THE SENATE

S.B. NO.

2412

TWENTY-SIXTH LEGISLATURE, 2012

S.D. 2

STATE OF HAWAII

H.D. 1

 

 

 

 

 

A BILL FOR AN ACT

 

 

RELATING TO CONTRACTS.

 

 

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

 


SECTION 1. Act 291, Session Laws of Hawaii 2006, addressed the problem of delayed payments to subcontractors and materialmen on government projects, by providing for the prompt payment of subcontractors and materialmen upon the completion of their work or furnishing of materials on government projects. However, the legislature finds that subcontractors and materialmen are still experiencing delays in payment and that further action is needed to ensure that subcontractors and materialmen obtain timely payment upon completion of their work, not only on government projects, but on private sector projects as well.

The purpose of this Act is to provide for the prompt payment of subcontractors and materialmen on government and nongovernment projects.

SECTION 2. Chapter 444, Hawaii Revised Statutes, is amended by adding a new section to read as follows:

"444- Performance bond. (a) Except as otherwise provided by law, a contractor or subcontractor may execute and deliver to the owner, contractor, or subcontractor, before the commencement of construction that the contractor or subcontractor will be responsible for performing, a good and sufficient bond in a sum equal to the contract price for the faithful performance of the contract. The term of the bond shall extend to include the period during which claims of lien or notices of other encumbrances based on the construction performed under the contract may be filed under applicable law. The bond shall be approved by the owner, contractor, or subcontractor entitled to withhold retainage.

A faithful performance bond delivered under this section shall require that:

(1) The obligations of the contract shall be faithfully performed;

(2) Payment shall be made promptly to all persons supplying labor or material to the contractor or subcontractor for prosecution of the work provided in the contract;

(3) All contributions due under state law from the contractor or subcontractor in connection with the performance of the contract shall be made promptly; and

(4) All sums required to be deducted and retained from the wages of employees of the contractor or subcontractor pursuant to state law shall be paid over to the department of taxation.

(b) If a contractor or subcontractor does not obtain the bond described in subsection (a), the owner, contractor, or subcontractor may withhold the percentage of the contract price of the work completed as retainage as agreed by the parties to the contract. The owner, contractor, or subcontractor shall pay interest at the rate of one and one-half per cent per month on the final payment due a contractor or subcontractor who did not obtain the bond described in subsection (a). The interest shall commence ten days after the date on which claims of lien or notices of other encumbrances based on the construction performed under the contract are required to be filed under applicable law.

For purposes of this subsection, "final payment due a contractor or subcontractor" means the amount withheld as retainage less the total monetary amount of liens and other encumbrances resulting from the failure of the contractor or subcontractor to faithfully perform the obligations of the contract and properly filed within the time required under applicable law."

SECTION 3. Section 103-10.5, Hawaii Revised Statutes, is amended to read as follows:

"103-10.5 Prompt payment. (a) Any money paid to a contractor shall be disbursed to subcontractors within [ten] seven 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 officer has withheld payment.

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

(c) If any periodic or final payment to a subcontractor under subsection (a) or (b) is delayed by more than seven days after receipt of a periodic or final payment by the contractor, and there are no bona fide disputes over the subcontractor's performance under the subcontract, the contractor shall pay the subcontractor interest, beginning on the eighth day, at the rate of one and one-half per cent per month.

(d) Full payment, less authorized deductions, shall be made to subcontractors that have completed one hundred per cent of their contract by or before the date that the project is fifty per cent complete, if the subcontractor has performed satisfactorily. Payment to the early finishing subcontractors shall be contingent upon compliance with subsection (e).

Early finishing subcontractors under this subsection shall include structural steel, piling, caisson, rebar steel, and demolition. The early finishing subcontractors for which line-item release of retained funds is required shall not be construed to prevent the procurement officer from identifying any other subcontractor not listed in this subsection that is also allowed line-item release of retained funds. If the procurement officer identifies any other subcontractor to be allowed line-item release of retainage, that subcontractor shall be listed in the original bid documents.

