REPORT TITLE:
Pub Works Escrow Account


DESCRIPTION:
Requires contractors to establish an escrow account for funds
payable under a public works contract, and to pay interest on
payments due and withheld from subcontractors and vendors under
the contract.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
THE SENATE                              S.B. NO.           2702
TWENTIETH LEGISLATURE, 2000                                
STATE OF HAWAII                                            
                                                             
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                   A  BILL  FOR  AN  ACT

RELATING TO PROCUREMENT.



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

 1      SECTION 1.  Chapter 103D, Hawaii Revised Statutes, is
 
 2 amended by adding a new section to be appropriately designated
 
 3 and to read as follows:
 
 4      "§103D-    Escrow requirement for public works contract;
 
 5 prompt payment.  (a)  Each contractor awarded a public works
 
 6 contract from the State or counties shall establish an account
 
 7 under an escrow arrangement with a bank, trust company, or
 
 8 savings and loan association authorized to do business in the
 
 9 State, or with a corporation licensed as an escrow depository
 
10 under chapter 449.  A separate account shall be established for
 
11 each public works contract.  The escrow account shall be opened
 
12 in time to receive the first payment under the procurement
 
13 contract and shall remain open until the last payment is
 
14 disbursed from the account.  The contractor shall provide the
 
15 State or county with a statement verifying the establishment of
 
16 the account within five business days after opening the account.
 
17      (b)  Funds payable under the public works contract shall be
 
18 deposited directly into the account by the State or county.  No
 
19 other funds of the contractor shall be placed in the escrow
 

 
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 1 account.
 
 2      (c)  The contractor shall provide the escrow agent with
 
 3 instructions for the disbursement of funds from the account.  The
 
 4 instructions shall:
 
 5      (1)  List each subcontractor and vendor providing services
 
 6           or goods under the contract; and
 
 7      (2)  Establish a payment schedule for the contractor,
 
 8           subcontractors, and vendors that specifies payment
 
 9           dates, payment amounts, and retainage amounts, and
 
10           provides for payment from each increment of funds
 
11           deposited into the account to be made simultaneously to
 
12           the contractor, subcontractors, and vendors.
 
13      (d)  The escrow agent shall disburse funds from the escrow
 
14 account in accordance with the instructions; provided that
 
15 payment to a subcontractor or vendor may be withheld in the event
 
16 of a bona fide dispute between the contractor and the
 
17 subcontractor or vendor, as established in a written statement
 
18 submitted by the contractor to the State or counties and the
 
19 escrow agent before the scheduled date of payment.  Interest on
 
20 amounts withheld and ultimately determined to be due to a
 
21 subcontractor or vendor shall be payable by the contractor on the
 
22 principal amount remaining unpaid at a rate equal to the prime
 
23 rate for each calendar quarter plus two per cent, but in no event
 

 
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 1 shall exceed twelve per cent a year, commencing on the thirtieth
 
 2 day following receipt of the statement or satisfactory delivery
 
 3 of the goods or performance of the services, whichever is later,
 
 4 and ending on the date of the payment.  As used in this
 
 5 subsection, "prime rate" means the prime rate as posted in the
 
 6 Wall Street Journal on the first business day of the month
 
 7 preceding the calendar quarter.
 
 8      (e)  The contractor shall provide the State or county with a
 
 9 summary of account transactions within five business days after
 
10 receiving a request for an account summary from the State or
 
11 county."
 
12      SECTION 2.  Section 103-10, Hawaii Revised Statutes, is
 
13 amended by amending subsection (b) to read as follows:
 
14      "(b)  This section shall not apply in those cases where
 
15 delay in payment is due to:
 
16      (1)  A bona fide dispute between the State or any county and
 
17           the contractor concerning the services or goods
 
18           contracted for;
 
19      (2)  A bona fide dispute between the contractor and the
 
20           contractor's subcontractor or vendor concerning the
 
21           services or goods contracted for;
 
22     [(2)] (3)  A labor dispute;
 
23     [(3)] (4)  A power or mechanical failure;
 

 
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 1     [(4)] (5)  Fire;
 
 2     [(5)] (6)  Acts of God; or
 
 3     [(6)] (7)  Any similar circumstances beyond the control of
 
 4           the State or any county.
 
 5 Where the time of payment is contingent upon the receipt of
 
 6 federal funds, or federal approval, the solicitation of bids for
 
 7 contracts shall clearly state that payment is contingent upon
 
 8 those conditions.  If the solicitation for bids contains the
 
 9 warning and a contract is awarded in response to the solicitation
 
10 then interest shall not begin to accrue upon any unpaid voucher
 
11 until the thirtieth day following receipt by the State of the
 
12 contractor's statement or the thirtieth day following receipt of
 
13 the federal funds or approval, whichever occurs later, and shall
 
14 end as of the date of the warrant."
 
15      SECTION 3.  Section 444-17, Hawaii Revised Statutes, is
 
16 amended to read as follows:
 
17      "§444-17 Revocation, suspension, and renewal of licenses.
 
