Public Contracts

Adds provision to the existing law that prohibits contractors
from withholding more than 5% of the subcontractor's contract
price.  (CD1)

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

                   A  BILL  FOR  AN  ACT



 1      SECTION 1.  The legislature finds that for construction
 2 projects, the State often retains a percentage of the amount paid
 3 to prime contractors.  The contractors, in turn, often retain a
 4 higher rate from subcontractors to protect themselves, in case
 5 the subcontractors fail to complete their work, and from other
 6 contingencies.  The higher retention rates imposed upon
 7 subcontractors often cause cash flow problems for these
 8 companies.
 9      The legislature also finds that earlier legislative action
10 on the issue resulted in divisive conflict between construction
11 industry groups.  To avoid further rancor, representatives from
12 various construction industry organizations established an
13 informal task force to reconcile differences.  After many months
14 of open, sometimes heated debate, the members of the task force
15 acquired a new respect for the unique problems facing their
16 counterparts and managed to craft a partial solution to the
17 thorny problem of retention.  The proposal provides that the
18 retention rate imposed upon subcontractors shall be equal to the
19 retention rate imposed upon their prime contractor by the State,

Page 2                                                     2987
                                     S.B. NO.           S.D. 1
                                                        H.D. 2
                                                        C.D. 1

 1 provided the subcontractor possesses a performance and payment
 2 bond.  This addresses the subcontractors' concern for equal
 3 retention rates, and the prime contractors' concern regarding
 4 liability for work completion.
 5      The purpose of this part is to require equal retention rates
 6 on state projects for subcontractors who possess a valid
 7 performance and payment bond or another mutually agreeable form
 8 of collateral.
 9      SECTION 2.  Section 103-32.1, Hawaii Revised Statutes, is
10 amended to read as follows:
11      "103-32.1  Contract provision for retainage[.];
12 subcontractors.  (a)  Any public contract may include a provision
13 for the retainage of a portion of the amount due under the
14 contract to the contractor to insure the proper performance of
15 the contract; provided that:
16      (1)  The sum withheld by the procurement officer from the
17           contractor shall not exceed five per cent of the total
18           amount due the contractor and that after fifty per cent
19           of the contract is completed and progress is
20           satisfactory, no additional sum shall be withheld;
21           provided further that if progress is not satisfactory,
22           the contracting officer may continue to withhold as
23           retainage, sums not exceeding five per cent of the

Page 3                                                     2987
                                     S.B. NO.           S.D. 1
                                                        H.D. 2
                                                        C.D. 1

 1           amount due the contractor; and
 2      (2)  The retainage shall not include sums deducted as
 3           liquidated damages from moneys due or that may become
 4           due the contractor under the contract.
 5      (b)  Where a subcontractor has provided evidence to the
 6 contractor of:
 7      (1)  A valid performance and a payment bond for the project
 8           that is acceptable to the contractor and executed by a
 9           surety company authorized to do business in this State;
10      (2)  Any other bond acceptable to the contractor; or
11      (3)  Any other form of collateral acceptable to the
12           contractor;
13 the retention amount withheld by the contractor from its
14 subcontractor shall be the same percentage of retainage as that
15 of the contractor.  This subsection shall also apply to the
16 subcontractors who subcontract work to other subcontractors."
17      SECTION 3.  Statutory material to be repealed is bracketed.
18 New statutory material is underscored.
19      SECTION 4.  This Act shall take effect on July 1, 2000, and
20 shall apply to all public works contracts entered into after
21 June 30, 2000.