[(c)] (e) Where a subcontractor has provided evidence to the contractor of satisfactorily completing all work under their

 

 

subcontract and has provided a properly documented final payment

request as described in subsection [(d) of this section,] (g), and:

(1) Has provided to the contractor an acceptable performance and payment bond for the project executed by a surety company authorized to do business in the State, as provided in section 103-32.1; or

(2) The following has occurred:

(A) A period of ninety days after the day on which the last of the labor was done or performed and the last of the material was furnished or supplied has elapsed without written notice of a claim given to the contractor and the surety, as provided for in section 103D-324; and

(B) The subcontractor has provided to the contractor:

(i) An acceptable release of retainage bond, executed by a surety company authorized to do business in the State, in an amount [of] not more than two times the amount being retained or withheld by the contractor;

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

(iii) 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 procurement officer to the contractor and subsequently, upon receipt from the procurement officer, by the contractor to the subcontractor within the applicable time periods specified in subsection (a) or (b) and section 103-10.

(f) If the procurement officer 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 upon the outstanding amounts due that were not timely paid by the responsible party. The penalty may be withheld from future payment due to the contractor, if the contractor was the responsible party. If a contractor [has violated] violates subsection (b) three or more times within two years of the first violation, the contractor shall be referred by the procurement officer to the [contractor] contractors license board for action under section 444-17(14).

[(d)] (g) A properly documented final payment request from a subcontractor, as required by subsection [(c),] (e), shall include:

(1) Substantiation of the amounts requested;

(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;

(B) The subcontractor has made payments due to its subcontractors and suppliers from previous payments received under the subcontract and will make timely payments from the proceeds of the payment covered by the certification, in accordance with their subcontract agreements and the requirements of this section; and

(C) The payment request does not include any amounts that the subcontractor intends to withhold or retain from a subcontractor or supplier in accordance with the terms and conditions of their subcontract; and

(3) The submission of documentation confirming that all other terms and conditions required under the subcontract agreement have been fully satisfied.

The procurement officer shall return any final payment request that is defective to the contractor within seven days after receipt, with a statement identifying the defect.

[(e)] (h) In the case of a construction contract, a payment request made by a contractor to the procurement officer that includes a request for sums that were withheld or retained from a subcontractor and are due to a subcontractor may not be approved under subsection [(c)] (e) unless the payment request includes:

(1) Substantiation of the amounts requested; and

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

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

(B) The subcontractor has made payments due to its subcontractors and suppliers from previous payments received under the contract and will make timely payments from the proceeds of the payment covered by the certification, in accordance with their subcontract agreements and the requirements of this section; and

(C) The payment request does not include any amounts that the contractor intends to withhold or retain from a subcontractor or supplier in accordance with the terms and conditions of their subcontract.

The procurement officer shall return any final payment request that is defective to the contractor within seven days after receipt, with a statement identifying the defect.

[(f)] (i) This section shall not be construed to impair the right of a contractor or a subcontractor at any tier to negotiate and to include in their respective subcontracts provisions that provide for additional terms and conditions that are requested to be met before the subcontractor shall be entitled to receive final payment under subsection [(c) of this section;] (d) or (e); provided that any [such] payments withheld shall be withheld by the procurement officer."

SECTION 4. Section 103-32.1, Hawaii Revised Statutes, is amended by amending subsection (d) to read as follows:

"(d) 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 not more than the same percentage of retainage as that of the contractor. This subsection shall also apply to the subcontractors who subcontract work to other subcontractors. Any percentage of retainage on payments made by the contractor to the subcontractor that exceeds the percentage of retainage on payments made by the procurement officer to the contractor shall be subject to interest to be paid by the contractor to the subcontractor at the rate of one and one-half per cent per month commencing from the thirtieth day after the difference in retainage percentages persist."

