Code Section Group

Public Contract Code - PCC

DIVISION 2. GENERAL PROVISIONS [1100 - 22355]

  ( Division 2 enacted by Stats. 1981, Ch. 306. )

PART 2. CONTRACTING BY STATE AGENCIES [10100 - 19102]

  ( Heading of Part 2 added by Stats. 1982, Ch. 1120, Sec. 6. )

CHAPTER 1. State Contract Act [10100 - 10285.5]

  ( Chapter 1 enacted by Stats. 1981, Ch. 306. )

ARTICLE 8. Modifications; Performance; Payment [10250 - 10265]
  ( Article 8 enacted by Stats. 1981, Ch. 306. )

10250.
  

The department may increase or decrease quantities of work to be done under a unit basis contract during the progress of the work.

(Enacted by Stats. 1981, Ch. 306.)

10251.
  

The department may cause the insertion of provisions in any contract for the performance of such extra work and the furnishing of materials therefor by the contractor as the department requires for the proper completion or construction of the whole work contemplated, if the bidders have equal opportunity of knowing the proposed terms for the extra work.

(Enacted by Stats. 1981, Ch. 306.)

10252.
  

The director may grant such extensions of time for completion as he deems for the best interests of the state.

(Enacted by Stats. 1981, Ch. 306.)

10253.
  

If the director deems that a contractor has failed to supply an adequate working force, or material of proper quality, or has failed to comply with Section 10262, or has failed in any other respect to prosecute the work with the diligence and force specified by the contract, the director may:

(a) After written notice of at least five days to the contractor, specifying the defaults to be remedied, provide any such labor or materials and deduct the cost from any money due or to become due to the contractor under the contract; or

(b) If he considers that the failure is sufficient ground for such action, he may give written notice of at least five days to the contractor and the contractor’s sureties, that if the defaults are not remedied the contractor’s control over the work will be terminated.

(Enacted by Stats. 1981, Ch. 306.)

10254.
  

If the defaults are not remedied within the time specified in the notice, the contractor’s control shall terminate as of the expiration of that time.

(Enacted by Stats. 1981, Ch. 306.)

10255.
  

Upon such termination, the director may take possession of and use all or any part of the contractor’s materials, tools, equipment, and appliances upon the premises to complete the contract. Thereupon, he may permit the surety to complete or cause the contract work to be completed, or he may direct that all or any part of the work be completed by day’s labor or by employment of other contractors on informal contracts, or both.

(Enacted by Stats. 1981, Ch. 306.)

10256.
  

Such informal contracts may be awarded only after a proposal form has been prepared, a copy is served upon the contractor whose control has been terminated, and upon his surety, and three days allowed thereafter so that he may cause others to bid. Any person who is prequalified therefor under Article 4 may bid on informal contracts.

(Enacted by Stats. 1981, Ch. 306.)

10257.
  

The provisions of this part, except as to prequalification, are not applicable to the award of informal contracts.

(Enacted by Stats. 1981, Ch. 306.)

10258.
  

If the control of a contractor is terminated or he abandons the work, and the work is performed by day’s labor or informal contract as provided in Section 10255, he is not entitled to receive any portion of the amount to be paid under the contract until it is fully completed. After completion, if the unpaid balance exceeds the sum of the amount expended by the state in finishing the work, plus all damages sustained or to be sustained by the state, the excess not otherwise required by law to be retained shall be paid to the contractor, but if such sum exceeds the unpaid balance, the contractor and his surety are liable to the state for the excess. If the surety completes the contract work, as provided in Section 10255, such surety shall be subrogated to money due under the contract and to money which shall become due in the course of completion by the surety, to the extent provided by law.

(Enacted by Stats. 1981, Ch. 306.)

10259.
  

On the completion of the contract, the original contractor is entitled to the return of all his unused materials, and his equipment, tools, and appliances, except that he shall have no claim on account of usual and ordinary depreciation, loss, and wear and tear.

