New California Laws Effect Performance and Payment Bonds

It’s always important to stay informed with new legislation and in California, Governor Jerry Brown was very busy in 2013.  The governor signed 800 regular session bills, more than any California Governor in history.  And on January 1, 2014 several new bills became law, many of which effect the construction industry.  In particular two bills directly affect public works projects and thus bonded work; AB 44 and AB 1336.

•  AB 44 – This bill requires that, when bidding on any state or local government public works, the prime contractor list the contractor license number for each subcontractor that will perform work on that project.  Though this doesn’t appear to have a serious effect on contractors, it can and will lead to obligees rejecting bids.  A public works contractor understands how difficult it is to get work; imagine getting a low bid rejected over something that small simply for not knowing the law.
• AB 1336 – From a bonding standpoint, this is the most critical bill that passed and is now law.  AB 1336 extends the deadline from 180 days to 18 months for the Labor Commissioner to serve a civil wage and penalty assessment for under payment of wages.  This also extends the deadline from 180 days to 18 months to bring action against an employer that fails to pay prevailing wages. To put this in perspective, the 18 months is longer than most warranty periods.  A wage claim could be made when you have long completed and forgot about a project.  Many general contractors will assume that as long as they pay prevailing wage they have nothing to fear.  True for the GC’s employees.  But the GC is responsible for the entire contract including subcontractors.  While GC’s should be requiring certified payroll records to make sure its subcontractors are abiding by the law, requiring subcontractors to bond back to them is the best way to transfer the risk to the subcontractor’s bond company, thus protecting the GC’s payment bond.  Many smaller general contractors are hesitant to bond back subs because of the added cost but there is a reason nearly every sizable GC requires subs to bond back.  The benefit far outweighs the cost.

Protect yourself by requiring subcontractors to bond back. For any questions regarding new legislation or more information about the process to bond back subcontractors, please contact us at 877-654-2327 or by email at contract@surety1.com