REPORT TITLE:
Contracts and Procurement


DESCRIPTION:
Specifies that subcontractors provide evidence to contractors of
a valid union trust fund contribution bond, a performance and
payment bond, any other bond, or other form of mutually-
acceptable collateral.  Imposes penalties on contractors for
failing to properly pay amounts owed to subcontractors.  Repeals
the requirement that the procurement policy board adopt rules on
prompt payment.  (CD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        2988
THE SENATE                              S.B. NO.           S.D. 2
TWENTIETH LEGISLATURE, 2000                                H.D. 2
STATE OF HAWAII                                            C.D. 1
                                                        
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO PUBLIC CONTRACTS AND PROCUREMENT.


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

 1      SECTION 1.  The legislature finds that after receiving
 
 2 payment for construction projects, prime contractors sometimes do
 
 3 not make timely payments to subcontractors.  One of the principal
 
 4 reasons for this is the prime contractors' liability for
 
 5 subcontractors union trust fund payments.  Often, the long delay
 
 6 in receiving full clearance from union trust funds results in
 
 7 corresponding delays in payments to subcontractors.
 
 8      The legislature also finds that earlier legislative action
 
 9 on the issue resulted in divisive conflict between construction
 
10 industry groups.  To avoid further rancor, representatives from
 
11 various construction industry organizations established an
 
12 informal task force to reconcile differences.  After many months
 
13 of open and sometimes heated debate, the members of the task
 
14 force acquired a new respect for the unique problems facing their
 
15 counterparts and crafted a partial solution to the thorny issue
 
16 of prompt payment.  The proposal provides that prime contractors
 
17 make timely payments to subcontractors who possess a trust fund
 
18 contribution bond or a performance/payment bond.  This proposal
 
19 makes significant progress toward addressing the subcontractors'
 
20 concern for prompt payment, and the prime contractors' concern
 

 
Page 2                                                     2988
                                     S.B. NO.           S.D. 2
                                                        H.D. 2
                                                        C.D. 1
                                                        

 1 regarding liability for union trust fund benefit payments.
 
 2      The purpose of this Act is to ensure prompt payment on state
 
 3 projects by contractors to subcontractors by:
 
 4      (1)  Specifying that subcontractors provide evidence to
 
 5           contractors of a valid union trust fund benefit payment
 
 6           bond, performance/payment bond, other bond, or another
 
 7           mutually agreeable form of collateral; and
 
 8      (2)  Imposing penalties on contractors for failing to
 
 9           properly pay amounts owed to subcontractors.
 
10      SECTION 2.  Section 103-10.5, Hawaii Revised Statutes, is
 
11 amended to read as follows:
 
12      "[[]103-10.5[]]  Prompt payment.  (a)  Any money, other
 
13 than retainage, paid to a contractor shall be dispersed to
 
14 subcontractors within ten days after receipt of the money in
 
15 accordance with the terms of the subcontract[,]; provided that
 
16 the subcontractor has met all the terms and conditions of the
 
17 subcontract and there are no bona fide disputes[.] on which the
 
18 procurement agency has withheld payment.
 
19      (b)  Upon final payment to the contractor, full payment to
 
20 the subcontractor, including retainage, shall be made within ten
 
21 days after receipt of the money[,]; provided there are no bona
 
22 fide disputes over the subcontractor's performance under the
 
23 subcontract.
 

 
Page 3                                                     2988
                                     S.B. NO.           S.D. 2
                                                        H.D. 2
                                                        C.D. 1
                                                        

 1      (c)  Where a subcontractor has provided evidence to the
 
 2 contractor of:
 
 3      (1)  A valid union trust fund contribution bond acceptable
 
 4           to the contractor in an amount not less than three
 
 5           months of the subcontractor's trust fund contribution;
 
 6      (2)  A performance and payment bond for the project executed
 
 7           by a surety company authorized to do business in the
 
 8           State;
 
 9      (3)  Any other bond acceptable to the contractor; or
 
10      (4)  Any other form of mutually-acceptable collateral;
 
11 and the contractor fails to pay in accordance with this section,
 
12 a penalty of one and one-half per cent per month shall be imposed
 
13 on the outstanding amounts due to the subcontractor.  The penalty
 
14 may be withheld from future payment due to the contractor.  Where
 
15 a contractor has violated subsection (b) three or more times
 
16 within two years of the first violation, the contractor shall be
 
17 referred to the contractor license board by the procurement
 
18 agency for action under section 444-17(14)."
 
19      SECTION 3.  Section 103D-501, Hawaii Revised Statutes, is
 
20 amended to read as follows:
 
21      "103D-501  Contract clauses and their administration.
 
