New California Laws Affecting Contractors, Architects, Engineers – Summarized


January 8, 2001

By James E. Acret

Following are summaries of new and changed laws, constitutional amendment and regulations affecting contractors, architects and engineers in California.

Legislature Specifies Procedures for Determining Lowest Responsible Bidders When Alternates Are Included in the Bid

The Legislature recognizes that when a competitively bid contract includes alternates, the awarding authority can pervert the process of selecting alternates to steer the contract to a favored bidder. The Legislature also recognizes that public agencies have a legitimate purpose for including alternates in bid documents because a judicious selection of alternates can be employed to bring the cost of a project within the budget. The Legislature's solution is to give public agencies four alternative ways to deal with alternates.

1. The lowest bid price on the base contract without taking alternates into consideration.

2. The lowest bid price for the base contract plus all alternates.

3. Alternates selected according to a list of priorities published in the invitation to bid.

4. The lowest bid is determined after a "blind" selection of alternates so that the identity of the bidders is unknown to the persons who select the alternates.

If the agency fails to specify the method for identifying the low bidder, the low bidder shall be the contractor who submits the lowest price on the base contract. The new procedures apply to state contracts (Public Contract Code §10126), California State University projects (Public Contract Code §10780.5) and contracts awarded by local agencies (Public Contract Code §20103.8). Statues of 2000, Chapter 292, AB 2182, effective January 1, 2001.

Agencies May Allow More Time for Submission of "Or Equal" Data

Existing law provides that public agencies shall not draft contract documents so as to limit bidding to any one specific material or product unless the specification lists at least two products followed by the words "or equal." Under current law, bidders are required to submit data substantiating the request for substitution of an equal before the award of the contract. New Public Contract Code §10129 provides that specifications prepared by state agencies are to provide a period of time for submission of "or equal" data either before or after the award of the contract, and that if no time period is specified, data may be submitted for 35 days after the award. Statutes of 2000, Chapter 690, AB 2156.

Retentions Held Under Architectural, Engineering and Construction Management Contracts May Be Escrowed

State contracts for architectural, engineering and construction project management services shall include a provision allowing the retention to be placed in escrow with interest payable to the professional. Public Contract Code §6106.5, Statutes of 2000, Chapter 758, AB 2230.

Legislature Revises Procedures to Be Used by State Agencies for Employing Consultants

A new article commencing with §10335 is added to the Public Contract Code governing the award of contracts for services. The former distinction between contracts for services and consulting contracts is eliminated, and all contracts for services now are governed by the new Article 4. The article applies to all contracts, including amendments, entered into a state agency for services to be rendered to the state whether or not the services involve furnishing equipment, materials or supplies. Construction contracts are excluded from application from the article, as are contracts for less than $5,000. Also excluded are contracts of the trustees of California State University.

No state agency shall invite bids in a manner that limits the bidding directly or indirectly to any one bidder, and any contract awarded under such a proposal is void. With minor exceptions, the agency shall secure at least three competitive bids for each contract. If the agency receives fewer than three bids, it must document its efforts to obtain more bids. The agency shall issue a request for proposal that includes a precise description of the services to be provided and the standards the agency will use in evaluating the proposal. No proposal shall be considered unless received at or before the time specified in the RFP. Sealed bids are to be publicly opened and read, and the contract shall be awarded to the lowest responsible bidder. Contracts also may be awarded based on an evaluation and scoring procedure after a committee evaluates and scores all proposals. Scoring sheets must be available for public inspection.

If a contract is not to be awarded to the low bidder, the agency must give the low bidder five working days notice prior to award. A procedure is established for processing bid protests.

At least 10 percent of the contract amount shall be withheld pending final completion of the contract. Public Contract Code §§10335 to 10381, Statutes of 2000, Chapter 759, AB 2304.

