Summary Of Recent Developments InCalifornia Construction Law

Randall L. EricksonCrowell & Moring LLP

I. CASE LAW

A. Arbitration

Villa Milano Homeowners Association v. Il Davorge, 84Cal.App.4th 819, 102 Cal.Rptr.2d 1 (2000), review denied, 2001 Cal.LEXIS 1250 (Cal. Feb. 21, 2001).The court held that an arbitration clause contained in recordedCC&R’s was unenforceable because it was both procedurally andsubstantively unconscionable. The court found that condominiumowners are generally deemed to agree to the provisions contained inCC&R’s because they have constructive notice of them at the time ofthe purchase of the dwelling. However, in this case, the court heldthat the homeowners never had the opportunity to negotiate and werefaced with a contract of adhesion.

B. Bad Faith Damages Against A Surety

Cates Construction, Inc. v. Talbot Partners, 21 Cal.4th 28, 86Cal.Rptr.2d 855 (1999).When a contractor abandoned a contract to build condominiums, thedeveloper/owner sued the contractor’s surety for breach of theperformance bond. The developer/owner also asserted a tort claimagainst the surety for breach of the covenant of good faith and fairdealing, seeking punitive damages. The tort claim was based upon theassertion that the surety improperly failed to get involved in thedispute between the developer/owner and the contractor. TheCalifornia Supreme Court held that the bond and constructioncontract, when construed together, permit the owner/developer torecover “delay damages” from the surety. The Court further held that1) the obligee of a construction performance bond may not recover intort for the surety’s bad faith, and 2) the obligee also cannot recoverpunitive damages for the surety’s bad faith. Since performance bondsare not insurance policies nor contracts of adhesion, the Court foundthat an extra-contractual remedy was not permitted.

C. Construction Defects

Aas v. Superior Court, 24 Cal.4th 627, 101 Cal.Rptr.2d 718(2000).Homeowners and their association brought a negligence suit againstthe developer and general contractor for numerous instances of allegedconstruction defect, primarily building code violations, seeking the costof repair and the diminution in value of their residences. None of thealleged defects had yet resulted in actual property damage. The courtheld the homeowners could not recover in negligence absent propertydamage, and ruled that the tort of “negligent interference withprospective economic advantage,” as described in J’Aire Corp. v.Gregory, 24 Cal.3d 9 (1979), was not applicable. The Court reasonedthat speculative harm or the threat of future harm is not sufficient tostate a tort cause of action.

Krusi v. S.J. Amoroso Construction Co., Inc., 81 Cal.App.4th 995,97 Cal.Rptr.2d 294 (2000), review denied, 2000 Cal. LEXIS 8089 (Cal.Oct. 18, 2000).The fourth owner of an apartment complex brought suit against thearchitect and the contractor for construction defects that caused waterdamage. The court ruled that the current owner could not bring suitbecause it did not own the cause of action. Rather, the original ownerowned the cause of action because he had been aware of the damageand arbitrated the issue. The court held that the subsequent ownercould only bring suit against the contractor and the architect for afundamentally new and different type of damage.

D. Environmental

Solid Waste Agency of Northern Cook County v. U.S. ArmyCorps of Engineers, 126 S.Ct. 675 (2001).The court held that the Army Corps of Engineers cannot use the“migratory bird rule” to regulate, under the Clean Water Act, isolatedwaters that have no connection to interstate waters.

E. Expert Witness Fees

First Nationwide Bank v. Mountain Cascade, Inc., 77Cal.App.4th 871, 92 Cal.Rptr.2d 145 (2000).After judgment was entered in favor of the owner/developer in a suitfor indemnity against excavation subcontractors and other contractors,the owner/developer moved for an award of attorneys’ fees and costs.The trial court granted the owner/developer’s motion. The court of

appeals reversed, holding that expert witness fees cannot be recoveredas “costs” unless the expert is court appointed or Code of CivilProcedure section 998 applies. Since costs and attorneys fees aremutually exclusive, the court held that the statutory prohibition onrecovery of expert witness fees as costs can not be avoided bycharacterizing such fees as an element of attorneys’ fees. The courtfurther held that expert fees may be recoverable under a contractualarrangement between the parties, but that it is necessary to “specially”plead and prove such damages at trial, not via a memorandum of costs.

