A customer of ours is a DVBE ( Disabled Veteran Business Enterprise), and are telling me that they are not required to have a payment bond on a public job in the state of CA. Is that true?
A payment bond must be obtained by the direct contractor on all public works projects in excess of $25,000 with the exception of federal projects for which the limit is $100,000. There is no exception of DVBEs. If the DVBE is a direct contractor the public entity should be insisting that they obtain a payment bond.
I recently received an email from a family law attorney by the name of Diane Devine suggesting that the response to the question above is erroneous or incomplete.
Specifically Ms. Devine stated:
"You should have inquired what type of contract was entered into between the State of CA and the DVBE. Or better stated, what type of contract was out for bid that the DVBE Company bid on. Since you state you have knowledge in construction law, you undoubtedly are aware the State of CA has various bid opportunities. Perhaps an old fashioned review of Public Contract Code Section 100 may be in order. Your client was given some poor advice and acted on it. Hint: there is a difference between a Public Works contract and an IFB where the Contracting Officer determines the financial responsibility of the bidder--DVBE in this case. Many public agencies are authorized by law to utilize a qualification process for determining the type or scope of projects for upon which a bidder may submit an offer. Regardless, an agency must have sufficient information regarding the financial and other capabilities of the bidders in order to make this determination on a knowing and intelligent basis."
Ms. Devine is incorrect.
First, as also noted in my post, my general answer, and this follow-up do not constitute project specific legal advice or advice that should be relied on without a project specific consultation. For that sort of advice I am available, but must be retained. Questions answered on this forum do not create an attorney-client relationship.
But with that said, it does not matter what type of contract is entered into between the DVBE and the State of California as long as the contract exceeds $25,000 provided that the DVBE is a direct contractor and not some sort of design professional (who does not perform work requiring a contractor's license).
An IFB is component of a type of bidding process. But it does not change the nature of the contract with the public entity for the purposes of payment bond requirements.
Public Contract Code section 7103(a)(1) states that: “Every original contractor that is awarded a contract by a state entity, as defined in subdivision (d), involving an expenditure in excess of twenty-five thousand dollars ($25,000) for any public work shall, before entering upon the performance of the work, file a payment bond with and approved by the officer or state entity that awarded the contract. The bond shall be in a sum not less than 100 percent of the total amount payable by the terms of the contract. (2) The state entity shall state in its call for bids for any contract that a payment bond is required in the case of such an expenditure…. For purposes of this section, “state entity” means every state office, department, division, bureau, board, or commission, but does not include the Legislature, the courts, any agency in the judicial branch of government, or the University of California. All other public entities shall be governed by Section 9550 of the Civil Code .”
Civil Code section 9550 states that: “(a) A direct contractor that is awarded a public works contract involving an expenditure in excess of twenty-five thousand dollars ($25,000) shall, before commencement of work, give a payment bond to and approved by the officer or public entity by whom the contract was awarded. (b) A public entity shall state in its call for bids that a payment bond is required for a public works contract involving an expenditure in excess of twenty-five thousand dollars ($25,000)….”
Civil Code section 9550 states that: “This title applies to a work of improvement contracted for by a public entity.”
Public Contract Code 1101 states that : “’Public works contract,’ as used in this part, means an agreement for the erection, construction, alteration, repair, or improvement of any public structure, building, road, or other public improvement of any kind.” Emphasis added.
40 U.S. Code § 3131(b) states that: “Before any contract of more than $100,000 is awarded for the construction, alteration, or repair of any public building or public work of the Federal Government, a person must furnish to the Government the following bonds, which become binding when the contract is awarded.”
The question posed above is not about a bid qualification process or the information regarding the financial or other capabilities of the bidding. The question is about whether or not a payment bond will ultimately be required of the DVBE. If the project value exceeds $25K, it will be.
If you require legal assistance, I am available for a free consultation. Please email me at ryan@huntortmann.com to schedule.