2014 -- S 2392

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LC003837

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2014

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A N   A C T

RELATING TO PUBLIC PROPERTY AND WORKS -- SUBCONTRACTOR PAYMENT ACT

     Introduced By: Senator Hanna M.Gallo

     Date Introduced: February 12, 2014

     Referred To: Senate Labor

     It is enacted by the General Assembly as follows:

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

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

CHAPTER 2.6

SUBCONTRACTOR PAYMENT ACT

     37-2.6-1. Method of payment to subcontractors under certain public works

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

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

     37-2.6-2. Definitions. -- For purposes of this chapter:

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

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

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

pursuant to a contract with the general contractor.

     37-2.6-3. Deposit of amounts in dispute. -- (a) Forthwith after the general contractor

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

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

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

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

general contractor.

     (b) No later than sixty-five (65) days after each subcontractor substantially completes his

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

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

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

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

pay to the subcontractor the full amount received from the awarding authority less any amount

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

from the subcontractor by the general contractor.

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

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

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

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

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

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

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

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

the demand as provided in this section.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

payment as provided in § 37-2.6-3(e) in an interest-bearing joint account in the names of the

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

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

contractor and the subcontractor of the date of the deposit and the bank receiving the deposit. The

bank shall pay the amount in the account, including accrued interest, as provided in an agreement

between the general contractor and the subcontractor or as determined by decree of a court of

competent jurisdiction.

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

an interest-bearing account or accounts in a bank pursuant to § 37-2.6-3(f) shall be made out of

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

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

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

discharge the obligation of the awarding to the general contractor to the extent of such payment.

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

which, together with the deposits in interest-bearing accounts pursuant to § 37-2.6-3(f), are

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

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

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

creditors of the general contractor.

     (i) If the subcontractor does not receive payment as provided in § 37-2.6-3(a) or 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

same when due, less the deduction provided for in § 37-2.6-3(a), the subcontractor may demand

direct payment by following the procedure in § 37-2.6-3(d) and the general contractor may file a

sworn reply as provided in that same section. A demand made after the first day of the month

following that for which the subcontractor performed or furnished the labor and materials for

which the subcontractor seeks payment shall be valid even if delivered or mailed prior to the time

payment was due on a periodic estimate from the general contractor. Thereafter, the awarding

authority shall proceed as provided in §§ 37-2.6-3(e), (f), (g) and (h).

     37-2.6-4. Assignment prohibited. -- Any assignment by a subcontractor of the rights

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

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

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

are on deposit pursuant to § 37-2.6-3(f) herein shall be subordinate to the rights of all

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

     37-2.6-5. Enforcement of claim. -- A general contractor or a subcontractor shall enforce

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

37-2.6-3(f) by a petition in equity in the superior court against the other and the bank shall not be

a necessary party. A subcontractor shall enforce a claim for direct payment or a right to require a

deposit as provided in § 37-2.6-3(f) by a petition in equity in the superior court against the

awarding authority and the general contractor shall not be a necessary party. Upon motion of any

party the court shall advance for speedy trial any petition filed as provided in this section. The

court of proper jurisdiction shall enter an interlocutory decree upon which execution shall issue

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

advance for speedy trial the petition to collect the remainder of the claim. Any party aggrieved by

such interlocutory decree shall have the right to appeal therefrom as from a final decree. The

court shall not consolidate for trial the petition of any subcontractor with the petition of one or

more subcontractors or the same general contract unless the court finds that a substantial portion

of the evidence of the same events during the course of construction (other than the fact the

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

petitions sought to be consolidated and that such consolidation will prevent unnecessary

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

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

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

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

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

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

payment to the subcontractor and has made a deposit of the disputed portion as provided in § 37-

2.6-3.

     37-2.6-6. Payment reduction. -- In any petition to collect any claim for which a

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

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

as provided in §§ 37-2.6-3(e) and 37-2.6-3(f), any amount held under a trustee writ of attachment

pursuant to a restraining order or in junction.

     37-2.6-7. Severability. -- The provisions of this chapter shall be severable, and if any

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

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

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

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

     SECTION 2. This act shall take effect upon passage.

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LC003837

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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

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

     This act would take effect upon passage.

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LC003837

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