F. Insurance

Certain Underwriters at Lloyd’s, London et al. v. SuperiorCourt, 24 Cal. 4th 945, 103 Cal.Rptr.2d 672 (2001).In a case of first impression, the California Supreme Court addressedthe issue of whether an insurer’s duty to indemnify the insured for allsums that the insured becomes legally obligated to pay as damages islimited to money ordered by a court. In this case, both state andfederal environmental agencies had instituted administrativeproceedings against an oil refiner requiring it to expend funds to cleanup environmental contamination. Faced with this liability, the refinerbrought a cross-complaint against an insurer that had issued therefiner a comprehensive general liability (CGL) policy to establish thatit owed it a duty to indemnify it for the sums required by theadministrative agencies to clean up the contamination. Where there islanguage in the policy that limits coverage to sums that the insuredbecomes legally obligated to pay as damages, the court held that theduty to indemnify under a CGL policy is limited to money that aninsured becomes obligated to pay as the result of a lawsuit not anadministrative proceeding. The court declined to deviate from itsliteral construction of the policy language and follow other jurisdictionsthat have adopted a liberal construction of the term “damages” toinclude liability resulting from administrative proceedings.

Ray v. Valley Forge Insurance Co., 77 Cal.App.4th 1039, 92Cal.Rptr.2d 473 (1999), review denied, 2000 Cal. LEXIS 2120 (Cal.Mar. 22, 2000).Roofing consultant was sued by homeowners’ association for providingbad advice about roofing materials. The consultant tendered defenseunder his CGL policy but was denied by the carrier. The consultantthen sued the carrier for breach of contract and bad faith. The courtheld that the CGL policy, which covered accidents causing bodilyinjury or property damage, did not provide errors and omissionscoverage to the roofing consultant for rendering bad advice to the

customer.

Pardee Construction Co. v. Insurance Company of the West, 77Cal.App.4th 1340, 92 Cal.Rptr.2d 443 (2000), rehearing denied, 2000Cal.App. LEXIS 114 (Cal.App. Feb. 23, 2000), review denied, 2000 Cal.LEXIS 4025 (Cal. Apr. 26, 2000).A general contractor was sued by a homeowners’ association under atheory of vicarious liability for construction defects caused by itssubcontractors. The general contractor, having been named anadditional insured on the subcontractors’ CGL policies, brought suitagainst various insurers when they refused to provide a defense of theunderlying suit. The project containing the defective construction hadbeen completed prior to the inception of the subcontractor’s insurancepolicy. The court held that that insurers had a duty to defend thegeneral contractor under the completed operations coverage portion ofthe policies. The ruling was based upon the fact that policies did notlimit coverage to a particular time or project, and therefore coverageapplied even to a project completed before the policy incepted.

Tento International, Inc. v. State Farm Fire and Casualty Co.,222 F.3d 660 (9th Cir. (Cal.) 2000).A tenant of a building suffered damage from rain when the roofingcontractor hired by the landlord failed to cover an opening in the roof.The tenant submitted a claim under its own insurance policy for therain damage. When the tenant’s insurance carrier denied coverage,the tenant brought suit seeking to establish coverage. The court firstheld that the contractor’s negligence (i.e., the failure to cover the roof)was the “predominating” or “most important cause” of the loss. Thepolicy had an exclusion for faulty workmanship, but the policy alsostated that “we will pay for that resulting loss unless the resulting lossis itself one of the losses not insured in this section.” The court heldthat the faulty workmanship exclusion applied, but nonetheless foundcoverage because the resulting loss (i.e., damage from the rain) was notspecifically excluded in the policy.

