Report Title:

Contracts; Prompt Payment

Description:

Provides for prompt payment to subcontractor or materialman upon completion of the work or provision of the materials required under the contract. (SD1)

HOUSE OF REPRESENTATIVES

H.B. NO.

3036

TWENTY-THIRD LEGISLATURE, 2006

H.D. 1

STATE OF HAWAII

S.D. 1

 

A BILL FOR AN ACT

 

relating to contracts.

 

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

SECTION 1. The legislature finds that this Act is necessary to address a problem within the building industry. Materialmen and subcontractors often are at the mercy of general contractors when seeking payment due them upon completion of their work or providing materials for a government project. This problem is particularly serious for materialmen and subcontractors who are involved at the beginning of a project, where their work is completed or materials are furnished long before final completion of the project. In many instances, subcontractors must wait many months, even years, before receiving full payment for their completed work. Often, the subcontractors are small family-owned and-run businesses that lack financial resources to withstand a long delay in receiving payments owed to them for work completed. The legislature finds that there is a need to provide materialmen and subcontractors with the right to payment upon furnishing of materials or completion of their work in government projects.

The purpose of this Act is to accelerate a subcontractor's or materialman's right to payment upon completion of the subcontract or the furnishing of materials by providing for prompt payment to a subcontractor or materialman upon completion of the subcontractor's or materialman's work in government projects.

SECTION 2. Section 103-10.5, Hawaii Revised Statutes, is amended to read as follows:

"§103-10.5 Prompt payment. (a) Any [money, other than retainage,] money paid to a contractor shall be dispersed to subcontractors within ten days after receipt of the money in accordance with the terms of the subcontract; provided that the subcontractor has met all the terms and conditions of the subcontract and there are no bona fide disputes on which the procurement agency has withheld payment.

(b) Upon final payment to the contractor, full payment to the subcontractor, including retainage, shall be made within ten days after receipt of the money; provided there are no bona fide disputes over the subcontractor's performance under the subcontract.

(c) Where a subcontractor has provided evidence to the contractor of work satisfactorily completed in the form of a properly documented payment request as described in subsection (d) of this section, and: [of:

(1) A valid union trust fund contribution bond acceptable to the contractor in an amount not less than three months of the subcontractor's trust fund contribution;

(2) A] (1) Shall have posted a performance and payment bond for the project executed by a surety company authorized to do business in the [State;] State as provided in section 103-32.1; or

[(3) Any other bond acceptable to the contractor; or

(4) Any other form of mutually-acceptable collateral;

and the contractor fails to pay in accordance with this section,]

(2) (A) Shall have posted a valid union trust fund contribution bond acceptable to the contractor in an amount not less than three months of the subcontractor's trust fund contribution, the ninety days have expired since the day on which the last of the labor was done or performed or material was furnished or supplied, and a retainage bond or any other bond has been posted that is acceptable to the contractor, or any other form of mutually acceptable collateral;

all sums retained or withheld from a subcontractor and otherwise due to the subcontractor for satisfactory performance under the subcontract shall be paid by the paying agency or the contractor. If the paying agency or the contractor fails to pay in accordance with this section, a penalty of one and one-half per cent per month shall be imposed on the outstanding amounts due to the subcontractor which was not timely paid by the responsible party. The penalty may be withheld from future payment due to the contractor. Where a contractor has violated subsection (b) three or more times within two years of the first violation, the contractor shall be referred to the contractor license board by the procurement agency for action under section 444-17(14).

(d) The subcontractor shall be entitled to payment from the agency of any amount withheld or retained from the subcontractor in accordance with subsection (c) when the subcontractor has determined and certified to the contractor and the agency that the subcontractor is entitled to the payment of such amount as provided in its payment request if such request includes the following:

(1) Substantiation of the amounts requested; and

(2) A certification by the subcontractor, to the best of the subcontractor's knowledge and belief, that:

(A) The amounts requested are only for performance in accordance with the specifications, terms, and conditions of the subcontract; and

(B) Payments to lower tier subcontractors have been made from previous payments received under the contract, and timely payments will be made from the proceeds of the payment covered by the certification, in accordance with their subcontract agreements and the requirements of this chapter.