22 (a)  The policy board shall adopt rules requiring the inclusion
 
23 of contract clauses providing for adjustments in prices, time of
 

 
Page 4                                                     2988
                                     S.B. NO.           S.D. 2
                                                        H.D. 2
                                                        C.D. 1
                                                        

 1 performance, or other contract provisions, as appropriate, and
 
 2 covering the following subjects:
 
 3      (1)  The unilateral right of the governmental body to order
 
 4           in writing:
 
 5           (A)  Changes in the work within the scope of the
 
 6                contract; and
 
 7           (B)  Changes in the time of performance of the contract
 
 8                that do not alter the scope of the contract work;
 
 9      (2)  Variations occurring between estimated quantities of
 
10           work in a contract and actual quantities;
 
11      (3)  Suspension of work ordered by the governmental body;
 
12           and
 
13      (4)  Site conditions differing from those indicated in the
 
14           contract, or ordinarily encountered, except that
 
15           differing site conditions clauses established by these
 
16           rules need not be included in a contract:
 
17           (A)  When the contract is negotiated;
 
18           (B)  When the contractor provides the site or design;
 
19                or
 
20           (C)  When the parties have otherwise agreed with
 
21                respect to the risk of differing site conditions.
 
22      (b)  Adjustments in price permitted by rules adopted under
 
23 subsection (a) shall be computed in one or more of the following
 

 
Page 5                                                     2988
                                     S.B. NO.           S.D. 2
                                                        H.D. 2
                                                        C.D. 1
                                                        

 1 ways:
 
 2      (1)  By agreement on a fixed price adjustment before
 
 3           commencement of the pertinent performance or as soon
 
 4           thereafter as practicable;
 
 5      (2)  By unit prices specified in the contract or
 
 6           subsequently agreed upon;
 
 7      (3)  By the costs attributable to the events or situations
 
 8           under such clauses with adjustment of profit or fee,
 
 9           all as specified in the contract or subsequently agreed
 
10           upon;
 
11      (4)  In such other manner as the contracting parties may
 
12           mutually agree; or
 
13      (5)  In the absence of agreement by the parties, by a
 
14           unilateral determination by the governmental body of
 
15           the costs attributable to the events or situations
 
16           under such clauses with adjustment of profit or fee,
 
17           all as computed by the governmental body in accordance
 
18           with applicable sections of the rules adopted under
 
19           section 103D-601 and subject to the provisions of part
 
20           VII.
 
21 A contractor shall be required to submit cost or pricing data if
 
22 any adjustment in contract price is subject to the provisions of
 
23 section 103D-312.
 

 
Page 6                                                     2988
                                     S.B. NO.           S.D. 2
                                                        H.D. 2
                                                        C.D. 1
                                                        

 1      [(c)  The policy board shall adopt rules requiring the
 
 2 inclusion in contracts of clauses providing for prompt payment by
 
 3 contractors to subcontractors.  The rules shall provide that:
 
 4      (1)  Any money, other than retainage, paid to a contractor
 
 5           shall be dispersed to subcontractors within ten days
 
 6           after receipt of the money in accordance with the terms
 
 7           of the subcontract; provided that the subcontractor has
 
 8           met all the terms and conditions of the subcontract and
 
 9           there are no bona fide disputes; and
 
10      (2)  Upon final payment to the contractor, full payment to
 
11           the subcontractor, including retainage, shall be made
 
12           within ten days after receipt of the money; provided
 
13           that there are no bona fide disputes over the
 
14           subcontractor's performance under the subcontract.
 
15      (d)] (c)  The policy board shall adopt rules requiring the
 
16 inclusion in contracts of clauses providing for appropriate
 
17 remedies and covering the following subjects:
 
18      (1)  Liquidated damages as appropriate;
 
19      (2)  Specified excuses for delay or nonperformance;
 
20      (3)  Termination of the contract for default; and
 
21      (4)  Termination of the contract in whole or in part for the
 
22           convenience of the governmental body.
 
23      [(e)] (d)  The chief procurement officer or the head of a
 

 
Page 7                                                     2988
                                     S.B. NO.           S.D. 2
                                                        H.D. 2
                                                        C.D. 1
                                                        

 1 purchasing agency may vary the clauses [which] that may be
 
 2 required to be included in contracts under the rules adopted
 
 3 under subsections (a)[, (c), and (d);] and (c); provided that
 
 4 [any]:
 
 5      (1)  Any variations are supported by a written determination
 
 6           that states the circumstances justifying such
 
 7           variations[, and provided that notice]; and
 
 8      (2)  Notice of any such material variation be stated in the
 
 9           invitation for bids or request for proposals when the
 
10           contract is awarded under section 103D-302 or
 
11           103D-303."
 
12      SECTION 4.  Statutory material to be repealed is bracketed.
 
13 New statutory material is underscored.
 
14      SECTION 5.  This Act shall take effect on July 1, 2000, and
 
15 shall apply to all public contracts entered into after June 30,
 
16 2000.