Pershing Park Villa Homeowners Association v. United PacificInsurance Co., 219 F.3d 895 (9th Cir. (Cal.) 2000).Insurance company, which withdrew defense of developers in aconstruction defect case, was determined to have done so in bad faith.The insurer’s withdrawal of defense resulted in a default judgment tobe entered against the developers.. As a result, the court awarded thedevelopers the amount of the default judgment as well as significantdamages for emotional distress that resulted from insurer’s actions.The court held that emotional distress damages were proper even

though the emotional distress was not severe.

Rattan V. United Services Automobile Association, 84Cal.App.4th 715, 101 Cal.Rptr.2d 6 (2000), review denied, 2001 Cal.LEXIS 370 (Cal. Jan. 17, 2001).After a fire caused damage to a home, the homeowner’s insurancecarrier, in addition to covering the damage caused by the fire, providedthe homeowner with a series of recommended contractors to repair thedamage. In addition, the insurance carrier guaranteed the quality ofthe chosen contractors’ work. When the contractors failed to performthe repair work in a satisfactory manner, the insured sued the insurerfor bad faith. The court ruled in favor of the insurer finding thatdefective workmanship by a contractor recommended by the insurerdoes not subject the insurer to tort liability, even when the insurancecarrier guarantees the quality of the work. The court reasoned thatthe homeowner had adequate contractual remedies against both theinsurer and the contractor.

G. Mechanic’s Lien/Stop Notice

ECC Construction, Inc. v. Ganson, 82 Cal.App.4th 572, 98Cal.Rptr.2d 292 (2000), review denied, 2000 Cal. LEXIS 8140 (Cal. Oct.18, 2000). A contractor who had performed earthquake repairs on acondominium development filed an action to foreclose a mechanic’s lienagainst the 300 condominium owners. The lien was a blanket lien anddid not delineate the amount due from each condominium owner. Thecourt held that the contractor could not foreclose the lien because ithad not established the reasonable value of the work performed oneach condominium unit.

Ivy Trucking , Inc. v. Creston Brandon Corp., 84 Cal.App.4th 85,100 Cal.Rptr.2d 582 (2000), review denied, 2001 Cal. LEXIS 217 (Cal.Jan. 10, 2001). A trucker hired to haul dirt by a subcontractor on aCaltrans project served a stop notice. At trial, the court held that thetrucker did not have stop notice rights because transportation did notconstitute “labor or materials.” The appellate court reversed findingthat the trucker fell under one of the exceptions to the rule thattransporters do not have stop notice rights: haulers hired by an agentof the owner. Assuch, the court held that the subcontractor that had hired the truckerwas the statutory agent of Caltrans and as such could confer lienrights on lower tier subcontractor or material supplier.

H. Oral Contracts

Arya Group, Inc. v. Cher, 77 Cal.App.4th 610, 91 Cal.Rptr.2d 815(2000). A contractor hired to design and build a custom home wasterminated prior to completion of the project. Since the owner hadfailed to sign the written contract, the contractor sued the ownerbased on the initial oral contract between the owner and thecontractor. While construction contracts for single-family homes arestatutorily required to be in writing, the court held that thecontractor’s allegations clearly placed it within the exception to therule because the owner would be unjustly enriched if the contract couldnot be enforced.

Mezzetta, Inc. v. City of American Canyon, 78 Cal.App.4th 1087,93 Cal.Rptr.2d 292 (2000). The court refused to enforce an oralcontract between a corporation and a municipality because the city, asa general law city, had only those powers expressly conferred upon itby the Legislature. Taking into account both state law and the city’sordinances, the court held that contracts with the city must be inwriting.

