California has enacted a new law, Senate Bill 593, which prohibits CalTrans from withholding retention from progress payments to contractors on transportation projects. CalTrans has implemented this law by changing its Standard Specifications to delete the customary retention requirement. The official announcement from CalTrans states:
"S5-010, Retention Exclusion, approved 12-19-08. Senate Bill 593 (or Public Contract Code Section 7202) prohibits the Department from retaining moneys from progress pay estimates to contractors. To enforce the new code, the SSP specifies that from January 1, 2009 through January 2014, the Department will not take retentions and paragraph 3 of Section 9-1.06, "Partial Payment," does not apply." (Section 9-1.06 refers to the CalTrans Standard Specifications; and "SSP" refers to its Standard Special Provisions).
On CalTrans projects, the new law moots in part Public Contract Code section 10263 which has allowed general contractors to provide securities in lieu of retention on a particular project. Since retention is prohibited, there is no need to deposit securities in lieu of such.
Further, SB 593 does not change Public Contract Code section 7200. That statute provides that general contractors may not withhold retention from subcontractors in excess of the percentage specified in the prime contract with the public agency, unless the general contractor’s bid solicitation requires the subcontractor to bond, and the subcontractor fails or refuses to provide a bond from an "admitted surety." The same provisions apply to retention from lower tier subs. Thus, if CalTrans does not withhold from the general contractor, then, unless the bonding exception applies, no retention can be withheld from subcontractors on CalTrans transportation projects
The new law took effect on January 1, 2009, and will be repealed on January 1, 2014, unless extended. The new law will likely require revisions to standard subcontract forms for CalTrans projects.
Edward B. Lozowicki is a partner in the Business Trials Practice Group in Sheppard Mullin’s San Francisco office.