As noted in our SB 474 posting, at least two construction-related laws were approved by California legislators at the end of the 2011 legislative session: SB 474 and SB 293. This post discusses SB 293. Both bills are now headed to the governor’s desk for his signature or veto.

SB 293 includes several proposed modifications to construction law, but the one which has garnered the most attention is its provision to reduce the maximum retention amount which may be withheld on public works project to 5%. Currently there is no codified restriction on the proportion of retention which public entities may withhold. That said, this author typically sees 10% retention specified, perhaps subject to reduction at certain milestones. So, if passed, SB 293 would operate to reduce the status quo amounts.

Public entities are grumbling that this limit will operate to weaken their leverage in securing a timely and quality performance from their awardees. Contractors contend that reduced retention is necessary in light of current economic climate, when large retention withholdings can diminish their cash flow and cripple their ability to perform.

SB 293 would also modify “prompt payment” rules relative to progress payments on both public and private contracts. Currently, prime and upper-tier contractors have ten (10) days to pass progress payment proceeds onto lower-tiers after receiving the same. If SB 292 is signed into law, that timeframe would be lowered to seven (7) days. The timing of retention payments would not be modified.