I. Payment Bond

Walt Rankin & Associates, Inc. v. City of Murrieta, 84Cal.App.4th 605, 101 Cal.Rptr.2d 48 (2000). A subcontractor who wasnot paid for work performed on a municipal construction project filed astop notice and an action on the payment bond. As part of the bidsolicitation process and the award of the contract, the generalcontractor had been required to provide a payment bond. The city paidpart of what was owed to the subcontractor as a result of the stopnotice. However, the subcontractor was unable to collect on thepayment bond because the surety turned out to be insolvent.Thereafter, the subcontractor brought suit against the city for failingto perform its statutory duty to verify the financial condition of thegeneral contractor’s surety. The court held that the city had a duty toverify the solvency of the surety, and that its failure to do so was theproximate cause of the subcontractor’s loss.

R.P. Richards, Inc. v. Chartered Construction Corp., 83Cal.App.4th 146, 99 Cal.Rptr.2d 425 (2000).Under a settlement agreement arising out of a payment disputebetween a contractor and a subcontractor, the contractor agreed to paythe subcontractor a sum in exchange for a release by all parties of allclaims arising out of the subcontract. The contractor notified its surety

but the surety did not agree to the settlement. When the contractordid not pay the subcontractor under the settlement, the subcontractorsued under the payment bond. The court entered judgment for thesurety finding that the settlement agreement exonerated the suretybecause it materially altered the surety’s principal obligations andimpaired its rights and remedies. As a result, the subcontractor foundthat its bond protection had been voided.

J. Products Liability

Jimenez v. Superior Court, 82 Cal.App. 4th 856, 98 Cal.Rptr.2d587 (Cal.App. 2000), review granted and opinion superseded by, 12P.3d 1067, 101 Cal.Rptr.2d 652 (Cal. 2000). Homeowners brought suitunder strict liability against the developer and manufacturers ofdefective windows installed in mass-produced homes. Themanufacturers were also subcontractors on the housing developmentproject. While strict liability does not apply to subcontractors whomerely provide services in the construction of mass-produced housing,the court ruled that strict liability does apply to subcontractors thatprovide products or to material suppliers or manufacturers of products.

K. Public Contracts

Amelco Electric v. City of Thousands Oaks, 98 Cal.Rptr.2d 159(Cal.App. 2000), review granted, depublished by: 11 P.3d 956, 101Cal.Rptr.2d 199 (Cal. 2000). Electrical contractor who was awardedcontract to perform electrical work on a municipal performing artscenter project, brought an action against the municipality forabandonment and breach of contract. During construction, themunicipality had issued numerous design changes which resulted inthe contractor incurring cost overruns in excess of $2 million. Thecourt held that a public contract could be abandoned and that the city’sexcessive changes amounted to abandonment of the contract. As aresult, the contractor was entitled to recover all of its actual costs plusa reasonable profit. This case is very important because it is the firsttime a California court has applied the total cost approach of C.Norman Peterson Co. v. Container Corp of America, 172 Cal.App.3d628 (1985) to a public entity. The court further held that thecontractor’s execution of mechanic’s lien releases did not waive thecontractor’s breach of contract claim because the releases were limitedto mechanic’s lien, stop notice and payment bond rights.

Kajima/Ray Wilson v. Los Angeles County Metropolitan Transp.

Auth., 23 Cal.4th 305, 96 Cal.Rptr.2d 747 (2000). Even though its bidwas $1 million less than the second lowest bidder, a contractor was notselected as the low bidder on a subway construction project because itdid not meet the agency’s Disadvantaged Business Enterprise (DBE)goals. The disappointed bidder brought suit seeking bid preparationcosts and lost profits. Subsequently, it was discovered that the agencyhad an unwritten policy that gave more DBE credits for DBE’s thatwere designated as subcontractors than for DBE’s designated asbrokers. Both the plaintiff and the second lowest bidder had used thesame subcontractor but the plaintiff had designated it as a broker andthe second lowest bidder had designated it as a subcontractor. Had theplaintiff been aware of the agency’s policy, it would have been awardedthe contract as the lowest bidder. Reversing the trial court’s grant oflost profits, the California Supreme Court held that a disappointedbidder under a theory of promissory estoppel is limited to bidpreparation costs.