(Enacted by Stats. 1981, Ch. 306.)

10260.
  

The notices required by this article may be served on the contractor or on his agent having charge of the work, personally, or by registered mail addressed to the contractor or his agent, or, if neither can be located or their addresses are unknown, by posting in a conspicuous place upon the premises of the project.

(Enacted by Stats. 1981, Ch. 306.)

10261.
  

(a) Payments upon contracts shall be made as the department prescribes upon estimates made and approved by the department, but progress payments shall not be made in excess of 100 percent of the percentage of actual work completed plus a like percentage of the value of material delivered on the ground or stored subject to or under the control of the state, and unused, except as otherwise provided in this section. The department shall withhold not more than 5 percent of the contract price until final completion and acceptance of the project. However, at any time after 95 percent of the work has been completed, the department may reduce the funds withheld to an amount not less than 125 percent of the estimated value of the work yet to be completed, as determined by the department, if the reduction has been approved, in writing, by the surety on the performance bond and by the surety on the payment bond. The Controller shall draw his or her warrants upon estimates so made and approved by the department and the Treasurer shall pay them. The funds may be released by electronic transfer if that procedure is requested by the contractor, in writing, and if the department has, in place at the time of the request, the mechanism for the transfer.

(b) (1) Notwithstanding subdivision (a), when the director of the department has made a finding prior to the bid that a specified project is substantially complex and therefore requires a higher retention amount than 5 percent, and the department includes in the bid documents details explaining the basis for the finding and the actual retention amount, then payments upon contracts by the department shall be made as the department prescribes upon estimates made and approved by the department. However, progress payments shall not be made in excess of 95 percent of the percentage of actual work completed, plus a like percentage of the value of material delivered on the ground or stored, subject to, or under the control of the state, and unused, except as otherwise provided in this section. At any time after 95 percent of the work has been completed, the department may reduce the funds withheld to an amount not less than 125 percent of the estimated value of the work yet to be completed, as determined by the department, if the reduction has been approved, in writing, by the surety on the performance bond and by the surety on the payment bond. The Controller shall draw his or her warrants upon estimates so made and approved by the department and the Treasurer shall pay them with funds appropriated therefor. The funds may be released by electronic transfer if that procedure is requested by the contractor, in writing, and if the department has, in place at the time of the request, the mechanism for the transfer.

(2) Any finding by the director of a department that a project is substantially complex shall include a description of the specific project and why it is a unique project that is not regularly, customarily, or routinely performed by the agency or licensed contractors.

(c) This section shall remain in effect only until January 1, 2023, and as of that date is repealed, unless a later enacted statute, that is enacted before January 1, 2023, deletes or extends that date.

(Amended (as amended by Stats. 2014, Ch. 670, Sec. 2) by Stats. 2017, Ch. 37, Sec. 2. (AB 92) Effective January 1, 2018. Repealed as of January 1, 2023, by its own provisions. See later operative version, as amended by Sec. 3 of Stats. 2017, Ch. 37.)

10261.
  

(a) On and after January 1, 2023, payments upon contracts shall be made as the department prescribes upon estimates made and approved by the department, but progress payments shall not be made in excess of 95 percent of the percentage of actual work completed plus a like percentage of the value of material delivered on the ground or stored subject to or under the control of the state, and unused, except as otherwise provided in this section. The department shall withhold not less than 5 percent of the contract price until final completion and acceptance of the project. However, at any time after 95 percent of the work has been completed, the department may reduce the funds withheld to an amount not less than 125 percent of the estimated value of the work yet to be completed, as determined by the department, if the reduction has been approved, in writing, by the surety on the performance bond and by the surety on the payment bond. The Controller shall draw his or her warrants upon estimates so made and approved by the department and the Treasurer shall pay them. The funds may be released by electronic transfer if that procedure is requested by the contractor, in writing, and if the public entity has, in place at the time of the request, the mechanism for the transfer.

(b) This section shall become operative on January 1, 2023.