The agency shall return any such payment request which is defective to the subcontractor within ten days after receipt, with a statement identifying the defect."

SECTION 3. Section 103-32.1, Hawaii Revised Statutes, is amended to read as follows:

"§103-32.1 Contract provision for retainage; subcontractors. (a) Any public contract may include a provision for the retainage of a portion of the amount due under the contract to the contractor to insure the proper performance of the contract; provided that:

(1) The sum withheld by the procurement officer from the contractor shall not exceed five per cent of the total amount due the contractor and that after fifty per cent of the contract is completed and progress is satisfactory, no additional sum shall be withheld; provided further that if progress is not satisfactory, the contracting officer may continue to withhold as retainage, sums not exceeding five per cent of the amount due the contractor; and

(2) The retainage shall not include sums deducted as liquidated damages from moneys due or that may become due the contractor under the contract.

(b) Where a subcontractor has provided evidence to the contractor of:

(1) A valid performance and a payment bond for the project that is acceptable to the contractor and executed by a surety company authorized to do business in this State;

(2) Any other bond acceptable to the contractor; or

(3) Any other form of collateral acceptable to the contractor;

the retention amount withheld by the contractor from its subcontractor shall be the same percentage of retainage as that of the contractor. [This subsection shall also apply to the subcontractors who subcontract work to other subcontractors.]

(c) Subject to the provisions of subsection (d) and unless the subcontractor can satisfy the provisions of the foregoing subsection (b), a contractor or a subcontractor at any tier may negotiate, and include in their subcontract, provisions which:

(1) Permit the contractor to direct the paying agency to retain (without cause) a specified percentage of no more than ten per cent of each progress payment otherwise due to a subcontractor for satisfactory performance under the subcontract, giving such recognition as the parties deem appropriate to the ability of a subcontractor to furnish a performance bond and a payment bond. In no event may the contractor include in its subcontract a provision which permits the contractor to retain or withhold any portion of the amount due under the subcontract to the subcontractor under this subsection; and

(2) Permit the contractor or subcontractor to make a determination that part or all of the subcontractor’s request for payment may be withheld in accordance with the subcontract agreement by the paying agency.

(d) The provisions of subsection (c) shall apply only to construction contracts and only if:

(1) A notice conforming to the standards of subsection (e) has been previously furnished to the subcontractor; and

(2) A copy of any notice issued by the contractor or subcontractor pursuant to paragraph (1) has been furnished to the procurement officer.

(e) A written notice of any withholding shall be issued to a subcontractor (with a copy to the agency of any such notice issued by a contractor), specifying the following:

(1) The amount to be withheld;

(2) The specific causes for the withholding under the terms of the subcontract; and

(3) The remedial actions to be taken by the subcontractor in order to receive payment of the amounts withheld."

SECTION 4. Section 103D-501, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

"(b) Adjustments in price permitted by rules adopted under subsection (a) shall be computed in one or more of the following ways:

(1) By agreement on a fixed price adjustment before commencement of the pertinent performance or as soon thereafter as practicable;

(2) By unit prices specified in the contract or subsequently agreed upon;

(3) By the costs attributable to the events or situations under such clauses with adjustment of profit or fee, all as specified in the contract or subsequently agreed upon;

(4) In such other manner as the contracting parties may mutually agree; or

(5) In the absence of agreement by the parties, an interim price shall be determined by a unilateral determination by the governmental body of the costs attributable to the events or situations under such clauses with adjustment of profit or fee, all as computed by the governmental body in accordance with applicable sections of the rules adopted under section 103D-601 and subject to the provisions of part VII. The adjusted interim price shall be paid in accordance with progress payment procedures upon satisfactory progress of the work and the final amount shall be determined within thirty days after the satisfactory completion of the changed work.

A contractor shall be required to submit cost or pricing data if any adjustment in contract price is subject to the provisions of section 103D-312."

SECTION 5. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 6. This Act shall take effect on July 1, 2050.