L. Affirmative Action

Hi-Voltage Wire Works, Inc. v. City of San Jose, 24 Cal. 4th 537,101 Cal.Rptr.2d 653 (2000). The court ruled unconstitutional amunicipal program that required bidders on public works contracts toinclude a specific percentage of MBE/WBE subcontractors or documentefforts to do so. The court held that the program violated the anti-discrimination provision added to the California Constitution byProposition 209.

M. Safety

McKown v. Wal-Mart Stores, Inc., 82 Cal.App. 4th 562, 98Cal.Rptr.2d 214 (Cal.App. 2000), review granted and opinionsuperseded by, 11 P.3d 954, 101 Cal.Rptr.2d 197 (Cal. 2000).In a case of first impression, a California appellate court ruled thatwhile an owner can not be sued for vicarious liability by the injuredemployee of its independent contractor, an owner may be sued by aninjured employee for furnishing unsafe equipment. In this case, Wal-Mart hired a contractor to install sound equipment in several of itsstores. Wal-Mart further specified that whenever possible thecontractor should use Wal-Mart’s forklifts. An employee of thecontractor was injured from a fall from one of the forklifts that wasmissing a required piece of equipment.

Camargo v. Tjaarda Dairy, 79 Cal.App. 4th 1088, 94 Cal.Rptr.2d680, (Cal.App. 2000), review granted and opinion superseded by, 4 P.3d

927, 98 Cal.Rptr.2d 671 (Cal. 2000).Bad weather made a task too difficult for the defendant to perform,and as a result the defendant hired a trucking company to perform thetask (scraping and removing manure). This task required driving atractor over piles of manure over six feet high which had becomeslippery from rain. An employee of the trucking company diedperforming the job. The estate of the deceased worker sued, allegingthat the defendant hired the contractor to perform dangerous workwith no knowledge of the contractor’s qualifications to perform suchwork. The trial court granted summary judgment for the defendantbased upon Privette v. Superior Court and Toland v. Sunland HousingGroup (limiting remedy under peculiar risk doctrine to workerscompensation). The appellate court reversed, holding that Privetteand Toland did not abrogate a cause of action for negligent hiring of anindependent contractor brought by an employee of the independentcontractor.

Kinney v. CSB Construction, Inc., 87 Cal.App. 4th 28 (2001),rehearing denied ordered published by, 2001 Cal.App. LEXIS 119(Cal.App. Feb. 26, 2001).In this case, an employee of a subcontractor injured on the job broughtsuit under Section 414 of the Restatement Second of Torts against thegeneral contractor claiming that the general contractor, who hadretained control over the project, had negligently failed to require thesubcontractor to provide adequate safety protection. FollowingPrivette and Toland, the court held that liability can not be imposed onthe general contractor owing only to the failure of the generalcontractor to require the subcontractor to take safety precautionswithout there being evidence that the general contractor’s failureaffirmatively contributed to the creation or persistence of the hazardthat caused the plaintiff’s injury. The court ‘s decision was influencedby the fact that it did not want to create a situation where the plaintiffhad received compensation for his injury through the workers’compensations law thereby immunizing from liability thesubcontractor, the more immediate tortfeasor, while the generalcontractor would remain liable. Moreover, the court reasoned that theprice of workers’ compensation is borne by the general contractor inthat it is factored into the price that the general contractor pays thesubcontractor.

Rick’s Electric, Inc. v. California Occupational Safety & HealthAppeals Bd., 80 Cal.App.4th 1023, 95 Cal.Rptr.2d 847 (2000).A contractor was held to have willfully violated Cal-OSHA after anemployee received severe burns from a live wire. Under Cal-OSHA,

work may not be performed on energized parts of equipment orsystems unless proper precautions have been followed. The contractorin this case directed its employees to work on exposed electrical cableswithout determining if they had been de-energized. The Cal-OSHAinspector cited the contractor with a willful violation which increasesthe penalty ten-fold. The willful violation resulted because thecontractor had been cited three weeks earlier for a violation of thesame rule. The court held that the contractor had committed a willfulviolation because the contractor was aware of the safety regulation andthe hazardous condition. The court further stated that the contractor’subjective state of mind need not be proved in order to provewillfulness.

