Written by Murtaugh Law

New Laws For The Construction Industry

California’s legislators and governors were busy in 2016 adopting 900 new bills into law, many of which take effect on January 1, 2017. The new laws include many that relate directly to the construction industry. Other new laws, while not construction industry specific, will also greatly impact employers in the construction industry as California has adopted a significant number of new labor laws. For an article specifically on new labor laws adopted in 2016, see MMNT’s “New Employment Laws for 2017”.

The most significant change in the law as it relates to the Construction Industry may be the implementation of the 2016 California Building Standards Code. This Code goes into effect January 1, 2017, and will apply to all applications for a building permit that occur on or after January 1, 2017. Any project that involves such a building permit must comply with the 2016 Code. The 2013 California Building Standards Code will remain in effect for all projects where the application for building permit is/was received before December 31, 2016. The International Code Council (ICC), California Building Officials (CALBO) and California Fire Chiefs Association (CFCA) developed a three set guide to the most important changes titled “Significant Changes to the California Building Code, Significant Changes to the California Residential Code, and Significant Changes to the California Fire Code.”

In addition to the new building code, each of the following new California construction laws take effect on January 1, 2017:

New Claim Resolution Process for Most New Public Works Projects

For most public works projects involving contracts entered on or after January 1, 2017, including projects with a state agency, department, office, division, University, city, county, district, etc., any claim for a time extension, payment by the public entity of money or damages from work done by, or on behalf of, the contractor, or for payment of an amount that is disputed by the public entity, from a contractor that is supported by reasonable documentation, and sent by registered/certified mail to the public entity, shall be reviewed and responded to by the public entity in writing within 45 days with a statement identifying what portion of the claim is disputed and which claim is not disputed by the public entity. Any undisputed portion shall be paid within 60 days of the public entities issuance of its written statement. If the contractor disputes any portion of the written response, or the public entity fails to issue a written response, the contractor can request an informal conference to meet and confer for settlement of the issues in dispute. The public entity shall schedule such a meeting within 30 days of the receipt of such a request. Within 10 days of the conclusion of the meet and confer conference, the public entity shall provide a written statement identifying the portion of the claim that remains in dispute and the portion that is undisputed. The disputed portion shall be submitted to mediation. The public entity shall pay the undisputed portion within 60 days. Within 10 days of the issuance of the writing, both parties shall agree on a mediator.

The statute also specifically authorizes a general contractor to present a pass-through claim on behalf of or at the request of a subcontractor.

The statute allows a public entity to require binding arbitration after the prescribed mediation fails. It also provides that a public entity may prescribe a 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 section.

Burden To Establish Doctrine of Substantial Compliance Eased For Contractors That Suffer Lapse In Their License

Under existing law, when a licensed contractor or subcontractor allowed its license to lapse during the course of a project, it could try and establish that it substantially complied with the license requirements in order to avoid a forfeiture of its compensation for that project. To do so, a contractor previously had to establish at an evidentiary hearing that he or she (1) had been duly licensed as a contractor in this state prior to the performance of the act or contract, (2) acted reasonably and in good faith to maintain proper licensure, (3) did not know or reasonably should not have known that he or she was not duly licensed when performance of the act or contract commenced, and (4) acted promptly and in good faith to reinstate his or her license upon learning it was invalid. Starting January 1, 2017, this test will be changed and the contractor will no longer be required to comply with item #3, which required a showing that he or she did not know or reasonably should not have known that he or she was not duly licensed when performance of the act or contract commenced. In addition, the wording of item #4, now labeled #3 is also changed and requires the contractor to show that he or she acted promptly and in good faith to remedy the failure to comply with the licensure requirements upon learning of the failure.

Licensed Contractors That Share Qualifying Members Shall Also Share Disclosures About CSLB Issued Citations

When the Contractor’s State License Board (CSLB) issues a citation to a licensed contractor it is required to make certain disclosures about that citation to that license for a specific period of time after the citation is issued. The CSLB will now also have to make that same disclosure on the license for other license that lists the same qualifying member(s) in their personnel of record as the license that is cited by the CSLB.

Legislature Requests Study To Determine If Contractors Should Be Required to Report Payments Related To Defect Actions

The CLSB has been ordered to consult with licensees, consumers, and other interested stakeholders in order to prepare a study of judgments, arbitration awards, and settlements that were the result of claims for construction defects for rental residential units. The CLSB is to report to the legislature by January 1, 2018, the results of this study was so that the legislature can determine regulations should be adopted requiring licensees to report judgments, arbitration awards, or settlement payments of those claims to the CLSB.

DIR Now Has Thirty (30) Days To Distribute Funds Held In Escrow Following Resolution Of Civil Wage And Penalty Assessment

After the Department of Industrial Relations (DIR) has issued a civil wage and penalty assessment, the contractor(s) against whom that assessment is made can avoid being liable for liquidated damages by depositing into escrow with the DIR the full amount of the assessment or notice, including penalties. Starting January 1, 2017, the law now specifies when the DIR must release those escrow funds. “The department shall release the funds in escrow, plus any interest earned, to the persons and entities that are found to be entitled to those funds, within 30 days” of the following: “(1) The conclusion of all administrative and judicial review”; or “(2) The department receives written notice from the Labor Commissioner or his or her designee of a settlement or other final disposition of an assessment issued pursuant to Section 1741 or from the authorized representative of the awarding body of a settlement or other final disposition of a notice issued pursuant to Section 1771.6.”

New Dig-Alert Rules and Requirements

California has adopted changes to the statutes that provide for the rules governing the marking of subsurface installations by the operators thereof when requested by a contractor intending to perform excavations in an area, as well as the liability of the operators and excavators for complying with or failing to comply with the statutes. The changes include, but are not limited to, greater specificity as to when and how a contractor is to delineate the area that must be marked by the operators, as well as directions on how the operator is to locate and field mark its subsurface installations within the delineated area. New obligations that an excavator (1) shall not begin excavation until it receives a response from all known operators of subsurface installations within the delineated boundaries; (2) shall cease all excavations upon the expiration of a ticket from a regional notification center, and wait until obtaining a new ticket and the required two working days thereafter before restarting excavation; and (3) shall cease all excavations if the field marks from an operator are no longer reasonably visible, shall delineate the area to be remarked, shall call for a remarking and wait the required two working days for the remarking to occur.

Pre-Litigation Dispute Resolution Process For Defect Claims Brought By Homeowner Associations (HOA) Extended

The requirement that a HOA must pursue a pre-litigation process known as “Calderon” before filing a Complaint to pursue damages arising from construction defects was set to expire on December 31, 2016. The requirement to engage in the Calderon process has now been extended through July 1, 2024.

The above is only a sample of the many new laws that go into effect on January 1, 2017, in California. For more information on the content of this article or other new laws, please contact your regular Murtaugh Meyer Nelson & Treglia LLP attorney or Lawrence A. Treglia, Jr. and/or Matthew W. Johnson at (949)794-4000.

Matthew W. Johnson
Murtaugh Treglia Stern & Deily LLP
2603 Main Street, Penthouse, Irvine, CA 92614
Telephone: (949) 794-4000 Fax: (949) 794-4099

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for advertisement and general information purposes and is not intended to be and should not be taken as legal advice.