Section 9204 Provides Claim Resolution Procedures For Public Contracts
by John McGill
For those prime contractors and subcontractors working on public works projects, the Legislature has added another provision to the Public Contract Code, section 9204, which takes effect for all contracts entered on or after January 1, 2017. It is an important change insofar as it deals with claims and disputes, and it provides specific timeframes for action by both the public agency and the contractor. The language of section 9204, or a summary of it, must be included in the public entity’s Prime contract, likely the General Conditions. Likewise, 9204 should be included in any subcontract issued for public works, at least a summary of its requirements.
The new Code provisions do not change or supersede the notice requirements typically found in public contracts. Instead 9204 provides a method for resolving claims that arise on a project. The notice procedures that are included in a contract dealing with claims for new or disputed work will still be in effect but Section 9204 provides a procedure for quickly (a relative term) resolving a claim and getting the contractor paid once notice is provided and a claim is submitted.
How does 9204 work and what does it do?
First, a claim is defined under 9204 as a separate demand in writing for a time extension or relief from liquidated damages or penalties; a demand for money; and/or a demand for payment for added or disputed work. A 9204 claim also includes a demand for payments that the public entity is disputing. A 9204 claim and the material supporting the claim must be sent by certified or return receipt mail. (Note: this definition of claim is more comprehensive than the other definition of claim used in the Public Contract Code. A 9204 claim is apparently a distinct form of claim.)
When the public entity receives a contractor’s 9204 claim, it must conduct a “reasonable review” of the claim and supporting material and then within 45 days it must respond by written statement. If the claim needs approval by a governing board, then the response is due within 3 days of the next meeting of the governing board.
If the public entity agrees to some, but not all, of the claim, then payment of the undisputed amount is due within 60 days of the written statement.
If the contractor disputes the public entities decision, or any part of it, or if the public entity does not respond in the prescribed time, the contractor can demand in writing an informal meet and confer conference to attempt to settle the disputed issues. The demand for the meet and confer is made to the public entity by mail- return receipt requested or certified mail. (It is important for 9204 claims and for all public works issues that the contractor know to whom and where to send any claim or other required information. You cannot simply send it to anyone.) There is no time limit for the contractor to make this demand, but presumably it would not be unduly delayed.
The meet and confer conference is then held within 30 days of receipt of the demand. If the meet and confer does not resolve the issues, then within 10 days of the conclusion of the conference, the public agency is required to provide a written statement summarizing what is resolved and what remains in dispute. Any agreed payment needs to be made within 60 days after that written statement is issued.
After the meet and confer is concluded, the contractor can send a written demand for non-binding mediation to resolve any remaining disputed issues. Non-binding mediation includes mediation, dispute resolution board hearings, and neutral evaluation processes. The selection of a mediator is made within 10 business days of the written notice from the public entity following the meet and confer. The parties can either agree on a mediator or if they cannot agree then each provides the name of a mediator and those mediators select a mediator to hear the matter.
If the mediation does not resolve the issues it will nevertheless excuse compliance with Public Contract Code 20104.4 mediation obligations that are required after litigation is filed. Likewise, and importantly, the mediation process under 9204 does not preclude arbitration under the Public Works Contract Arbitration Program, if that program is required.
Failure of the public entity to respond or to perform as required under 9204 means the claim is rejected in its entirety but it does not mean that the claim has no merit. It is not an adverse ruling and has no implications on the qualifications or responsibilities of the claimant. If payments are not made within the timeframes provided by 9204, the payment bears interest at 7%. Presumably if the public entity does not respond at all and the claim is therefore deemed denied, the 7% interest will apply.
Subcontractor claims are also covered by 9204. A subcontractor cannot usually make claims directly to the public entity so any subcontractor claim is made to the general or prime contractor. The subcontractor must make the claim in writing and must provide the required documentation to support the claim. There is no requirement that the subcontractor claim be sent to the general or prime by return receipt or certified, but it is a good thing to do in any event.
The general or prime then passes the subcontractor claim through to the public entity. If the general or prime will not pass it through, they must notify the subcontractor within 45 days that they did not submit the claim and they must provide a written statement of reasons why they did not submit it to the public entity. Presumably if the claim is submitted to the public entity, the general or prime will want the subcontractor involved in the process that is outlined 9204. Subcontractor participation is not mandatory however and the new Code does not provide for subcontractor involvement in the claim resolution process.
Subcontractors should read their subcontract claims procedures very carefully to see how this process will work. Generals and primes should likewise be very cautious in determining the validity of subcontractor claims given the decision in the Sehulster Tunnel case, but of course also keeping in mind the False Claim Act.
The provisions in the new Code do not apply to all public entities. The Department of Water Resources, the Department of Transportation, the Department of Parks and Recreation, the Department of Corrections, the Military department, the Department of General Services, and the High Speed Rail Authority are exempt. The claims procedures for these agencies are included in the State Contract Act section of the Public Contract Code and of course in the contract language for the project itself. Section 9204 also requires that charter cities and charter counties follow a prescribed claim resolution process, but 9204 does not state that its provisions apply to them.
Section 9204 is a well-intentioned but complicated scheme that may assist in resolving claims but not necessarily quickly. The time frames are fairly long and taking the maximum time for evaluation of any claim could mean as much as six months or more to resolution. It is also not clear whether each 9204 claim must be submitted individually or if multiple claims can be combined and submitted as one “claim”. And it is not clear if this is a mandatory procedure or optional and how it may operate in conjunction with the claims procedures outlined in the Government Code.
It is encouraging though that the Legislature has seen fit to address payments to contractors that work on public projects. As anyone that has worked on public works already knows, payment is a big issue, so this is hopefully a step in the right direction.
Bio: John P. McGill is an attorney representing contractors and suppliers throughout the Bay Area and Northern California in both private and public work disputes, employment, transactional, and administrative matters. He received his JD with distinction from the University of the Pacific, McGeorge School of Law, and is a member of the Traynor Honor Society. He is the author of California Contractor’s DESKTOP GENERAL COUNSEL What You Need To Know About California Construction Law. Contact: Work - 925-952 5403 or Cell- 707 337 1932.
johnmcgill310@gmail.com; jmcgill@archernorris.com