REPORT TITLE:
Contracts and procurement


DESCRIPTION:
Imposes penalties for outstanding bills due to a subcontractor.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        2878
HOUSE OF REPRESENTATIVES                H.B. NO.           
TWENTIETH LEGISLATURE, 2000                                
STATE OF HAWAII                                            
                                                             
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                   A  BILL  FOR  AN  ACT

RELATING TO PUBLIC CONTRACTS AND PROCUREMENT.



BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1      SECTION 1.  The legislature finds that after receiving
 
 2 payment for construction projects, prime contractors sometimes do
 
 3 not make timely payments to subcontractors.  One of the principal
 
 4 reasons for this is the prime contractors' liability for
 
 5 subcontractors union trust fund payments.  Often, the long delay
 
 6 in receiving full clearance from union trust funds results in
 
 7 corresponding delays in payments to subcontractors.
 
 8      The legislature also finds that earlier legislative action
 
 9 on the issue resulted in divisive conflict between construction
 
10 industry groups.  To avoid further rancor, representatives from
 
11 various construction industry organizations established an
 
12 informal task force to reconcile differences.  After many months
 
13 of open, sometimes heated debate, the members of the task force
 
14 acquired a new respect for the unique problems facing their
 
15 counterparts and managed to craft a partial solution to the
 
16 thorny issue of prompt payment.  The proposal provides that
 
17 contractors make timely payments to subcontractors who possess a
 
18 trust fund contribution bond or a peerformance/payment bond.
 
19 This proposal makes significant progress toward addressing the
 
20 subcontractors' concern for prompt payment, and the general
 

 
Page 2                                                     2878
                                     H.B. NO.           
                                                        
                                                        

 
 1 contractors concern regarding liability for union trust fund
 
 2 benefit payments.
 
 3      The purpose of this Act is to require prompt payment on
 
 4 state projects by a contractor to a subcontractor who possesses a
 
 5 valid union trust fund benefit payment bond, peformance/payment
 
 6 bond, or another mutually agreeable form of collateral.
 
 7      SECTION 2.  Section 103D-501, Hawaii Revised Statutes, is
 
 8 amended by amending subsections (c) and (d) to read as follows:
 
 9      "(c)  The policy board shall adopt rules requiring the
 
10 inclusion in contracts of clauses providing for prompt payment by
 
11 contractors to subcontractors.  The rules shall provide that:
 
12      (1)  Any money, other than retainage, paid to a contractor
 
13           shall be dispersed to subcontractors within ten days
 
14           after receipt of the money in accordance with the terms
 
15           of the subcontract; provided that the subcontractor has
 
16           met all the terms and conditions of the subcontract and
 
17           there are no bona fide disputes[;] on which the
 
18           procurement agency has withheld payment; [and]
 
19      (2)  Upon final payment to the contractor, full payment to
 
20           the subcontractor, including retainage, shall be made
 
21           within ten days after receipt of the money; provided
 
22           that there are no bona fide disputes over the
 
23           subcontractor's performance under the subcontract[.];
 

 
Page 3                                                     2878
                                     H.B. NO.           
                                                        
                                                        

 
 1      (3)  Where a subcontractor has provided evidence to the
 
 2           contractor of:
 
 3           (A)  A current trust fund contribution bond acceptable
 
 4                to the contractor in an amount not fewer than
 
 5                three months of the subcontractor's trust fund
 
 6                contribution; or
 
 7           (B)  A performance and payment bond for the project,
 
 8                executed by a surety company authorized to do
 
 9                business in the state; or
 
10           (C)  Any other bond acceptable to the contractor; or
 
11           (D)  Any form of collateral acceptable to the
 
12                contractor may be substituted for the trust fund
 
13                contribution bond;
 
14           and
 
15      (4)  Where a contractor fails to pay in accordance with
 
16           paragraph (2), there shall be imposed a penalty of one
 
17           and one-half per cent per month on the outstanding
 
18           amounts due to the subcontractor.  The penalty may be
 
19           withheld from future payment due to the contractor.
 
20           Where a contractor has violated paragraph (2), three or
 
21           more times within two years of the first violation, the
 
22           contractor shall be referred to the contractor license
 
23           board by the procurement agency for action under
 
24           section 444-14.
 

 
Page 4                                                     2878
                                     H.B. NO.           
                                                        
                                                        

 
 1      (d)  The policy board shall adopt rules requiring the
 
 2 inclusion in contracts of clauses providing for appropriate
 
 3 remedies and covering the following subjects:
 
 4      (1)  Liquidated damages as appropriate;
 
 5      (2)  Specified excuses for delay or nonperformance;
 
 6      (3)  Termination of the contract for default; [and]
 
 7      (4)  Termination of the contract in whole or in part for the
 
 8           convenience of the governmental body[.]; and
 
 9      (5)  Prompt payment and retainage."
 
10      SECTION 3.  Section 103-10.5, Hawaii Revised Statutes, is
 
11 repealed.
 
12      ["[§103-10.5]  Prompt payment.  Any money, other than
 
13 retainage, paid to a contractor shall be dispersed to
 
14 subcontractors within ten days after receipt of the money in
 
15 accordance with the terms of the subcontract, provided that the
 
16 subcontractor has met all the terms and conditions of the
 
17 subcontract and there are no bona fide disputes.  Upon final
 
18 payment to the contractor, full payment to the subcontractor,
 
19 including retainage, shall be made within ten days after receipt
 
20 of the money, provided there are no bona fide disputes over the
 
21 subcontractor's performance under the subcontract."] 
 
22      SECTION 4.  Statutory material to be repealed is bracketed.
 
23 New statutory material is underscored.
 

 
Page 5                                                     2878
                                     H.B. NO.           
                                                        
                                                        

 
 1      SECTION 5.  This Act shall take effect on July 1, 2000, and
 
 2 shall apply to all public contracts entered into after June 30,
 
 3 2000.
 
 4 
 
 5                       INTRODUCED BY:  ___________________________