NOTE: State contracts for architectural, engineering, surveying and construction project management services also are covered by Public Contract Code §6106, which establishes procedures for negotiation with the selected firm. Government Code §4528 also covers contracts between state agencies and architects, engineers, surveyors and construction project managers. Section 4528 provides that the head of the agency shall negotiate a contract with the best qualified firm at compensation determined to be fair and reasonable. If the agency head is unable to negotiate a satisfactory contract, negotiations with that firm are formally terminated, and the head of the agency starts negotiations with the second most qualified firm, and so on.

Transit Systems and Certain Counties Are Authorized to Enter into Design-Build Contracts

Article 6.8 is added to the Public Contract Code (commencing with §20209.5) to authorize public agencies to utilize the design-build method for the construction of transit systems. The new law imposes detailed requirements. The agency must evaluate the appropriateness of the design-build process for reducing costs, expediting the project and providing desirable design features. The first step is for the agency to prepare documents setting forth the scope of the project and performance specifications. (Any architectural or engineering firm retained by the agency to assist in the process is not eligible to compete for the project.) The agency prepares an RFP to solicit competitive sealed proposals. The RFP must specify the methodology and weighting that will be used by the agency in evaluating proposals. The agency may reserve the right to negotiate with bidders and must adopt rules and procedures to ensure that any negotiations are conducted in a fair and impartial manner. The agency shall establish prequalification procedures to include evidence that the bidder has successfully completed similar projects and is able to provide a performance bond and errors and omissions insurance. The prospective bidder must disclose whether it or its officers or managing employees have ever defaulted on a construction contract and also must provide information concerning claims, disputes, lawsuits and any work completed by a surety.

For projects with costs up to $20 million, the contract shall be awarded to the lowest responsible bidder. For projects costing more than $20 million, the agency may award the project either to the lowest responsible bidder or by best value. "Best value" means a value determined by objective measurements that may include price, features, functions, life-cycle costs and other appropriate criteria. Bidders are ranked from most advantageous to least advantageous. The factors of price, technical expertise, life-cycle costs, skilled labor force availability and acceptable safety record must, taken together, represent at least 50 percent of the total weight assigned to the factors taken into consideration in evaluating proposals. The agency must issue a written declaration supporting the contract award that states in detail the basis of the award. The award is publicly announced along with the overall combined rating of the successful bidder and the ranking of all other bidders.

Retention shall not exceed 5 percent. No retention is to be withheld for actual costs of design services, construction management services or completed operations and maintenance services. The successful bidder may not withhold any more retention from a subcontractor, nor may a subcontractor withhold any more retention from a sub-subcontractor than the percentage specified in the contract between the agency and the design-build contractor. Bidders are required to provide performance and payment bonds, and all design and architectural services must be covered by errors and omissions insurance. Uniform bond forms will be developed by the Department of General Services. Bidders are to provide public notice of the availability of work to be subcontracted, including a date when the subcontract work will be awarded. The subcontractors listing law applies.

Agencies utilizing the design-build process are to report results to the legislature. Statutes of 2000, Chapter 541, AB 958.

Section 20133 also is added to the Public Contract Code to authorize the Counties of Alameda, Contra Costa, Sacramento, Santa Clara, Salinas, Sonoma and Tulare to award contracts on a design-build basis to the lowest responsible bidder by best value. The county program is almost identical to the one described above for transit agencies. Counties are required to prepare a standard questionnaire to prequalify bidders. In preparing the questionnaire the county shall consult with the construction and surety industries. Counties are required to rank sequentially only the top three responsive bidders. Any performance bond shall be on a bond form developed by the county. Counties electing to proceed under design-build contracts are required to submit a report to the legislative analyst's office before December 1, 2004, and the legislative analyst is to report to the legislature on or before January 1, 2005. Statutes of 2000, Chapter 594, AB 2296.

Legislature Experiments with Electronic Bidding for Public Contracts

The legislature has authorized the Orange County Transportation Authority and the Santa Clara Valley Transportation Authority to establish procedures for electronic bidding through the Internet. These agencies are to report to the Legislature on the effectiveness of electronic bidding processes on or before January 1, 2003. Public Utilities Code §130241.5, Statutes of 2000, Chapter 526, AB 2109.