(Amended (as amended by Stats. 2014, Ch. 670, Sec. 3) by Stats. 2017, Ch. 37, Sec. 3. (AB 92) Effective January 1, 2018. Section operative January 1, 2023, by its own provisions.)

10261.5.
  

(a) Any state agency which fails to make any progress payment within 30 days after receipt of the payment request from a contractor on a construction contract for an undisputed payment request, which was properly submitted by the contractor to the agency, shall pay interest to the contractor equivalent to the legal rate set forth in subdivision (a) of Section 685.010 of the Code of Civil Procedure. Any state agency which independently calculates the amount due on a progress payment and which fails to make a progress payment within 30 days of the first submittal of the estimate for each contract by the engineer, shall pay interest to the contractor equivalent to the legal rate set forth in subdivision (a) of Section 685.010 of the Code of Civil Procedure. In the event that the payment is not made within 30 days of receipt of the contractor’s request or the first submittal by the engineer, and the Controller has processed the payment within 14 days of receipt of the request or submittal, the contracting state agency shall pay interest to the contractor equivalent to the legal rate set forth in subdivision (a) of Section 685.010 of the Code of Civil Procedure. In the event that the payment is not made within 30 days of receipt of the contractor’s request or the first submittal by the engineer, and the contracting state agency has processed the payment within 16 days after receipt of the request or submittal, the Controller shall pay interest as provided in Section 685.010 of the Code of Civil Procedure.

For purposes of this section, a payment request shall be considered properly executed if funds are available for payment of the payment request, and payment is not delayed due to an audit inquiry by the Controller.

(b) Upon receipt of a payment request, each agency shall require:

(1) That each payment request be reviewed as soon as practicable after receipt for the purpose of determining that a payment request is a proper payment request.

(2) Any payment request determined not to be a proper payment request suitable for payment shall be returned as soon as practicable, but not later than seven days, after receipt, specifying the reasons that the payment request is not a proper payment request.

(3) The number of days available to a state agency to make a timely payment of payment request without incurring interest shall be reduced by the number of days by which an agency exceeds the requirements of paragraph (2).

(Added by Stats. 1990, Ch. 1253, Sec. 1.)

10261.7.
  

(a) Within 10 days of making a construction contract payment, a state agency that maintains an Internet Web site shall post on its Internet Web site the following:

(1) The project for which the payment was made.

(2) The name of the construction contractor or company paid.

(3) The date the payment was made or the date the state agency transmitted instructions to the Controller or other payer to make the payment.

(4) The payment application number or other identifying information.

(5) The amount of the payment.

(b) This section shall not apply to a construction contract valued below twenty-five thousand dollars ($25,000).

(c) This section shall not apply to progress payments published under Section 10262.3.

(Added by Stats. 2017, Ch. 585, Sec. 1. (AB 1223) Effective January 1, 2018.)

10262.
  

The contractor shall pay to his or her subcontractors, within seven days of receipt of each progress payment, the respective amounts allowed the contractor on account of the work performed by his or her subcontractors, to the extent of each subcontractor’s interest therein. The payments to subcontractors shall be based on estimates made pursuant to Section 10261. Any diversion by the contractor of payments received for prosecution of a contract, or failure to reasonably account for the application or use of the payments constitutes ground for actions prescribed in Section 10253, in addition to disciplinary action by the Contractors’ State License Board. The subcontractor shall notify, in writing, the Contractors’ State License Board and the department of any payment less than the amount or percentage approved for the class or item of work as set forth in Section 10261.

(Amended by Stats. 2011, Ch. 700, Sec. 8. (SB 293) Effective January 1, 2012.)

10262.3.
  

To facilitate enforcement of Section 10262, the Department of General Services shall publish in the California State Contracts Register notice of progress payments made to prime contractors.

(Added by Stats. 1991, Ch. 374, Sec. 1.)

10262.5.
  