N. Statute of Limitations

Giest v. Sequoia Ventures, Inc., 83 Cal.App.4th 300, 99Cal.Rptr.2d 476 (2000).In this case for wrongful death, the estate of a deceased employee of apower plant sued the contractor that had built an addition to thepower plant that incorporated asbestos containing materials. At trial,the court entered a judgment of nonsuit holding that Montana’s ten-year statute of repose barred the plaintiff’s action (the Montanastatute is similar to California’s ten year statute of repose). On appeal,the court of appeals affirmed. The court held that the statute of reposeprotects “those engaged in designing, constructing and supervisingimprovements to real property not those engaged in manufacturing,selling and supplying products to and building materials used in anysuch improvement.” Rejecting the appellants’ argument that thecontractor acted as a supplier of the asbestos, the court held that ageneral contractor’s incorporation of a product or material in aconstruction project does not automatically make the contractor asupplier of the product or material.

O. Taxes

Hunt Building Corp. v. Bernick, 79 Cal.App.4th 213, 93Cal.Rptr.2d 883 (2000), review denied, 2000 Cal. LEXIS 5740 (Cal.July 12, 2000).General contractor working on a federal project on federal land in hademployed unlicensed subcontractors to perform work on the project.The California Employment Development Department (EDD) assessedthe contractor for the unlicensed subcontractor’s unpaid contributionsto unemployment insurance, disability insurance, employment trainingfunds and withholding taxes. After paying the assessed amount, the

contractor unsuccessfully contested the assessment before theCalifornia Unemployment Insurance Appeals Board. The contractorthen filed a complaint for a refund in superior court. The trial courtruled in favor of the contractor ruling that unlicensed contractors werenot required to obtain California contractors’ licenses to perform workfederal land and that the state statutory presumption that unlicensedcontractors were employees did not apply to the federal contractsinvolved in the case. The EDD appealed. While the Court of Appealsthat a state contractors’ license is not required to work on a federalproject, the court held that the federal government defers to stateunemployment compensation law in situations where contractingservices are performed on federal land. Since the CaliforniaUnemployment Insurance Code incorporates the Labor Code’spresumption that an unlicensed subcontractor is the “statutoryemployee” of the contractor, the court found that the general contractorwas responsible for the amount of the assessment.

P. Vested Rights

McPherson v. City of Manhattan Beach, 78 Cal.App.4th 1252, 93Cal.Rptr.2d 725 (2000).Approximately one year after having obtained approval from the cityfor a vesting tentative parcel map, a developer obtained approval fromthe city engineer and the county of a final parcel map for theconstruction of condominiums. However, during the period betweenthe approval of the vesting tentative and the final parcel maps, the cityamended the municipal code to lower the height limit of buildings.Because of poor economic conditions, the developer took no furtheraction until four years later when it recorded the map and obtained aconditional use permit. Plaintiff brought suit seeking an injunction toprevent construction of the project because it violated the heightrestrictions. The court granted the injunction and ordered the city torescind the permit. Under the municipal code, the court held that thedeveloper had 36 months within which to record the map after whichtime all proceedings are terminated. Since the contractor failed torecord within the allotted time, the developer must abide by the newcurrent height restrictions.

