STAND. COM. REP. NO. 2200

                                   Honolulu, Hawaii
                                                     , 2000

                                   RE:  S.B. No. 2987
                                        




Honorable Norman Mizuguchi
President of the Senate
Twentieth State Legislature
Regular Session of 2000
State of Hawaii

Sir:

     Your Committee on Government Operations and Housing, to
which was referred S.B. No. 2987 entitled: 

     "A BILL FOR AN ACT RELATING TO PUBLIC CONTRACTS,"

begs leave to report as follows:

     The purpose of this measure is to provide for an equitable
application of the retainage provisions of the State's public
contracts law by disallowing general contractors from withholding
more than five percent of a subcontractor's contract price.

     Testimony in support of the measure was received from the
Building Industry Association, Associated Builders and
Contractors, Inc., the Sheet Metal Contractors Association, the
Plumbing and Mechanical Contractors Association of Hawaii, the
General Contractors Association of Hawaii, the Subcontractors
Association of Hawaii, the Construction Industry Legislative
Organization, and the Hawaii Surety Association.  The Hawaii
Electricians Market Enhancement Program Fund opposed the measure.

     Your Committee finds that the measure prohibits general
contractors from withholding from their subcontractors, a
retention amount greater than that which is being withheld from
the general contractor by the contracting public agency; provided
that the subcontractor provides evidence of a current performance
or is bonded to the satisfaction of the general contractor.

     For example, on a $1 million public contract, a general
contractor may perform thirty percent of the work with the

 
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general contractor's own employees, the balance of the $700,000
is then subcontracted.  The public agency will withhold five
percent of the total amount due for the first fifty percent of
the project, or $25,000.  However, the general contractor may
withhold ten percent of the total subcontracted amount, or a
total of $70,000 from the general contractor's subcontractors, a
difference of $45,000.  The general contractor is then able to
use the $45,000 interest free for the life of the contract at the
expense of the subcontractors.

     By requiring that the general contractor withhold no more
than the same percentage amount than what is being withheld from
the general contractor, your Committee believes that the measure
addresses the equity issue of treating both the general
contractor and the subcontractor in the same manner with regard
to retainage requirements.

     As affirmed by the record of votes of the members of your
Committee on Government Operations and Housing that is attached
to this report, your Committee is in accord with the intent and
purpose of S.B. No. 2987 and recommends that it pass Second
Reading and be referred to the Committee on Ways and Means.

                                   Respectfully submitted on
                                   behalf of the members of the
                                   Committee on Government
                                   Operations and Housing,



                                   ______________________________
                                   ROD TAM, Chair

 
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