Public Contracts

Penalizes contractors or subcontractors on a public contract who
withhold a retention amount over five percent of a
subcontractor's contract price by establishing fines and
debarment from bidding on future public contracts. (SD1)

THE SENATE                              S.B. NO.           S.D. 1
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            

                   A  BILL  FOR  AN  ACT



 1      SECTION 1.  The legislature finds that too often contractors
 2 performing on government contracts withhold a retainage sum that
 3 well exceeds the subcontractor's contract price.  Currently,
 4 there are no penalties for a contractor who withholds a retention
 5 amount over five percent of the subcontractor's contract price.
 6 The legislature finds that adding a penalties section to the
 7 retainage provision of the procurement code will prevent general
 8 contractors from using funds that legally belong to the
 9 subcontractors.
10      The purpose of this Act is to add penalties to the existing
11 law that prohibits contractors from withholding more than five
12 percent of the subcontractor's contract price.     
13      SECTION 2.  Section 103-32.1, Hawaii Revised Statutes, is
14 amended to read as follows:
15      "103-32.1  Contract provision for retainage.  (a)  Any
16 public contract issued under this chapter may include a provision
17 for the retainage of a portion of the amount due under the
18 contract to the contractor to insure the proper performance of
19 the contract; provided that the sum withheld by the contracting

Page 2                                                     59
                                     S.B. NO.           S.D. 1

 1 officer from the contractor shall not exceed five per cent of the
 2 total amount due the contractor [and that after fifty per cent of
 3 the contract is completed and progress is satisfactory, no
 4 additional sum shall be withheld; provided further that if
 5 progress is not satisfactory, the contracting officer may
 6 continue to withhold as retainage, sums not exceeding five per
 7 cent of the amount due the contractor.], provided there are no
 8 bona fide disputes over the subcontractor's performance under the
 9 subcontract.
10      (b)  The retention amount withheld by a contractor from its
11 subcontractor shall not exceed five per cent of the
12 subcontractor's contract price; provided there are no bona fide
13 disputes over the subcontractor's performance under the
14 subcontract.
15      The maximum five per cent retention amount shall also apply
16 to subcontractors who subcontract work to other subcontractors.
17      (c)  The failure of a contractor to comply with this section
18 shall render the contractor subject to a $5,000 fine for the
19 first offense, $10,000 fine for the second offense, and $25,000
20 fine and suspension for bidding on public contracts for three
21 years for the third offense; provided that a contractor that
22 fails to be in accordance with this section may be permitted to
23 submit bids on public contracts by submitting and complying with

Page 3                                                     59
                                     S.B. NO.           S.D. 1

 1 a subcontractor payment plan to be approved by the comptroller
 2 prior to submitting a bid; provided there are no bona fide
 3 disputes over the subcontractor's performance under the
 4 subcontract.
 5      (d)  The comptroller shall adopt rules pursuant to chapter
 6 91 that may be necessary to implement this section."
 7      SECTION 3.  This section shall apply to contracts effective
 8 on or after July 1, 1999.
 9      SECTION 4.  Statutory material to be repealed is bracketed.
10 New statutory material is underscored.
11      SECTION 5.  This Act shall take effect upon its approval.