SECTION 5. Section 444-25, Hawaii Revised Statutes, is amended to read as follows:

"444-25 Payment for goods and services. [A contractor shall pay the contractor's subcontractor for any goods and services rendered within sixty days after receipt of a proper statement by the subcontractor that the goods have been delivered or services have been performed. The subcontractor shall be entitled to receive interest on the unpaid principal amount at the rate of one per cent per month commencing on the sixtieth day following receipt of the statement by the contractor, provided that this section shall not apply if the delay in payment is due to a bona fide dispute between the contractor and the subcontractor concerning the goods and services contracted for. If there is no bona fide dispute between the subcontractor and the contractor concerning the goods or services contracted for, the subcontractor shall be entitled to payment for goods and services under this section.] (a) Partial payment shall be allowed and may be made on contracts under this chapter. Except as otherwise provided by law, an owner, contractor, or subcontractor may withhold as retainage an amount equal to not more than five per cent of the contract price of the work completed. Partial payment allowed under this subsection shall not constitute acceptance or approval of some of the work or a waiver of defects in the work.

(b) The owner, contractor, or subcontractor shall pay interest at the rate of one and one-half per cent per month on the final payment due the contractor or subcontractor. Except as otherwise provided by law, the interest shall commence thirty days after the contractor or subcontractor has completed, and the owner has accepted, the work under the contract for construction for which the final payment is due. The interest shall continue to accrue until the date when final payment is tendered to the contractor or subcontractor.

When the contractor or subcontractor considers the work that the contractor or subcontractor is contracted to perform to be complete, the contractor or subcontractor shall notify the party to whom the contractor or subcontractor is responsible under the contract. Within fifteen days after receiving the notice, the party shall accept the work or notify the contractor or subcontractor of work yet to be performed under the contract. If the party does not accept the work or does not notify the contractor or subcontractor of work yet to be performed within the time allowed, the interest required under this subsection shall commence thirty days after the end of the fifteen-day period.

(c) When a contractor pays a subcontractor in full, including the amount the contractor withheld as retainage, the owner with whom the contractor has the contract shall pay the contractor a sum equal to the amount of retainage that the contractor paid the subcontractor, out of the amount that the owner withheld from the contractor as retainage. The contractor shall notify the owner when the contractor pays a subcontractor in full under this section and, within fifteen days after receiving the notice, the owner shall pay the contractor the amount due the contractor under this subsection. Interest on the amount due the contractor at the rate of one and one-half per cent per month shall commence thirty days after the owner receives notice of full payment to the subcontractor.

(d) If payment is contingent upon receipt of funds held in escrow or trust, the contractor shall clearly state this fact in the contractor's solicitation of bids. If the solicitation for bids contains the statement that the time of payment is contingent upon the receipt of funds held in escrow or trust and a contract is awarded in response to the solicitation, interest will not begin to accrue upon any unpaid balance until the sixtieth day following receipt by the contractor of the subcontractor's statement or the thirtieth day following receipt of the escrow or trust funds, whichever occurs later."

SECTION 6. Section 507-43, Hawaii Revised Statutes, is amended by amending subsection (f) to read as follows:

"(f) Date of completion, notice of. The term "date of completion" as used in this section means the time when the owner or the general contractor for the improvement completes the publication of a notice that the improvement has been completed or has been abandoned and an affidavit of the publication, together with a copy of the notice has been filed in the office of the clerk of the circuit court where the property involved is situated; provided that notice of completion shall not be effective for any purpose unless prior to the notice there has been substantial completion of the improvement and the owner, developer, or government agency has accepted the project or the improvement has been actually abandoned; and provided further that the notice shall not be published by the contractor until after the contractor has first made written demand upon the owner to publish the notice and the owner has failed to publish the notice within five days from the date of the demand. The publication of the notice by the contractor or the owner shall not be construed as an admission by either that the improvement has been satisfactorily completed. The notice required herein shall be published twice, seven days apart, in a newspaper of general circulation, printed and published in the county in which the property involved is situated, and the publishing newspaper shall promptly file the affidavit of publication above mentioned in the office of the clerk. If the general contractor publishes the notice of completion, the general contractor shall provide the owner and the subcontractors and architects involved with the project a copy of the notice of completion no later than three days after the date that the notice is first published."

SECTION 7. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.

SECTION 8. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 9. This Act shall take effect on July 1, 2112.


 


 

Report Title:

Construction Contracts; Subcontractors and Materialmen; Payments

 

Description:

Shortens the time by which subcontractors are to receive progress and final payments from contractors on government and private construction projects. Provides interest penalties for late payments. Effective July 1, 2112. (SB2412 HD1)

 

 

 

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.