SECTIONS 22300 - California Statutes

PUBLIC CONTRACT CODE

SECTION 22300

22300. (a) Provisions shall be included in any invitation for bid
and in any contract documents to permit the substitution of
securities for any moneys withheld by a public agency to ensure
performance under a contract; however, substitution of securities
provisions shall not be required in contracts in which there will be
financing provided by the Farmers Home Administration of the United
States Department of Agriculture pursuant to the Consolidated Farm
and Rural Development Act (7 U.S.C. Sec. 1921 et seq.), and where
federal regulations or policies, or both, do not allow the
substitution of securities. At the request and expense of the
contractor, securities equivalent to the amount withheld shall be
deposited with the public agency, or with a state or federally
chartered bank in this state as the escrow agent, who shall then pay
those moneys to the contractor. Upon satisfactory completion of the
contract, the securities shall be returned to the contractor.
(b) Alternatively, the contractor may request and the owner shall
make payment of retentions earned directly to the escrow agent at the
expense of the contractor. At the expense of the contractor, the
contractor may direct the investment of the payments into securities
and the contractor shall receive the interest earned on the
investments upon the same terms provided for in this section for
securities deposited by the contractor. Upon satisfactory completion
of the contract, the contractor shall receive from the escrow agent
all securities, interest, and payments received by the escrow agent
from the owner, pursuant to the terms of this section.
(c) Securities eligible for investment under this section shall
include those listed in Section 16430 of the Government Code, bank or
savings and loan certificates of deposit, interest-bearing demand
deposit accounts, standby letters of credit, or any other security
mutually agreed to by the contractor and the public agency.
The contractor shall be the beneficial owner of any securities
substituted for moneys withheld and shall receive any interest
thereon.
Failure to include these provisions in bid and contract documents
shall void any provisions for performance retentions in a public
agency contract.
For purposes of this section, the term "public agency" shall
include, but shall not be limited to, chartered cities.
(d) (1) Any contractor who elects to receive interest on moneys
withheld in retention by a public agency shall, at the request of any
subcontractor, make that option available to the subcontractor
regarding any moneys withheld in retention by the contractor from the
subcontractor. If the contractor elects to receive interest on any
moneys withheld in retention by a public agency, then the
subcontractor shall receive the identical rate of interest received
by the contractor on any retention moneys withheld from the
subcontractor by the contractor, less any actual pro rata costs
associated with administering and calculating that interest. In the
event that the interest rate is a fluctuating rate, the rate for the
subcontractor shall be determined by calculating the interest rate
paid during the time that retentions were withheld from the
subcontractor. If the contractor elects to substitute securities in
lieu of retention, then, by mutual consent of the contractor and
subcontractor, the subcontractor may substitute securities in
exchange for the release of moneys held in retention by the
contractor.
(2) This subdivision shall apply only to those subcontractors
performing more than five percent of the contractor's total bid.
(3) No contractor shall require any subcontractor to waive any
provision of this section.
(e) The Legislature hereby declares that the provisions of this
section are of statewide concern and are necessary to encourage full
participation by contractors and subcontractors in public contract
procedures.
(f) The escrow agreement used hereunder shall be null, void, and
unenforceable unless it is substantially similar to the following
form:

ESCROW AGREEMENT
FOR
SECURITY DEPOSITS IN LIEU OF RETENTION
This Escrow Agreement is made and entered into by
and between ______________________________________
___________ whose address is _____________________
___________ hereinafter called "Owner,"
___________ whose address is _____________________
___________ hereinafter called "Contractor" and
___________ whose address is _____________________
___________ hereinafter called "Escrow Agent."

For the consideration hereinafter set forth, the Owner,
Contractor, and Escrow Agent agree as follows:
(1) Pursuant to Section 22300 of the Public Contract Code of the
State of California, Contractor has the option to deposit securities
with Escrow Agent as a substitute for retention earnings required to
be withheld by Owner pursuant to the Construction Contract entered
into between the Owner and Contractor for ____ in the amount of ____
dated ____ (hereinafter referred to as the "Contract").
Alternatively, on written request of the Contractor, the Owner shall
make payments of the retention earnings directly to the Escrow Agent.
When the Contractor deposits the securities as a substitute for
Contract earnings, the Escrow Agent shall notify the Owner within 10
days of the deposit. The market value of the securities at the time
of the substitution shall be at least equal to the cash amount then
required to be withheld as retention under the terms of the Contract
between the Owner and Contractor. Securities shall be held in the
name of ____, and shall designate the Contractor as the beneficial
owner.
(2) The Owner shall make progress payments to the Contractor for
those funds which otherwise would be withheld from progress payments
pursuant to the Contract provisions, provided that the Escrow Agent
holds securities in the form and amount specified above.
(3) When the Owner makes payment of retentions earned directly to
the Escrow Agent, the Escrow Agent shall hold them for the benefit of
the Contractor until the time that the escrow created under this
contract is terminated. The Contractor may direct the investment of
the payments into securities. All terms and conditions of this
agreement and the rights and responsibilities of the parties shall be
equally applicable and binding when the Owner pays the Escrow Agent
directly.
(4) Contractor shall be responsible for paying all fees for the
expenses incurred by Escrow Agent in administering the Escrow Account
and all expenses of the Owner. These expenses and payment terms
shall be determined by the Owner, Contractor, and Escrow Agent.
(5) The interest earned on the securities or the money market
accounts held in escrow and all interest earned on that interest
shall be for the sole account of Contractor and shall be subject to
withdrawal by Contractor at any time and from time to time without
notice to the Owner.
(6) Contractor shall have the right to withdraw all or any part of
the principal in the Escrow Account only by written notice to Escrow
Agent accompanied by written authorization from the Owner to the
Escrow Agent that Owner consents to the withdrawal of the amount
sought to be withdrawn by Contractor.
(7) The Owner shall have a right to draw upon the securities in
the event of default by the Contractor. Upon seven days' written
notice to the Escrow Agent from the owner of the default, the Escrow
Agent shall immediately convert the securities to cash and shall
distribute the cash as instructed by the Owner.
(8) Upon receipt of written notification from the Owner certifying
that the Contract is final and complete, and that the Contractor has
complied with all requirements and procedures applicable to the
Contract, Escrow Agent shall release to Contractor all securities and
interest on deposit less escrow fees and charges of the Escrow
Account. The escrow shall be closed immediately upon disbursement of
all moneys and securities on deposit and payments of fees and
charges.
(9) Escrow Agent shall rely on the written notifications from the
Owner and the Contractor pursuant to Sections (5) to (8), inclusive,
of this Agreement and the Owner and Contractor shall hold Escrow
Agent harmless from Escrow Agent's release and disbursement of the
securities and interest as set forth above.
(10) The names of the persons who are authorized to give written
notice or to receive written notice on behalf of the Owner and on
behalf of Contractor in connection with the foregoing, and exemplars
of their respective signatures are as follows:

On behalf of Owner: On behalf of Contractor:
_______________________ _________________________
Title Title
_______________________ _________________________
Name Name
_____________________ _________________________
Signature Signature
_______________________ _________________________
Address Address
On behalf of Escrow
Agent:
_______________________
Title
_______________________
Name
_______________________
Signature
_______________________
Address

At the time the Escrow Account is opened, the Owner and Contractor
shall deliver to the Escrow Agent a fully executed counterpart of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement by
their proper officers on the date first set forth above.

Owner Contractor
________________________ _________________________
Title Title
________________________ _________________________
Name Name
________________________ _________________________
Signature Signature