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New California Law Assures Sub Payment on Certain Infrastructure P3 Projects

Subcontractors now ensured payment on certain infrastructure projects funded by public-private partnerships

A new California law helps assure construction subcontractors, specialty trade contractors, and suppliers will be paid for work they perform and services they provide on construction components of certain infrastructure projects financed through public-private partnerships, according to a recent update from the American Subcontractors Association.

On August 13, California Gov. Jerry Brown (D) signed legislation (AB 164), supported by the American Subcontractors Association, amending the government code related to infrastructure financing that authorizes local government agencies to use P3s to design, finance, and maintain a variety of fee-producing infrastructure facilities. The new law (Chapter 94) extends the California “Little Miller Act” to these P3s by requiring the inclusion of “payment bonds to secure the payment of claims of laborers, mechanics, and materials suppliers employed on the work under contract” and “performance bonds as security to ensure the completion of the construction of the facility.”

The California “Little Miller Act” requires the prime contractor to furnish surety bonds on public construction projects in excess of $25,000 in the amount of 100% of the contract to assure that the project will be completed, protecting taxpayer dollars, and that subcontractors and suppliers, many of which are small businesses, will be paid.

ASA of California initiated the legislation, which was supported by other major construction associations in the state. “More than 268,000 licensed subcontractors will benefit from this payment protection, especially because P3 projects have become more popular since public coffers have suffered,” said Daniel F. McLennon, Esq., McLennon Law Corp., San Francisco, Calif. McLennon, chair of ASA of California’s Government Relations Committee, along with Scott Holbrook, Esq., Crawford & Bangs, Covina, Calif., worked on the bill’s language.

Depending on how a construction project funded by both public and private sources is structured, the project may be exempt from both payment bond requirements and mechanic’s liens, leaving subcontractors and suppliers without adequate payment assurances.

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