All parties involved in the California construction industry should be aware of several new laws that take effect in 2012.  Although many of the new laws are technical, there are important revisions to the construction payment remedies scheme, prompt payment timing and the maximum allowable retention on public works projects.  Owners, contractors and subcontracts should check their statutory deadlines, update any form contracts, and ensure that they are utilizing the new procedures for enforcing payment.

Construction Payment Remedies

As part of a revision aimed to simplify and modernize California’s construction payment scheme, the payment remedy provisions at Civil Code § 3092 et seq. will be revised and recodified at Civil Code § 8000 et seq. effective July 1, 2012.  Although many of the changes are not substantive, there are a few important changes that should be noted.

The revised statutes include several changes to the timing and procedure for project completion.  “Acceptance by the owner” is no longer included as a means of achieving completion.  See Civ. Code § 8180.  This revision is significant as “completion” starts the time to file a stop notice, record a mechanic’s lien, or make a bond claim.  Additionally, owners will have 15 days to record a Notice of Completion instead of the previous 10-day period.  Civ. Code § 8182.  Lastly, when there are multiple prime contractors working on a single project, owners may file separate Notices of Completion for each prime contractor’s scope of work.  Civ. Code § 8186.

The mandatory forms for preliminary notices, conditional and unconditional waivers and releases will change.  The required forms can be found at Civ. Code §§ 8120 – 8138.  Also note that direct contractors will be required to give preliminary notice to construction lenders.  Civ. Code § 8200(e)(2).

Beginning in 2011, claimants recording a mechanics lien were required to provide the recorder with an affidavit of service confirming the service of a Notice of Lien on the owner or reputed owner of the property.  As of January 1, 2012, the affidavit of service must also identify the owner and the capacity of the person or entity that was served.  Civ. Code §§ 3084, 8416.

Recorded design professionals liens may now be converted to mechanics liens provided that certain requirements are met.  Civ. Code. § 8319.  Also, mechanics lien release bonds are only required to equal 125 percent of the claim, rather than 150 percent, as they previously were.  Civ. Code § 8424.

Finally, note that Civil Code § 8480 et seq. provides a new procedure for judicially releasing liens.  The new procedures require that the owner give the claimant notice and demand a release of lien at least 10 days before petitioning for a release of lien.  Civ. Code § 8482.  Additional new provisions include the elimination of a cap on the recovery of attorney’s fees for a petition for a release of lien as well as codifying the burden of proof requirements.  Civ. Code § 8488.

Payment Bond Claims

Beginning January 1, 2012, payment bond claimants who do not have a direct contractual relationship with the original contractor and who did not to serve the required 20-day preliminary notice may still pursue their payment bond claims by providing written notice to the surety and the bond principal.  SeeCiv. Code §§ 3252, 8612, 9560.  The notice must be given within 15 days after recordation of a notice of completion or, within 75 days after project completion if no notice of completion is recorded.  The following categories of claimants are excluded from these new provisions: (a) laborers, (b) claimants who supplied labor and/or materials to a subcontractor who has a direct contractual relationship with an original contractor who has been paid all progress payments except amounts disputed in good faith, or (c) claimants who supplied labor and/or materials to a subcontractor who had a direct contractual relationship with an original contractor who has been terminated but who has been paid all progress payments except amounts disputed in good faith.

Prompt Payment

Effective on January 1, 2012, a prime contractor or subcontractor must pay its subcontractors within seven days of receipt of any progress payment.  Bus. & Prof. Code § 7108.5.  Formerly, the time for issuance of progress payments to subcontractors was ten days after receipt of the payment.  This requirement is not waivable by the parties and applies to both public and private projects.

Public Works

Beginning with public works contracts signed on or after January 1, 2012 and continuing until January 1, 2016, public entities, contractors and subcontracts may not withhold more than five percent retention from any payment, and the total retention proceeds withheld shall not exceed five percent of the contract price.  Pub. Contract § 7201.  In limited circumstances the percentage of retention may be increased if the public agency owner makes a pre-bid finding that the project is “substantially complex” and includes this finding in the bid documents.

Additionally, Senate Bill 136, which was passed in 2011, expands the definition of “public works” to include some private projects related to renewable energy.  Specifically, any construction or repair work done under private contract that meets the following criteria will be deemed a “public work” and will be subject to California prevailing wage requirements: (a) the work is performed in connection with the construction or maintenance of renewable energy generating capacity or energy efficiency improvements; (b) the work is performed on the property of the state or a political subdivision of the state; and (c) either (1) more than 50 percent of the energy generated is purchased or will be purchased by the state or a political subdivision of the state; or (2) the energy efficiency improvements are primarily intended to reduce energy costs that would otherwise be incurred by the state or a political subdivision of the state.