Q. Most Recent Developments

The Ratcliff Architects v. Vanir Construction Management, Inc. ,106 Cal. Rptr. 2d 1 (Cal.App. 2001).After the Berkeley Unified School District (BUSD) brought suit againstboth the architect and the construction manager for cost overruns on a

project, the BUSD entered into a good faith settlement with theconstruction manager. The architect filed a cross complaint againstBUSD and the construction manager. The construction managerdemurred. The trial court sustained with leave to amend thedemurrers against the claims for express contractual indemnity,breach of written contract by third party beneficiary and declaratoryrelief. The court sustained without leave to amend the demurrersagainst the claim for contribution and/or comparative equitableindemnity and apportionment of fault. The architect filed an amendedcross-complaint for express contractual indemnity, breach of writtencontract by third party beneficiary, negligence and declaratory relief.The construction manager once more demurred and the trial courtsustained the demurrers without leave to amend.The appellate court affirmed the judgment of the trial court. Withregard to the claims for express contractual indemnity and breach ofwritten contract by third party beneficiary, the court found that thecontract could have been drafted better but was not ambiguous. Assuch, the court found that the contract clearly stated the intentions ofthe parties to limit the rights under the contract to the parties to thecontract including the right to indemnity. Since it was not a party tothe contract between BUSD and the construction manager, thearchitect had no right to enforce the indemnification provision of thecontract. Addressing the negligence claim, the court determined thatthe architect’s negligence claim was essentially an indemnity claimand an attempt to circumvent the good faith settlement. Therefore, toprotect the good faith settlement regime, the court refused to expandtort liability to impose a duty of care on a construction manager to anarchitect. In reaching that determination, the court noted that thearchitect had failed to cite any authority for holding a constructionmanager liable to an architect for purely economic loss resulting fromnegligence. Moreover, the court found that establishing such a dutybetween the construction manager and the architect would create aconflict of loyalty for the construction manager because theconstruction manager’s primary duty is owed to the owner.

Morton Engineering & Construction, Inc. v. Patschek, 87Cal.App. 4th 712, 104 Cal.Rptr. 2d 815 (2001).A subcontractor sued the general contractor under the Prompt Pay Actfor failure to pay progress payments. At trial, the subcontractor wasawarded the sum due, prejudgment interest, attorneys’ fees and thestatutory two-percent-per-month penalty. The contractor appealed theaward of the penalty to the subcontractor. In a case of firstimpression, the appellate court affirmed the trial court’s awardinterpreting the Prompt Pay Act (California Business & Professions

Code Section 7108.5) to allow a subcontractor to bring a civil action torecover the statutory penalty. The general contractor unsuccessfullyargued that the Section 7108.5 penalty was only recoverable through adisciplinary action before the Contractors State License Board. Thecourt found that Section 7108.5 contained no language that limitedrecovery of the penalty to disciplinary proceedings. The court furthernoted that similar provisions in California Public Contract CodeSections 7107 and 10262.5 allowed subcontractors to recover statutorypenalties from contractors through civil actions. Although these otherstatutory provisions make no mention of disciplinary action, the courtfound that they serve the same purpose as Section 7108.5: to ensurethat contractors make timely payment to subcontractors and to providea remedy for the subcontractor when contractors fail to comply withthe statute.

II. LEGISLATION AND REGULATIONS

A. Architects and Engineers, Reuse of Drawings

Education Code Section 17316 has been amended so that aschool district may use plans and specifications for repair,maintenance, modernization, additions and alignments but otherwisearchitects or structural engineers retain all common law, statutory,copyright and other reserved rights in plans and specificationsprepared for a school district.

B. Design-Build Contracts

Public Contract Code Sections 20209.5 to 20209.14 were addedauthorizing public agencies to use design-build contracting for theconstruction of transit systems.

Public Contract Code Section 20133 was added to authorize theCounties of Alameda. Contra Costa, Sacramento, Santa Clara, Salinas,Sonoma, and Tulare to award contracts on a design-build basis.

C. Home Improvement Contracts

Business and Professions Code Sections 7159.3 and 7164 havebeen amended to require that home improvement contracts contain astatement regarding the value of CGL insurance and a check boxindicating whether the contractor carries such insurance.