Applications for Building Permits May Be Signed and Transmitted Electronically

Section 19826 of the Health and Safety Code is amended to provide that an application for a building permit shall be subject to the Uniform Electronic Transactions Act. Under the new law, the application and accompanying declarations thus may be signed and transmitted by fax or other electronic means. Statutes of 2001, Chapter 49, SB1434.

Private Architects and Engineers May Work on Public Projects

Proposition 35 was adopted on November 11, 2000. It is intended

… to remove existing restrictions on contracting for architectural and engineering services and to allow state, regional and local governments to use qualified private architectural and engineering firms to help deliver transportation, schools, water, seismic retrofit and other infrastructure projects safely, cost effectively and on time.

The State of California and all other governmental entities are allowed to contract with qualified private entities for architectural and engineering services for all public works of improvement. Included within the scope of the law are architectural, landscape architectural, environmental, engineering, land surveying, and construction project management services. Architectural and engineering services shall be procured under a fair, competitive selection process. The act is not be applied in a manner that will result in the loss of federal funding to any governmental entity. California Constitution Article XXII, Government Code §§4529.10 to 4529.20.

Regulations for Professional Engineers and Land Surveyors Are Extensively Amended

The statutes governing the practice of professional engineering are modified by providing for separate registration of electrical and mechanical engineers. All civil (including structural and geotechnical) engineering plans, calculations, specifications and reports shall be prepared by or under the responsible charge of a registered civil engineer. Interim documents shall be identified as "preliminary," "not for construction" or "for review only." All civil engineering plans and specifications shall bear the signature and seal or stamp of the registered engineer. Electrical engineering and mechanical engineering plans, specifications, calculations and reports also must be signed and stamped.

Engineers from out of state must have a part owner or officer in charge of engineering registered and physically present in California on a regular basis. Any person using the title "structural engineer" must have successfully passed a structural engineering examination sponsored by a nationally recognized structural engineering association. Candidates for licensure as land surveyors must pass national examinations. Business and Professions Code §6704.1 ff, Statutes of 2000, Chapter 1006, SB 2030.

Legislature Specifies Requirements for Revocation and Suspension of Licenses and for Engineering and Surveying Contracts

Section 6749 is added to the Business and Professions Code to require professional engineers to use written contracts for professional engineering services. The contract must include:

	A description of the services to be provided.
	A description of the basis of compensation.
	The name, address and license or certificate number of the professional engineer and the name and address of the client.
	A description of the procedure that will be used to accommodate any additional services.
	A description of the procedure to be used by any party to terminate the contract.

Section 8759 is added to the Business and Professions Code to impose similar written contract requirements upon civil engineers and land surveyors.

The board is authorized to revoke or suspend engineering and surveying licenses based on negligence, incompetence, breach of contract or unprofessional conduct. Statutes of 2000, Chapter 976, AB 2629.

Contractors State License Board Expanded

Business and Professions Code §7000.5 is amended to increase the membership of the Contractors State License Board from 13 to 15. Statutes of 2000, Chapter 1005, SB 2029.

Legislature Sets Goals for Contractors State License Board

The Contractors State License Board is required to improve its disciplinary system so that investigations will be completed within six months. The board is directed to conduct a comprehensive study of issues dealing with home improvement contracts and home equity lending scams. The board is instructed to conduct a comprehensive study and review of recovery fund programs in California and other states that provide compensation to consumers for financial injury caused by licensed professionals. The board also is instructed to study the use of surety bonds to compensate homeowners for financial injury caused by contractors. Business and Professions Code §7021, Statutes of 2000, Chapter 1005, SB 2029.

