Legislative Changes Affecting The Construction Industry Effective January 2012

Law Talk

By Sam K. Abdulaziz
& Kenneth S. Grossbart
Abdulaziz, Grossbart and Rudman

Each year, our Legislature creates numerous proposed new laws, which are called Bills. If these Bills pass through both the Senate and the Assembly, they are then sent to the Governor to be signed or vetoed. If the Governor vetoes a Bill, then we do not hear about it again, or at least not for a while. However, if the Governor signs a Bill, it becomes a new law. New laws usually become effective in January of the next year, but not always.

As most of you have heard, in 2010, SB 189 became law. SB 189 was a result of years of study by the California Law Revision Commission, as well as various members of the construction industry, the Legislature, and other interested parties, including our firm. It revamps the entire Mechanic's Lien, Stop Notice and Payment Bond scheme as it is set forth in the California statutes. Although SB 189 was passed  (signed into law) in the fall of 2010, it does not go into effect until July 1, 2012. In the interim, there have been additional Bills in the 2011 Legislative session affecting the Mechanic's Lien procedures. SB 190 was also passed into law but it merely "cleans-up" some of the language that was passed with SB 189. These new laws renumber and recast every statute pertaining to Mechanic's Liens, Stop Notices, and Payment Bonds as well as other statutes that relate to recovery by contractors. There are additional changes besides the renumbering of the statutes that are effective; in the grand scheme of things they are minimal but will still need to be taken into account come the effective date of the laws.

Although SB 189 and SB 190 do not go into effect until July 1, 2012, there are some other Bills that have become law that will go into effect beginning January 1, 2012. We will cover the changes effective July 2012 in another article. Following are some of the more pertinent laws effective January 1, 2012, that affect the construction industry.

AB 456 makes slight changes to the Notice of Mechanics Lien that went into effect last year. This is a notice that is required to be included with any Mechanic's Lien according to Civil Code section 3084. The changes are very minor, as a matter of fact; it is simply removing the apostrophes from the word "mechanic's" in the entire notice as well as slight changes on the proof of service affidavit with respect to whom is served. Currently, it is necessary to indicate "the person" that is being served. Effective January 1, 2012, the affidavit should indicate "the owner or reputed owner" that is being served. Again, these are minimal changes but important to comply with.

SB 944 adds one word to the notice titled "Information about the Contractors' State License Board (CSLB)" required by Business and Professions Code section 7030(b). The word "Internet" is added in the contact information for the CSLB. The particular line in question should read "Visit CSLB's Internet Web site at www.cslb.ca.gov"

SB 293 changes the time within which a contractor has to pay a subcontractor (or a subcontractor pay a subcontractor) progress payments from ten (10) days to seven (7) days after receipt of each progress payment unless otherwise agreed to in writing on all private works and on certain public works.

SB 293 also limits retention between the public entity and an original contractor to five percent (5%) of the contract price, except in instances where the public entity has specifically made a finding that was noticed prior to putting the project out for bid that the project is substantially complex and therefore requires a higher retention amount than the five percent (5%).

As between the prime contractor and its subcontractors, the new law limits that right of the contractor to withhold more retention from its subcontractor than is withheld by the owner of the project. This is not true, if prior to the bid time, the contractor has notified potential subcontractors that bonds are required from the subcontractors and the subcontractor is unable or refuses to furnish the contractor with a performance and payment bond issued by an admitted surety. In that instance, the limitation on retention does not apply.

SB 459 amends the Labor Code with respect to independent contractors. The penalties and potential disciplinary action against a contractor for purposefully misclassifying an employee as an independent contractor can now have fines from $5,000 to $15,000 per violation for a first offense. An employer who has engaged in a pattern of these violations can be subject to penalties between $10,000 and $25,000 per each violation, in addition to other penalties or fines permitted by law. The CSLB is also required to initiate a disciplinary action against the contractor, who is also disbarred from bidding projects based on violations of the Labor Law. Contractors need to make sure that their independent contractors really can be classified as independent contractors.

The above changes are effective January 1, 2012. There is no grace period on compliance. We will discuss the changes of SB 189, SB 190 and others that go into effect on July 1, 2012, in the next article.