D. Labor

Wage Order No. 16 has imposed several new requirements onthe construction industry. The order applies the 8 hour work day tothe construction industry thereby requiring that overtime be paid atthe rate of time and a half for work performed after the eighth hourand prior to the twelfth hour and at the rate of double time for workperformed after the twelfth hour. Employers are now required toprovide two ten minute breaks and a half hour lunch during an eight-hour shift. If an employer fails to allow an employee to take therequired breaks, the employer must pay the employee one hour’swages.

E. Mechanics Lien

Civil Code Section 3097 has been amended to revise the requiredstatements in the preliminary 20-day notice, and provides that theinclusion of, or failure to include, language added to the preliminarynotice, or the failure to provide an affidavit form or notice of rights,shall not affect the validity of the preliminary notice.

F. Prevailing Wage

Section 1720 of the Labor Code has been amended to expand thedefinition of “public works” to include pre-construction activities suchas soil testing, land surveying, inspection activities and design work.The inclusion of pre-construction activities in the definition of “publicworks“ subjects such activities to the prevailing wage statutes.

Section 1777.1 of the Labor Code has been amended to replacethe requirement that a contractor or subcontractor who has beendebarred for willfully violating the prevailing wage statutes have asubstantial interest a construction company in order for that entity tobe ineligible to bid or contract. Instead, a construction company inwhich an ineligible contractor has any interest is ineligible to bid orcontract.

G. Public Contracts

Public Contract Code Sections 10126, 10780.5 and 20103.8provide that state contracts and contracts awarded by local agenciesinvolving alternates must use one of the four following criteria todetermine the lowest responsible bidder: a) the lowest responsiblebidder shall be the one with the lowest bid price on the base contractwithout taking alternates into consideration; b) the lowest bid shall be

the lowest total price for the base contract plus all alternates; c)alternates will be selected according to a list of priorities published inthe invitation to bid and d) the lowest bid shall be determined after a“blind” selection of alternates so that the identity of the bidders isunknown to the persons who select the alternates.

Public Contract Code Section 10129 prevents state agenciesfrom drafting specifications for bids on public works that call for adesignated material, product, thing, or service by specific brand ortrade name unless the specification lists at least two brands or tradenames of comparable quality or utility and is followed by the words "orequal" so that bidders may furnish any equal material, product, thing,or service. Specifications shall provide a period of time prior to or afterthe award of the contract for submission of data substantiating arequest for a substitution of "an equal" item. If no time period isspecified, data may be submitted any time within 35 days after theaward of the contract.

Public Contract Code Section 10295 has been amended toexempt community colleges from the requirement that they submit allcontracts to the Department of General Services for approval.

Government Code Section 927.1 has been amended to extendpenalties against state agencies for late payment to cover any failureto make payment within 45 days of receipt of an undisputed invoice.

Civil Code Section 3248 has been amended to require thatpayment bonds be 100% of the contract price in all cases.

The adoption of Proposition 35 amended the CaliforniaConstitution to authorize the State of California and all othergovernmental entities to contract with qualified private entities forarchitectural and engineering services for all public works ofimprovement.

H. Radon Mitigation

Health and Safety Code Sections 106750-106795 are amended torequire that anyone performing radon services must successfullycomplete a national radon proficiency program and file a certificate ofcompletion 14 days before conducting radon services.

I. Safety

A.B. 1127 amended Labor Code Sections 98.7, 6304.5, 6309,6400, 6423, 6425, 6428, 6429, 6430, 6432, and 6434 and added Section6719 increasing civil and criminal penalties for willful, serious, andrepeated violations of Cal-OSHA from $5000 to $15,000. Additionally,willful violations may be prosecuted as either a misdemeanor or felony.

Note:

These materials are intended to be for instructional and informationalpurposes only and should not be considered legal advice regardingspecific matters. In addition, attendance at the seminar does notcreate an attorney-client relationship between attendees or theiraffiliated company, and the law firm.

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