Existing law requires state agencies to include a provision in solicitations and contracts, if the estimated amount to be retained exceeds $10,000 and the retention continues for a period of 60 days beyond the completion of phased services, to permit, upon written request and the expense of the contractor, the payment of retentions earned directly to a state- or federally chartered bank in this state, as the escrow agent. Existing law also provides an escrow agreement form for a contractor and state agency to use for security deposits, and defines a “state agency” for purposes of these provisions.

This bill would repeal those provisions, including the escrow agreement form, and instead prohibit a state agency, as defined, from withholding retention proceeds when making progress payments to a contractor, as defined, for work performed on a public works contract. The bill would require a state agency to promptly notify the appropriate policy committees of the Legislature if the state agency’s best interests are compromised because retention was not withheld on a state agency public works contract.

Existing law, except as specified, prohibits the percentage of the retention proceeds withheld in a contract between the original contractor and a subcontractor, and in a contract between a subcontractor and any subcontractor thereunder, from exceeding the percentage specified in the contract between the public entity and the original contractor.

This bill would provide that nothing in the bill alters, amends, or impairs the rights, duties, and obligations of an original contractor, its subcontractors, and all subcontractors thereunder relating to the construction of any public work of improvement pursuant to the above-described provision.