Home Improvement Contracts Must Include Liability Insurance Disclosures

Sections 7159.3 and 7164 of the Business and Professions Code are amended to require that home improvement contracts include a statement emphasizing the value of commercial general liability insurance, a check box showing whether a contractor carries such insurance and providing the name and telephone number of the insurer. These requirements become operative three months after the board adopts regulations implementing them. In addition, home improvement contracts and estimates for home improvement work must be accompanied by a statement emphasizing the value of such insurance and a checklist prepared by the Contractors State License Board setting forth the items that an owner contracting for home improvements should consider when reviewing a proposed home improvement contract. Statutes of 2000, Chapter 1005, SB 2029.

Licensure Requirements Are Relaxed for Surveyors

Requirements for admission to the first division of the licensure examination is changed from two years of post-secondary education in land surveying to two years of post-secondary education or two years of experience or one year of each. County recorders are required to provide filing data for a record of survey within 10 days after the filing of the map. Business and Professions Code §8741, Statutes of 2000, Chapter 678, SB 1563.

Public Contract Payment Bond Requirements Are Simplified

Existing law required public contractors to supply payment bonds based on a sliding scale. For example, the amount of the payment bond for a $5 million contract was 100 percent of the contract price, but the payment bond for $6 million was for 50 percent of the contract price. This was anomalous because a bigger contract required a smaller payment bond. Section 3248 of the Civil Code has been amended to remove the anomaly and require that the payment bond be 100 percent of the contract price in all cases. Under amended §7103 of the Public Contract Code, the new provisions also apply to state contracts. Statutes of 2000, Chapter 760, AB 2557.

Community Colleges Are Exempted from Approval Requirements for State Contracts

Section 10295 of the Public Contract code provides that all contracts, including construction contracts, entered into by any state agency are to be transmitted with all papers, estimates and recommendations to the Department of General Services to become effective when and if approved by that department. The approval requirement does not apply to contracts of the California State University system. Effective January 1, 2001, the California Community Colleges also are exempted from the approval requirement. Statutes of 2001, Chapter 36, AB1441.

School Districts May Be Required to Pay for Reusing Plans and Specifications Prepared by an Outside Architect or Structural Engineer

Before January 1, 2001, the law provided that plans and specifications prepared for a school district would belong to the school district. Under amended §17316 of the Education Code, the school district may use the plans and specifications for repair, maintenance, modernization, additions and alignments but otherwise the architect or structural engineer retains all common law, statutory, copyright and other reserved rights. If the district proposes to reuse the plans, the contract shall specify the terms and conditions for reuse. Statutes of 2000, Chapter 348, AB 701.

State May Stop School Projects that Violate Seismic Safety Requirements

The Department of General Services is authorized to issue a stop work order when a public school, a community college or an essential services facility is not being constructed in accordance with seismic safety requirements. The public agency responsible for the work shall not be held liable to the contractor for damages for delay except to the extent that an error or omission by the public agency is the basis for the issuance of the stop work order. Education Code §§17307.5, 81133.5, Health and Safety Code §16017.5, Statutes of 2000, Chapter 463, AB 2791.

Handicap Access Requirements for Public Buildings Are Expanded

Sections 4451 and 4454 of the Government Code are amended, and §4459 is added to expand handicap access requirements for certain public buildings. Statutes of 2000, Chapter 989, SB 1242, effective January 1, 2000.

Radon Certificate Required for Individual Contractor Who Performs Radon Mitigation Work

The Health and Safety Code is amended to require that any person providing radon services must successfully complete a national radon proficiency program and file a certificate of completion at least 14 days before conducting radon services. "Radon services" is defined to include the repair or alteration by an individual person of a building for the purpose, in whole or in part, of reducing the concentration of radon in the indoor atmosphere. Violation is a misdemeanor punishable by a fine of not more than $1,000. Health and Safety Code §§106750 to 106795, Statutes of 2000, Chapter 327, AB 2546, effective January 1, 2001.

Local Agencies Must Expedite Processing of Building Permits for Agricultural Housing

Cities and counties are required to approve or disprove an application for a building permit to rehabilitate agricultural employee housing within 60 calendar days. If the application is not approved or denied within 60 days, the Department of Housing and Community Development is authorized to approve the application. Health and Safety Code §§17021, 17055, Statutes of 2000, Chapter 702, SB 1545.

