STAND. COM. REP. NO. 720

                                   Honolulu, Hawaii
                                                     , 1999

                                   RE:  S.B. No. 59
                                        S.D. 1




Honorable Norman Mizuguchi
President of the Senate
Twentieth State Legislature
Regular Session of 1999
State of Hawaii

Sir:

     Your Committee on Government Operations and Housing, to
which was referred S.B. No. 59 entitled: 

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

begs leave to report as follows:

     The purpose of this measure is to require the Comptroller to
adopt rules to implement the law requiring contractors performing
on a public contract to disperse funds to subcontractors in
accordance with the terms of the subcontract, within ten days of
receiving payment.

     Prior to this hearing, your Committee circulated a proposed
S.B. No. 59, S.D. 1, which included the adoption of rules
provision similar to S.B. No. 59, as well as a provision that
penalizes contractors or subcontractors on public contracts who
withhold retention amounts over five percent of a subcontractor's
contract price.  Your Committee received testimony on this
proposed S.B. No. 59, S.D. 1.

     Your Committee received testimony in support of the proposed
S.D. 1 from the Department of Accounting and General Services,
Plumbing and Mechanical Contractors Association of Hawaii, Sheet
Metal Contractors Association, Subcontractors Association of
Hawaii, and Painting and Decorating Contractors Association of
Hawaii.  Testimony opposed to the proposed S.D. 1 was received
from Nordic Construction, Ltd., Albert C. Kobayashi, Inc., Royal
Contracting Company, Hawaiian Dredging Construction Company,
General Contractors Association of Hawaii, S&M Sakamoto Inc.,

 
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                                   STAND. COM. REP. NO. 720
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Contractors Association of Kauai, and Jas. W. Glover, Ltd.  Oral
testimony opposed to the proposed S.D. 1 was received from the
Hawaii Surety Association.

     Your Committee finds that currently, general contractors
require subcontractors to sign contracts with a 10%-15% retention
clause.  Yet, the state and county agencies by statute are
allowed to withhold only two and one-half percent retainage from
the general contractor.

     Your Committee finds that this disparity in retainage
between the agencies, the general contractors, and the
subcontractors has created a great financial burden on the
subcontractors.  The proposed S.D. 1 will provide for a uniform
retainage procedure for all parties, from the agencies to the
general contractors.  

     Your Committee has amended the proposed S.D. 1 with the
following changes:

     (1)  Deleted the prompt payment section because S.B.
          No. 1005 has a similar prompt payment section and was
          previously passed by this Committee;

     (2)  Increased the penalties section to include higher fines
          and debarment from bidding on future contracts;

     (3)  Added the provision, "provided there are no bona fide
          disputes over the subcontractor's performance under the
          subcontract," to the retainage section; and 
     
     (4)  Added the provision that this Act will apply to
          contracts effective on or after July 1, 1999.

     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. 59, as amended herein, and recommends that it
pass Second Reading in the form attached hereto as S.B. No. 59,
S.D. 1, and be placed on the calendar for Third Reading.


 
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                                   STAND. COM. REP. NO. 720
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                                   Respectfully submitted on
                                   behalf of the members of the
                                   Committee on Government
                                   Operations and Housing,



                                   ______________________________
                                   ROD TAM, Chair

 
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