(a) Notwithstanding any other law, a prime contractor or subcontractor shall pay to any subcontractor, not later than seven days after receipt of each progress payment, the respective amounts allowed the contractor on account of the work performed by the subcontractors, to the extent of each subcontractor’s interest therein. In the event that there is a good faith dispute over all or any portion of the amount due on a progress payment from the prime contractor or subcontractor to a subcontractor, then the prime contractor or subcontractor may withhold no more than 150 percent of the disputed amount.

Any contractor who violates this section shall pay to the subcontractor a penalty of 2 percent of the amount due per month for every month that payment is not made. In any action for the collection of funds wrongfully withheld, the prevailing party shall be entitled to his or her attorney’s fees and costs.

(b) This section shall not be construed to limit or impair any contractual, administrative, or judicial remedies otherwise available to a contractor or a subcontractor in the event of a dispute involving late payment or nonpayment by a contractor or deficient subcontract performance or nonperformance by a subcontractor.

(c) On or before September 1 of each year, the head of each state agency shall submit to the Legislature a report on the number and dollar volume of written complaints received from subcontractors and prime contractors on contracts in excess of three hundred thousand dollars ($300,000), relating to violations of this section.

(Amended by Stats. 2011, Ch. 700, Sec. 9. (SB 293) Effective January 1, 2012.)

10263.
  

(a) Provisions shall be included in any invitation for bid and in any contract documents to permit the substitution of securities for any moneys withheld by a public agency to ensure performance under a contract. At the request and expense of the contractor, securities equivalent to the amount withheld shall be deposited with the State Treasurer or, a state or federally chartered bank in this state, as the escrow agent, who shall then pay the moneys to the contractor. Upon satisfactory completion of the contract, the securities shall be returned to the contractor.

(b) Alternatively, the contractor may request and the owner shall make payment of retentions earned directly to the escrow agent. The contractor may direct the investment of the payments into securities and the contractor shall receive the interest earned on the investments upon the same terms provided for in this section for securities deposited by the contractor. Upon satisfactory completion of the contract, the contractor shall receive from the escrow agent all securities, interest, and payments received by the escrow agent from the owner, pursuant to the terms of this section.

(c) Alternatively, and subject to the approval and at the sole discretion of the public agency, the payment of retentions earned may be deposited directly with a person licensed under Division 6 (commencing with Section 17000) of the Financial Code as the escrow agent. Upon written request of an escrow agent who has not been approved by the public agency under this subdivision, the public agency shall provide written notice to that escrow agent within 10 business days of receipt of the request indicating the reason or reasons for not approving that escrow agent. An escrow agent that has been disapproved by the public agency may not maintain any cause of action of any nature against the state or any public agency, officer, agent, or employee of any public agency, in connection with the disapproval of that escrow agent. The payments shall be deposited in a trust account with a federally chartered bank or savings association within 24 hours of receipt by the escrow agent. The contractor shall not place any retentions with the escrow agent in excess of the coverage provided to that escrow agent pursuant to subdivision (b) of Section 17314 of the Financial Code. In all respects not inconsistent with this subdivision, the remaining provisions of this section shall apply to escrow agents acting pursuant to this subdivision. In addition, an escrow agent subject to this subdivision shall maintain insurance to cover negligent acts and omissions of the escrow agent in connection with the handling of retentions under this section in an amount not less than one hundred thousand dollars ($100,000) per contract, executed by an admitted insurer and in a form satisfactory to the public agency.

(d) Securities eligible for investment under this section shall include those listed in Section 16430 of the Government Code, bank or savings and loan certificates of deposit, interest-bearing demand deposit accounts, standby letters of credit, or any other security mutually agreed to by the contractor and the public agency.

The contractor shall be the beneficial owner of any securities substituted for moneys withheld and shall receive any interest thereon.

Failure to include the provisions prescribed by this section in bid and contract documents shall void any provisions for performance retentions in a public agency contract.

