear interest at 7 percent per annum. (Cal. Pub. Contract Code § 9204 (d)(4)).
If any part of the claim is disputed by the public entity, then after it issues its response or the time to respond has lapsed, the contractor can demand in writing an informal conference to meet and confer for settlement of the issues in dispute. The public entity has 30 days following a written demand to meet and confer to schedule a conference. (Cal. Pub. Contract Code § 9204 (d)(2)(A)).
Within 10 business days of the conclusion of the meet and confer conference, if any claim or portion of a claim remains in dispute the public entity shall provide the contractor with a written statement identifying the portion of the claim that remains in dispute and any portion that is undisputed. (Cal. Pub. Contract Code § 9204 (d)(2)(B)). The undisputed amounts must be paid within 60 days of the written statement or be subject to the 7 percent interest.
If claims remain in dispute, the contractor shall provide the public entity with written notice that demands non-binding mediation. The parties have 10 days after the contractors notice to agree to a mediator. If the parties are unable to agree, each will select a mediator and those mediators shall select a qualified, neutral third party to mediate regarding the disputed portion of the claim. (Cal. Pub. Contract Code § 9204 (d)(2)(B)).
If mediation is unsuccessful, the contractor may pursue litigation, arbitration, etc. for the remaining disputed claims. (Cal. Pub. Contract Code § 9204 (d)(2)(B)).
United Contractors was the original sponsor of the bill and it was intended to encourage timely resolution of contractor claims on public works projects. § 9204 is an additional procedure to existing claim resolution procedures such as the Public Contract Code § 10240 through §10240.13, related to state public works arbitration, and § 20104 through §20104.6, related to claims against local agencies under $375,000.00, unless the agency has elected to arbitrate under § 10240, et seq. Practitioners should be aware that deadlines and provisions under existing statutes must still be followed.
United Contractors labeled the passage of the bill as a “win” for the industry after its multi-year battle to close the gap in prompt payment by public agencies to California contractors. United Contractors is hopeful that § 9204 has created an additional avenue for accelerated settlement of disputed contractors’ claims in public works projects.
However, celebration of § 9204 may be premature. Currently, it is unclear how § 9204 will fit within the existing statutory scheme and contractors should remain vigilant about pitfalls in handling claims.
First, under § 9204 waiver of its provisions is void; however, public entities may add contract requirements for change orders, claims, and dispute resolution that do not conflict with § 9204 provisions. This option is made clear in § 9204(f)(2): “a public entity may prescribe reasonable change order, claim, and dispute resolution procedures and requirements in addition to the provisions of this section, so long as the contractual provisions do not conflict with or otherwise impair the timeframes and procedures set forth in this §.” This statutory language seems to allow contract procedures to continue to define categories such as notice of potential claim, claim waiver features, negotiations of dispute, evidence of claims and more.
Next, contractors should be aware that it is possible that the public entity’s written decision, or expiration of its response time thereby rejecting a claim, can trigger the 90-day period to begin arbitration under Pub. Contract Code § 10240.1. Further, the 90-day period under § 10240.1 may expire before mediation takes place under § 9204.
Alternatively, the public entity’s written decision, or expiration of its response time thereby rejecting a claim, could begin the one-year period in which to initiate a government claim under § 10240.1, which again, may expire before mediation takes place under § 9204.
Third, there is no assurance of receiving earlier payment. Despite the ostensibly quick timelines within § 9204, the dispute resolution procedure leaves noticeable gaps in follow-through. For example, under subdivision (d)(2)(A), the public entity has 30 days following a written demand to meet and confer to schedule a conference. However, there is no parameters on when the meet and confer must be scheduled and little incentive on the public entity to schedule the conference as soon as practicable. The lack of a timeline allows the public entity to use the provisions of § 9204 to prolong the resolution of a claim and leaves the contractor dependent on the cooperation of the public entity.
In addition, if the meet and confer conference does not resolve the claim, § 9204 does not set a time by which mediation must take place. Once again, the provisions of § 9204 allow the public entity to delay the resolution of a claim and leaves the contractor reliant on the cooperation of the public entity.
Finally, subcontractors do not gain rights under § 9204. If a subcontractor has a claim, the subcontractors must present their claim to the general contractor. The general contractor must then notify the subcontractor within 45 days as to whether it presented the subcontractor’s claim to the public entity. If the contractor did not present the claim, the contractor must provide a statement of reasons for not doing so. (Cal. Pub. Contract Code § 9204 (d)(5)). Contractors should carefully consider their contractual obligations to the public entity and to the subcontractor if presented with a subcontractor claim.
§ 9204 offers another avenue through which contractors can bring claims to public entities. However, § 9204 also introduces another avenue for uncooperative public entities to delay contractor claim resolution. Additionally, if contractors decide to use the new dispute resolution procedures of § 9204, contractors may find their claim to be time-barred from arbitration or litigation under existing statutes. Contractors should exercise caution in outlining their timelines throughout the claim process to ensure they do not miss out on any option for claim relief.