Prevailing Wages Are Required for Certain Housing Projects

Section 50675.4 of the Health and Safety Code is amended to impose a prevailing wage requirement on multi-family housing programs administered by the Department of Housing and Community Development. Statutes of 2000, Chapter 957, AB 1901.

Hearing Procedures Adopted for Determining Violations of Wage and Hour Requirements on Public Projects

Section 1727 of the Labor Code is amended to require public agencies to withhold from their contractors amounts required to satisfy civil wage and penalty assessments issued by the Labor Commissioner, but such amounts are not to be disbursed until receipt of a final order that no longer is subject to judicial review. The Labor Commissioner is authorized to issue a civil wage and penalty assessment to a contractor or subcontractor that has failed to abide by the requirements of wage and hour laws. A copy of the assessment also shall be mailed to the surety on any payment bond covering the project. A contractor or subcontractor is entitled to review of any such assessment, and a hearing must be held before an officer possessing the qualifications of an administrative law judge. The contractor or subcontractor is given the burden of proving that the basis for the penalty assessment is incorrect. Decisions are subject to review by petition for writ of mandate. Statutes of 2000, Chapter 954, AB 1646.

Regulation of Time-Shares Is Extended

The authority of the Commissioner of Real Estate to regulate sales of time-shares is extended to include a single-site time-share project that is associated with other such projects through a reservation system. Business and Professions Code §§11003.5, 11018.1, 11018.10, Statutes of 2000, Chapter 522, AB 935.

Processing of Subdivisions by the Commissioner of Real Estate Is Expedited, and Some Projects Are Exempted

Proposed sales of lots in commercial or industrial subdivisions are exempted from regulation by the real estate commissioner. Also excluded are sales of parcels for future intended development by subdivision into five or more lots. Business and Professions Code §§11010, 11010.2, 11010.3, 11010.10, 11010.35. Statutes of 2000, Chapter 279, SB1395.

Panel to Study Potential Ethical Problems for Insurance Defense Counsel

The Legislature recognizes that problems of professional ethics may arise when a lawyer is employed by an insurance carrier to represent an insured party. There may be a conflict between the interests of the insurer, which selects and pays the lawyer, and the interests of the insured. Ethical problems also potentially may arise when a lawyer is employed by an insurance company to represent one insured and then is subsequently employed by another party who has claims against a third party who is also insured by the same carrier. The lawyer could be tempted sacrifice the interests of the client in order to curry favor with the insurer.

Section 6068.11 is added to the Business and Professions Code to require the State Bar of California to conduct a study of such issues in consultation with the defense bar, the plaintiffs bar, the insurance industry and the Judicial Council and to report to the legislature and the Supreme Court of California on or before July 1, 2001. Statutes of 2000, Chapter 472, AB 2069.

Northridge Earthquake Insurance Claims Are Revived

Insurance claims from the Northridge earthquake that are barred by the statute of limitations are revived, and suit may be filed until December 31, 2000. The revival applies only in cases in which an insured contacted the insurer before January 1, 2000. The revival does not apply to claims that have been litigated to finality or to claims that have been settled with the participation, on behalf of the insured, of a licensed California lawyer who signed a settlement agreement. Code of Civil Procedure §340.9, Statutes of 2000, Chapter 1090, SB1899.

Appointments and Activities of Discovery Referees Are Limited

Discovery referees must be appointed by a written order that specifies, among other things:

	The reason the referee is being appointed.
	The exceptional circumstances requiring reference.
	The maximum hourly rate the referee may charge and, at the request of any party, the maximum number of hours for which the referee may charge.
	Either a finding that no party has established inability to pay a pro rata share of the referee's fee or a finding that a party has agreed voluntarily to pay the share of the referee's fee that another party is unable to pay.

Code of Civil Procedure §639, Statutes of 2000, Chapter 644, AB 2912.

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