18 In addition to any other actions authorized by law, the board may
 
19 revoke any license issued pursuant to this section, or suspend
 
20 the right of a licensee to use a license, or refuse to renew a
 
21 license for any cause authorized by law, including but not
 
22 limited to the following:
 
23      (1)  Any dishonest, fraudulent, or deceitful act as a
 

 
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 1           contractor that causes substantial damage to another;
 
 2      (2)  Engaging in any unfair or deceptive act or practice as
 
 3           prohibited by section 480-2;
 
 4      (3)  Abandonment of any construction project or operation
 
 5           without reasonable or legal excuse;
 
 6      (4)  Wilful diversion of funds or property received for
 
 7           prosecution or completion of a specific construction
 
 8           project or operation, or for a specified purpose in the
 
 9           prosecution or completion of any construction project
 
10           or operation, and the use thereof for any other
 
11           purpose;
 
12      (5)  Wilful departure from, or wilful disregard of plans or
 
13           specifications in any material respect without consent
 
14           of the owner or the owner's duly authorized
 
15           representative, that is prejudicial to a person
 
16           entitled to have the construction project or operation
 
17           completed in accordance with those plans and
 
18           specifications;
 
19      (6)  Wilful violation of any law of the State, or any
 
20           county, relating to building, including any violation
 
21           of any applicable rule of the department of health, or
 
22           of any applicable safety or labor law;
 
23      (7)  Failure to make and keep records showing all contracts,
 

 
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 1           documents, records, receipts, and disbursements by a
 
 2           licensee of all the licensee's transactions as a
 
 3           contractor for a period of not less than three years
 
 4           after completion of any construction project or
 
 5           operation to which the records refer or to permit
 
 6           inspection of those records by the board;
 
 7      (8)  When the licensee being a partnership or a joint
 
 8           venture permits any partner, member, or employee of the
 
 9           partnership or joint venture who does not hold a
 
10           license to have the direct management of the
 
11           contracting business thereof;
 
12      (9)  When the licensee being a corporation permits any
 
13           officer or employee of the corporation who does not
 
14           hold a license to have the direct management of the
 
15           contracting business thereof;
 
16     (10)  Misrepresentation of a material fact by an applicant in
 
17           obtaining a license;
 
18     (11)  Failure of a licensee to complete in a material respect
 
19           any construction project or operation for the agreed
 
20           price if the failure is without legal excuse;
 
21     (12)  Wilful failure in any material respect to comply with
 
22           this chapter or the rules adopted pursuant thereto;
 
23     (13)  Wilful failure or refusal to prosecute a project or
 

 
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 1           operation to completion with reasonable diligence;
 
 2     (14)  Wilful failure to pay when due a debt incurred for
 
 3           services or materials rendered or purchased in
 
 4           connection with the licensee's operations as a
 
 5           contractor when the licensee has the ability to pay or
 
 6           when the licensee has received sufficient funds
 
 7           therefor as payment for the particular operation for
 
 8           which the services or materials were rendered or
 
 9           purchased;
 
10     (15)  The false denial of any debt due or the validity of the
 
11           claim therefor with intent to secure for a licensee,
 
12           the licensee's employer, or other person, any discount
 
13           of the debt or with intent to hinder, delay, or defraud
 
14           the person to whom the debt is due;
 
15     (16)  Failure to secure or maintain workers' compensation
 
16           insurance, unless the licensee is authorized to act as
 
17           a self-insurer under chapter 386 or is excluded from
 
18           the requirements of chapter 386;
 
19     (17)  Entering into a contract with an unlicensed contractor
 
20           involving work or activity for the performance of which
 
21           licensing is required under this chapter;
 
22     (18)  Performing service on a residential or commercial air
 
23           conditioner, utilizing CFCs, without using refrigerant
 

 
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 1           recovery and recycling equipment;
 
 2     (19)  Performing service on any air conditioner after
 
 3           January 1, 1994, without successful completion of an
 
 4           appropriate training course in the recovery and
 
 5           recycling of CFC and HCFC refrigerants, which included
 
 6           instruction in the proper use of refrigerant recovery
 
 7           and recycling equipment that is certified by
 
 8           Underwriters Laboratories, Incorporated;
 
 9     (20)  Violating chapter 342C; [and]
 
10     (21)  Failure to pay delinquent taxes, interest, and
 
11           penalties assessed under chapter 237 that relate to the
 
12           business of contracting, or to comply with the terms of
 
13           a conditional payment plan with the department of
 
14           taxation for the payment of such delinquent taxes,
 
15           interest, and penalties[.]; and
 
16     (22)  Failure to meet the escrow requirements of section
 
17           103D-   ."
 
18      SECTION 4.  Section 130-10.5, Hawaii Revised Statutes, is
 
19 repealed.
 
20      ["[§103-10.5]  Prompt payment.  Any money, other than
 
21 retainage, paid to a contractor shall be dispersed to
 
22 subcontractors within ten days after receipt of the money in
 
23 accordance with the terms of the subcontract, provided that the
 

 
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 1 subcontractor has met all the terms and conditions of the
 
 2 subcontract and there are no bona fide disputes.  Upon final
 
 3 payment to the contractor, full payment to the subcontractor,
 
 4 including retainage, shall be made within ten days after receipt
 
 5 of the money, provided there are no bona fide disputes over the
 
 6 subcontractor's performance under the subcontract."] 
 
 7      SECTION 5.  Statutory material to be repealed is bracketed.
 
 8 New statutory material is underscored.
 
 9      SECTION 6.  This Act shall take effect on January 1, 2001.
 
10 
 
11                           INTRODUCED BY:  _______________________