2013 -- S 0700

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LC01850

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STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2013

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A N A C T

RELATING TO PUBLIC PROPERTY AND WORKS -- SUBCONTRACTOR PAYMENT ACT

     Introduced By: Senators Gallo, Lynch, P Fogarty, Lombardo, and Lombardi

     Date Introduced: March 06, 2013

     Referred To: Senate Labor

It is enacted by the General Assembly as follows:

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     SECTION 1. Title 37 of the General Laws entitled "PUBLIC PROPERTY AND

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WORKS" is hereby amended by adding thereto the following chapter:

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     CHAPTER 2.5

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SUBCONTRACTOR PAYMENT ACT

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     37-2.5-1. Method of payment to subcontractors under certain public works

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contracts. -- Every contract awarded pursuant to this chapter shall provide that subcontractor

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payments are provided for in accordance with the provisions of this chapter.

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     37-2.5-2. Definitions. -- For purposes of this chapter:

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     (1) "Subcontractor" means a person who files a sub-bid and receives a subcontract as a

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result of that filed sub-bid or who is approved, in writing, by the awarding authority pursuant to

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this chapter, as a person performing labor or both performing labor and furnishing materials

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pursuant to a contract with the general contractor.

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     37-2.5-3. Deposit of amounts in dispute. -- (a) Forthwith after the general contractor

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awarded a contract, pursuant to this title, receives payment on account of periodic estimate, the

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general contractor shall pay to each subcontractor the amount paid for the labor performed and

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the materials furnished by that subcontractor, less any amount specified in any court proceedings

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barring such payment and also less any amount claimed due from the subcontractor by the

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general contractor.

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     (b) Not later than the sixty-fifth (65th) day after each subcontractor substantially

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completes his or her work in accordance with the plans and specifications, the entire balance due

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under the subcontract, less amounts retained by the awarding authority as the estimated cost of

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completing the incomplete and unsatisfactory items of work, shall be due the subcontractor; and

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the awarding authority shall pay that amount to the general contractor. The general contractor

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shall forthwith pay to the subcontractor the full amount received from the awarding authority less

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any amount specified in any court proceedings barring such payment and also less any amount

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claimed due from the subcontractor by the general contractor.

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     (c) Each payment made by the awarding authority to the general contractor pursuant to

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this section for the labor performed and the materials furnished by a subcontractor shall be made

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to the general contractor for the account of that subcontractor; and the awarding authority shall

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take reasonable steps to compel the general contractor to make each such payment to each

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subcontractor. If the awarding authority has received a demand for the direct payment from a

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subcontractor for any amount which has already been included in a payment to the general

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contractor or which is to be included in a payment to the general contractor for payment to the

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subcontractor as provided in subsections (a) and (b) herein, the awarding authority shall act upon

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the demand as provided in this section.

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     (d) If, within seventy (70) days after the subcontractor has substantially completed the

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subcontract work, the subcontractor has not received from the general contractor the balance due

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under the subcontract including any amount due for extra labor and materials furnished to the

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general contractor, less any amount retained by the awarding authority as the estimated cost of

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completing the incomplete and unsatisfactory items of work, the subcontractor may demand

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direct payment of that balance from the awarding authority pursuant to this chapter. The demand

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shall be by a sworn statement delivered to or sent by certified mail to the general contractor at the

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same time. The demand shall contain a detailed breakdown of the balance due under the

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subcontract and also a statement of the status of completion of the subcontract work which shall

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be valid even if delivered or mailed prior to the seventieth (70th) day after the subcontractor has

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substantially completed the subcontractor work. Within ten (10) days after the subcontractor has

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delivered or so mailed the demand to the awarding authority and delivered or so mailed a copy to

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the general contractor, the general contractor may reply to the demand. The reply shall be by a

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sworn statement delivered to or sent by certified mail to the awarding authority and a copy shall

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be delivered to or sent by certified mail to the subcontractor at the same time. The reply shall

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contain a detailed breakdown of the balance due under the subcontract including any amount due

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for extra labor and materials furnished to the general contractor and of the amount due for each

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claim made by the general contractor against the subcontractor.

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     (e) Within fifteen (15) days after receipt of the demand by the awarding authority, but in

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no event prior to the seventieth (70th) day after substantial completion of the subcontract work,

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the awarding authority shall make direct payment to the subcontractor of the balance due under

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the subcontract including any amount due for extra labor and materials furnished to the general

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contractor, less any amount: (1) Retained by the awarding authority as the estimated cost of

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completing the incomplete or unsatisfactory items of work; (2) Specified in any court proceedings

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barring such payment; or (3) Disputed by the general contractor in the sworn reply; provided, that

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the awarding authority shall not deduct from a direct payment any amount as provided in

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subdivision (3) if the reply is not sworn to, or for which the sworn reply does not contain the

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detailed breakdown required by subsection (d) herein. The awarding authority shall make further

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direct payments to the subcontractor forthwith after the removal of the basis for deductions from

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direct payments made as provided in subdivisions (1) and (2) of this subsection.

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     (f) The awarding authority shall forthwith deposit the amount deducted from a direct

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payment as provided in subsection 37-2.5-3(e) in an interest-bearing joint account in the names of

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the general contractor and the subcontractor in a bank in Rhode Island selected by awarding

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authority or agreed upon by the general contractor and the subcontractor and shall notify the

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general contractor and the subcontractor of the date of the deposit and the bank receiving the

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deposit. The bank shall pay the amount in the account, including accrued interest, as provided in

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an agreement between the general contractor and the subcontractor or as determined by decree of

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a court of competent jurisdiction.

