A 2012 Update on New California Laws that May Impact the Construction Industry
William C. Last, Jr. and Jonathan M. Bowne, Last & Faoro
In 2011 the California legislature passed and the governor approved new legislation that will impact the construction industry. And some previously approved laws will be coming into effect in 2012. These modifications include several relatively high impact changes. Below is a selection of new laws.
Major mechanic’s lien law overhaul will be effective July 1, 2012 (SB 189) – SB 189 constitutes a significant overhaul of the statutory scheme governing mechanic’s liens, stop notices and payment bond claims. It was signed into law in 2010, but will become effective on July 1, 2012. This scheme will be re-codified as Civil Code section 8000 et seq. The changes are meant to simplify, streamline and modernize the scheme, including many terminology changes. There are also many substantive amendments, including modifications to requirements relative to Preliminary 20-Day Notices, lien waivers, lien release bonds, completion determinations, and removing liens from title.
Retention on public works projects cannot exceed 5% (SB 293) – Relative to public works contracts entered into after January 1, 2012, public entities may not hold retention exceeding 5% of payment. Prime contractors are subject to the same limit relative to subcontractors, unless they have notified the subcontractor that a bond is required, and the subcontractor failed to furnish a bond. SB 293 also instituted other changes relative to Preliminary 20-Day Notices and payment bond claims.
LLC’S can now hold a contractor’s license (SB 392) – This law was passed in 2010 and provided that beginning on January 1, 2012 Limited Liability Companies be allowed to hold a contractor’s license. Previously, only individuals, partnerships, and corporations could hold a license.
Workers’ compensation status must be confirmed upon license renewal (AB 397) – All contractors are required to maintain on file with the CSLB proof of workers’ compensation insurance, or if they have no employees certification of the same. Previously this information only needed to be updated if there was a change in status. Now an update must be filed each time the contractor’s license is renewed.
Prevailing wage rules apply to certain green energy projects (SB 136) – Prevailing wage rules typically only apply to public works projects. This law applies those rules to certain private contracts for renewable energy generating capacity or energy efficiency improvements if the project is performed on public land, a public entity will purchase most of the energy generated, and goal of the project is to reduce the public entities’ energy costs.
Prevailing wage rules apply to hauling of refuse from a public works site (SB 514) – This law clarifies that the hauling of refuse from a public works site to an outside disposal location is among the work which requires payment of prevailing wages. This rule excludes from “refuse” separated recyclable metals which are to be sold.
Design professional lien can be converted to mechanic’s lien (SB 424) – Designers may record a design professional’s lien prior to commencement of a project. Beginning on July 1, 2012 designers in certain circumstances may convert their lien to a mechanic’s lien and thereafter enforce the claim as a mechanic’s lien.
CSLB may discipline contractors for failing to pay Board of Equalization liabilities (SB 1307) – The CSLB have been able to discipline contractors for failing to resolve outstanding final liabilities assessed by the Franchise Tax Board, Employment Development Department, and Department of Industrial Relations. Now unpaid State Board of Equalization (who collects sales, property and some special taxes) liabilities may also result in discipline. Also, AB 1424 requires the CSLB to include notices regarding this issue on its applications.
Workers’ compensation carriers are required to report to the CSLB policy cancellation resulting from fraud (AB 878) - Workers’ compensation carriers are now required to report to the CSLB when a contractor’s workers’ compensation insurance policy is canceled by the carrier when the insurer has completed a premium audit or investigation, a material misrepresentation has been made by the insured that results in financial harm to the carrier, and no reimbursement has been paid by the insured to the carrier. Also, a willful or deliberate disregard and violation of workers’ compensation insurance laws constitutes a cause for disciplinary action by the CSLB.
Construction vehicles weighing in excess of 14,000 pounds must be equipped with an automatic backup audible alarm (SB 341) – A construction vehicle with a gross vehicle weight rating in excess of 14,000 pounds that operates at, or transports any construction or industrial material to and from, a construction site must be equipped with an automatic backup audible alarm that sounds on backing and is capable of emitting sound audible under normal conditions from a distance of not less than 200 feet.
Restrictions against “Type I” indemnity agreements (SB 474) – SB 474 was passed in September 2011, but will not go into effect until January 1, 2013. So-called "Type I" indemnity agreements obligate subcontractors to indemnify general contractors from the latter's active negligence or willful misconduct, and require indemnity obligations even when claims do not arise out of the subcontractor’s scope of work. The use of these provisions has become almost universal in subcontracts between prime and lower tier contractors. But beginning next year they will be outlawed.
This article, ©2011, was written by William C. Last, Jr. and Jonathan M. Bowne. Mr. Last is an attorney who has been specializing in Construction Law for over 32 years. In addition to belonging to a number of construction trade associations, Mr. Last holds a California “A” and “B” license. He can be contacted at 415-764-1990 or 650-696-8350. A number of his past articles can be found on his website (lhfconstructlaw.com). This bulletin is published periodically to provide general information about current legal issues. The articles are not intended to be a substitute for the advice of an attorney as to a specific problem. If you have a specific legal question or need legal advice, you should contact an attorney.