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Public Contract Code Section 9204: New Challenges for Drafting and Administering Public Works Contracts

Public Contract Code section 9204 became effective January 1, 2017 and requires that construction contracts of all local agencies and certain state agencies contain a statutory claims procedure for processing contractor claims, paying undisputed amounts, and requiring mediation of disputed amounts. All public entities subject to Section 9204 must include in their bid documents either the text of the statute or an accurate summary. Any waiver of rights granted by the statute is void.

As public entities assemble bid packages and conduct bidding of projects under the new statute, a couple of practice points are arising with frequency. This client alert addresses two of them.

1.  Additional or pre-existing change order, claim, and dispute resolution procedures.

Although Section 9204 is long and detailed, it is not comprehensive. Public entities may prescribe additional change order, claim, and dispute resolution procedures, provided they do not conflict with the statute. A late senate floor amendment to the statute, now set forth in Section 9204(f)(2), makes this clear:

“a public entity may prescribe reasonable change order, claim, and dispute resolution procedures and requirements in addition to the provisions of this section, so long as the contractual provisions do not conflict with or otherwise impair the timeframes and procedures set forth in this section.”

This final amendment to the statute appears to permit the continued use by public entities of contract procedures defining categories of recoverable costs, requiring time delay analysis and evidence of actual costs, requiring notice of potential claims, timely documentation of potential claims, and requirements for jobsite negotiations of disputes that may become claims.

The more difficult issue concerns how the statute applies to contract notice of claim requirements that include claim waiver features, or that otherwise pre-decide or render moot a later statutory claim and public entity decision. Section 9204(f)(2) was literally a “last minute” amendment and is not well coordinated with the rest of the statute. For now, it is safe to say that advance claim waivers present a different set of issues.

It seems reasonable, however, that contract managers choosing claim provisions for new bid packages, may want to consider alternatives to self-executing claim waiver clauses. One example is the progressive “claim information” requirements, inventoried at project closeout, used in the 2015 Edition of the State of California Standard Specifications, more commonly known as the “Caltrans specs.” While these provisions impose claim waivers in certain circumstances, they are not predetermined during the course of the work.

In any event, whatever claim procedures the contract manager selects will need to comply with Section 9204’s prohibition against impairments to the statutory claim review, payment and meet and confer procedures. The statute’s stated purpose is to ensure timely payment of undisputed amounts, which may serve as a litmus test for assessing additional claim procedures and Section 9204 compliance.

An additional drafting challenge posed by Section 9204 pertains to the continued effect, if any, of the claim procedure by agreement provisions of Government Code section 930.2. Although the legislative history of Section 9204 indicates the lawmakers assumed the new claim procedure would supplant the Government Code procedures, the statute is silent about the Government Code and contains several provisions that could imply the opposite. The bottom line is that the interplay of Public Contract Code Section 9204 and the Government Code claim procedures is an open question. Consequently, the contract manager choosing claim provisions may reasonably elect to add express recitals about Government Code Section 930.2 and procedures that follow in the event of an unsuccessful mediation.

2.  Mediation procedures.

Section 9204 provides that for any claim remaining unresolved, the parties must agree upon a mediator, mediators or other facilitated dispute resolution procedure. The statute provides that mediation is non-binding, but otherwise does not address the specifics of confidentiality, mediator qualifications, time or place. More importantly, the statute appears susceptible to an interpretation that either party may require a different mediator for different claims.

Up until 2017, the majority of local public entity construction contracts did not contain procedures for a project neutral, dispute review board, mediator or other dispute management procedure. For smaller projects, the cost of even a mediator may seem high. There are, however, procedures available for small and moderate sized projects. An example is again found in the Caltrans practices, which have a process for a project neutral on projects as small as $3 Million. Procedures for a project neutral can also be found in the current forms of contracts published by the American Institute of Architects and ConsensusDocs, and on the JAMS website.

In any event, mediation or some form of project neutral is now the norm for California public works, and public entities will need to develop their own policies and procedures for its implementation.