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     (g) All direct payments and all deductions from demands for direct payments deposited in

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an interest-bearing account or accounts in a bank pursuant to subsection 37-2.5-3(f) shall be made

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out of amounts payable to the general contractor at the time of receipt of a demand for direct

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payment from a subcontractor and out of amounts which later become payable to the general

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contractor and in the order of receipt of such demands from subcontractors. All direct payments

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shall discharge the obligation of the awarding to the general contractor to the extent of such

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payment.

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     (h) The awarding authority shall deduct from payments to a general contractor amounts

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which, together with the deposits in interest-bearing accounts pursuant to subsection 37-2.5-3(f),

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are sufficient to satisfy all unpaid balances of demands for direct payment received from sub

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contractors. All such amounts shall be earmarked for such direct payments, and the

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subcontractors shall have a right in such deductions prior to any claims against such amounts by

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creditors of the general contractor.

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     (i) If the subcontractor does not receive payment as provided in subsection 37-2.5-3(a) or

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if the general contractor does not submit a periodic estimate for the value of the labor or materials

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performed or furnished by the subcontractor and the subcontractor does not receive payment for

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same when due, less the deduction provided for in subsection 37-2.5-3(a), the subcontractor may

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demand direct payment by following the procedure in subsection 37-2.5-3(d) and the general

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contractor may file a sworn reply as provided in that same section. A demand made after the first

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day of the month following that for which the subcontractor performed or furnished the labor and

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materials for which the subcontractor seeks payment shall be valid even if delivered or mailed

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prior to the time payment was due on a periodic estimate from the general contractor. Thereafter,

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the awarding authority shall proceed as provided in subsections 37-2.5-3(e), (f), (g) and (h).

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     37-2.5-4. Assignment prohibited. -- Any assignment by a subcontractor of the rights

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under this section to a surety company furnishing a bond under this chapter shall be invalid. The

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assignment and subrogation rights of the surety to amounts included in a demand for direct

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payment which are in the possession of the awarding authority pursuant to this chapter or which

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are on deposit pursuant to subsection (f) herein shall be subordinate to the rights of all

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subcontractors who are entitled to be paid under this chapter and who have not been paid in full.

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     37-2.5-5. Enforcement of claim. -- A general contractor or a subcontractor shall enforce

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a claim to any portion of the amount of a demand for direct payment deposited as provided in

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subsection 37-2.5-3(f) by a petition in equity in the superior court against the other and the bank

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shall not be a necessary party. A subcontractor shall enforce a claim for direct payment or a right

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to require a deposit as provided in subsection 37-2.5-3(f) by a petition in equity in the superior

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court against the awarding authority and the general contractor shall not be a necessary party.

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Upon motion of any party the court shall advance for speedy trial any petition filed as provided in

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this section. The court of proper jurisdiction shall enter an interlocutory decree upon which

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execution shall issue for any part of a claim found due pursuant to this chapter and, upon motion

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of any party, shall advance for speedy trial the petition to collect the remainder of the claim. Any

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party aggrieved by such interlocutory decree shall have the right to appeal therefrom as from a

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final decree. The court shall not consolidate for trial the petition of any subcontractor with the

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petition of one or more subcontractors or the same general contract unless the court finds that a

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substantial portion of the evidence of the same events during the course of construction (other

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than the fact the claims sought to be consolidated arise under the same general contract) is

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applicable to the petitions sought to be consolidated and that such consolidation will prevent

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unnecessary duplication of evidence. A decree in any such proceeding shall not include interest

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on the disputed amount deposited in excess of the interest directly earned for the period of any

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such deposit. No person except a subcontractor filing a demand for direct payment for which no

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funds due the general contractor are available for direct payment shall have a right to file a

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petition in a court of equity against the awarding authority claiming a demand for direct payment

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premature and such subcontractor must file the petition before the awarding authority has made a

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direct payment to the subcontractor and has made a deposit of the disputed portion as provided in

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section 37-2.5-3.

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     37-2.5-6. Payment reduction. -- In any petition to collect any claim for which a

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subcontractor has filed a demand for direct payment the court shall, upon motion of the general

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contractor, reduce by the amount of any deposit of a disputed amount by the awarding authority

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as provided in subsections 37-2.5-3(e) and 37-2.5-3(f), any amount held under a trustee writ of

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attachment pursuant to a restraining order or in junction.

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     37-2.5-7. Severability. -- The provisions of this chapter shall be severable, and if any

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court declares any phrase, clause, sentence, or provision of this chapter to be invalid, or its

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applicability to any government, agency, person, or circumstance is declared invalid, the

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remainder of the chapter and its relevant applicability shall not be affected. The provisions of this

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chapter shall be liberally construed to give effect to the purposes thereof.

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     SECTION 2. This act shall take effect upon passage.

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LC01850

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N A C T

RELATING TO PUBLIC PROPERTY AND WORKS -- SUBCONTRACTOR PAYMENT ACT

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     This act would create the subcontractor payment act to provide subcontractors a method

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to enforce and collect payment for work performed on certain public works contracts.

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     This act would take effect upon passage.

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LC01850

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