(e) (1) Any contractor who elects to receive interest on moneys withheld in retention by a public agency shall, at the request of any subcontractor, make that option available to the subcontractor regarding any moneys withheld in retention by the contractor from the subcontractor. If the contractor elects to receive interest on any moneys withheld in retention by a public agency, then the subcontractor shall receive the identical rate of interest received by the contractor on any retention moneys withheld from the subcontractor by the contractor, less any actual pro rata costs associated with administering and calculating that interest. In the event that the interest rate is a fluctuating rate, the rate for the subcontractor shall be determined by calculating the interest rate paid during the time that retentions were withheld from the subcontractor. If the contractor elects to substitute securities in lieu of retention, then, by mutual consent of the contractor and subcontractor, the subcontractor may substitute securities in exchange for the release of moneys held in retention by the contractor.

(2) This subdivision shall apply only to those subcontractors performing more than five percent of the contractor’s total bid.

(3) No contractor shall require any subcontractor to waive any provision of this section.

(f) The Legislature hereby finds and declares that the provisions of this section are of statewide concern and are necessary to encourage full participation by contractors and subcontractors in public contract procedures.

(g) An escrow agreement used pursuant to this section shall be null, void, and unenforceable unless it is substantially similar to the following form:

ESCROW AGREEMENT FOR
SECURITY DEPOSITS IN LIEU OF RETENTION

This Escrow Agreement is made and entered into by and be­tween






whose address is
hereinafter called “owner,”
whose address is
hereinafter called “contractor,” and
whose address is
hereinafter called “escrow agent.”

For the consideration hereinafter set forth, the owner, contractor, and escrow agent agree as follows:

(1) Pursuant to Section 10263 of the Public Contract Code of the State of California, the contractor has the option to deposit securities with the escrow agent as a substitute for retention earnings required to be withheld by the owner pursuant to the construction contract entered into between the owner and contractor for ____ in the amount of ____ dated ____ (hereafter referred to as the “contract”). Alternatively, on written request of the contractor, the owner shall make payments of the retention earnings directly to the escrow agent. When the contractor deposits the securities as a substitute for the contract earnings, the escrow agent shall notify the owner within 10 days of the deposit. The market value of the securities at the time of the substitution shall be at least equal to the cash amount then required to be withheld as retention under the terms of the contract between the owner and contractor. Securities shall be held in the name of the ____, and shall designate the contractor as the beneficial owner.

(2) The owner shall make progress payments to the contractor for those funds which otherwise would be withheld from progress payments pursuant to the contract provision, provided that the escrow agent holds securities in the form and amount specified above.

(3) When the owner makes payment of retentions earned directly to the escrow agent, the escrow agent shall hold them for the benefit of the contractor until such time as the escrow created under this contract is terminated. The contractor may direct the investment of the payments into securities. All terms and conditions of this agreement and the rights and responsibilities of the parties shall be equally applicable and binding when the owner pays the escrow agent directly.

(4) The contractor shall be responsible for paying all fees for the expenses incurred by the escrow agent in administering the escrow account. These expenses and payment terms shall be determined by the contractor and escrow agent.

(5) The interest earned on the securities or the money market accounts held in escrow and all interest earned on the interest shall be for the sole account of contractor and shall be subject to withdrawal by contractor at any time and from time to time without notice to the owner.

(6) The contractor shall have the right to withdraw all or any part of the principal in the escrow account only by written notice to the escrow agent accompanied by written authorization from the owner to the escrow agent that the owner consents to the withdrawal of the amount sought to be withdrawn by contractor.

(7) The owner shall have a right to draw upon the securities in the event of default by the contractor. Upon seven days’ written notice to the escrow agent from the owner of the default, the escrow agent shall immediately convert the securities to cash and shall distribute the cash as instructed by the owner.

(8) Upon receipt of written notification from the owner certifying that the contract is final and complete, and that the contractor has complied with all requirements and procedures applicable to the contract, the escrow agent shall release to the contractor all securities and interest on deposit less escrow fees and charges of the escrow account. The escrow shall be closed immediately upon disbursement of all moneys and securities on deposit and payments of fees and charges.

