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California Law: Changes to the Claims Resolutions for Public Works Projects

public-works.jpgOn January 1st, 2017, California's Assembly Bill 626 (AB 626) officially became law. This legislation substantially alters the claims process for public works-related disputes. Like any other project, a public works project has the potential to run into problems. As such, it is imperative that companies are able to protect their rights and interests. All contractors and construction firms that are involved in public works projects must understand this new law.

The New Claims Process for Public Works Projects

Step 1: Submitting a Claim

If an issue arises related to a public works project, a contractor must submit its claim by certified mail. Only the direct contractor (the party that actually signed the agreement with the public entity) has the right to submit a claim. In other words, a subcontractor must go through the lead contractor if they run into a problem. Within 45 days, the public entity must provide the contractor with a written response to the claim.

Step 2: Informal Resolution

In some cases, the public entity may choose to pay the claim. However, that will certainly not always be the case. If the dispute continues after the claim is submitted, meaning if the public entity chooses to deny any part of the claim, then the contractor may seek an informal meeting to discuss settlement. After this informal meeting occurs, the public entity will then have 10 days to respond again and determine if the claim will be paid, or if the dispute will continue.

Step 3: Meditation

In the event that the claim cannot be resolved at the informal level, then the issue will rise to mediation. Under AB 626, the two parties involved have a responsibility to split the cost of the mediation session. To be clear, while mediation is formal, it is still a non-binding form of dispute resolution. If the two parties would prefer to substitute another form of non-binding dispute resolution, such as neutral evaluation, instead of mediation, that is also acceptable.

When to File a Lawsuit

A contractor can only commence with litigation against a public entity after it has exhausted its remedies under the new claims process. This means that your company must go through each of the three steps listed above, in good faith, before it can access the courts. If a settlement cannot be achieved through mediation, then your company has the right to file a lawsuit.

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Our dedicated San Jose business law attorneys always stay up to date with the latest policy developments out of Sacramento. If your company is in need of legal assistance, we are ready to help. Our firm proudly serves communities throughout the Bay Area, including San Francisco, Oakland, Santa Cruz, and Milpitas.



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