(9) The escrow agent shall rely on the written notifications from the owner and the contractor pursuant to Sections (1) to (8), inclusive, of this agreement and the owner and contractor shall hold the escrow agent harmless from the escrow agent’s release, conversion, and disbursement of the securities and interest as set forth above.

(10) The names of the persons who are authorized to give written notice or to receive written notice on behalf of the owner and on behalf of the contractor in connection with the foregoing, and exemplars of their respective signatures are as follows:

On behalf of the owner:

On behalf of the contractor:


Title


Title


Name


Name


Signature


Signature


Address


Address


On behalf of the escrow agent:

_____


Title

_____


Name

_____


Signature

_____


Address

_____


At the time the escrow account is opened, the owner and contractor shall deliver to the escrow agent a fully executed counterpart of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement by their proper officers on the date first set forth above.


Owner


Contractor


Title


Title


Name


Name


Signature


Signature

(Amended by Stats. 1998, Ch. 857, Sec. 12. Effective January 1, 1999.)

10264.
  

(a) With the exception of projects over water requiring marine access, and which have a contract amount greater than twenty-five million dollars ($25,000,000), in addition to the provisions for partial payment made in Section 10261, the department may make partial payments for the mobilization costs of a contract subject to this chapter, not to exceed the following:

(1) When 5 percent of the original contract amount is earned, 50 percent of the amount bid for mobilization, or 5 percent of the original contract amount, whichever is lesser, may be paid.

(2) When 10 percent of the original contract amount is earned, 75 percent of the amount bid for mobilization or 7.5 percent of the original contract amount, whichever is lesser, may be paid.

(3) When 20 percent of the original contract amount is earned, 95 percent of the amount bid for mobilization, or 9.5 percent of the original contract amount, whichever is lesser, may be paid.

(4) When 50 percent of the original contract amount is earned, 100 percent of the amount bid for mobilization, or 10 percent of the original contract amount, whichever is lesser, may be paid.

(5) Upon completion of all work on the project, payment of any amount bid for mobilization in excess of 10 percent of the original contract amount will be paid.

(b) For projects over water requiring marine access, and with a contract amount greater than twenty-five million dollars ($25,000,000), in addition to the provisions for partial payment made in Section 10261, the department may make partial payments for the mobilization costs of a contract subject to this chapter, not to exceed the following:

(1) When 1 percent of the original contract amount is earned, 50 percent of the amount bid for mobilization, or 1 percent of the original contract amount, whichever is lesser, may be paid.

(2) When 2.5 percent of the original contract amount is earned, 60 percent of the amount bid for mobilization, or 2.5 percent of the original contract amount, whichever is lesser, may be paid.

(3) When 5 percent of the original contract amount is earned, 75 percent of the amount bid for mobilization, or 5 percent of the original contract amount, whichever is lesser, may be paid.

(4) When 15 percent of the original contract amount is earned, 95 percent of the amount bid for mobilization, or 10 percent of the original contract amount, whichever is lesser, may be paid.

(5) When 40 percent of the original contract amount is earned, 100 percent of the amount bid for mobilization, or 15 percent of the original contract amount, whichever is lesser, may be paid.

(6) Upon completion of all work on the project, payment of any amount bid for mobilization in excess of 15 percent of the original contract amount shall be paid.

This subdivision shall apply only to contracts that are advertised subsequent to the date that the act adding this subdivision becomes effective.

(Amended by Stats. 2002, Ch. 965, Sec. 2. Effective September 27, 2002.)

10265.
  

A claim pursuant to Part 3 (commencing with Section 900) of Division 3.6 of Title 1 of the Government Code is not required, but legal action on any claim shall be commenced within the time period specified in Section 10240.1. The department may compromise or otherwise settle any claims arising from the contract at any time.

(Amended by Stats. 2002, Ch. 438, Sec. 7. Effective January 1, 2003.)

PCCPublic Contract Code - PCC8.