2016 -- H 7549

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LC004581

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2016

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A N   A C T

RELATING TO PUBLIC PROPERTY AND WORKS

     

     Introduced By: Representatives Shekarchi, and Casey

     Date Introduced: February 10, 2016

     Referred To: House Finance

     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 25

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PAYMENTS TO CONTRACTORS AND SUBCONTRACTORS

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     37-25-1. Applications for payment. -- (a) A contractor shall, once in each month on the

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day of the month corresponding to the day specified in the contractor agreement, on forms

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provided and in the manner prescribed by the awarding authority, submit to the awarding

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authority a statement showing the total amount of work done from the time of the estimate and

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the value thereof as approved by the resident engineer and the designer. It shall be the

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responsibility of the contractor to deliver, or cause to be delivered, to the resident engineer said

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periodic estimate in proper form and approved as provided above. All periodic estimates shall

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contain such certifications and other evidence supporting the contractor's right to payment as the

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awarding authority may require, including without limitation, lien waivers, on forms as the

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awarding authority may require. If there is no resident engineer assigned to the contract, the

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designer shall act in lieu thereof. If there is neither a resident engineer, nor a designer, the

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awarding authority shall designate a person at the office of the awarding authority. The contractor

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shall include in the periodic estimate only materials incorporated in the work, except as may

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otherwise be provided in herein. The awarding authority shall retain five percent (5%) of such

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estimated value as security for the completion of the work and shall pay to the contractor while

 

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carrying on the work the balance not retained, subject to the approval of the awarding authority

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and after deducting therefrom all previous payments and all sums to be kept under the provisions

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of the contract.

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     (b) Each periodic estimate shall constitute the contractor's representation that:

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     (1) The payment requested to be disbursed has been incurred by the contractor on account

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of the work and is justly due to subcontractors or, to the contractor in the case of other work

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performed by the contractor on account thereof;

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     (2) The materials, supplies and equipment for which application for payment is being

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submitted have been installed or incorporated into the work or have been stored at the site or at

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such off-site storage locations as the awarding authority shall have approved;

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     (3) The materials, supplies and equipment are insured in accordance with the provisions

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of the contract;

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     (4) The materials, supplies and equipment are owned by the owner and are not subject to

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any liens or encumbrances;

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     (5) The work which is the subject of the periodic estimate has been performed in

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accordance with the contract; and

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     (6) That all due and payable bills with respect to the work have been paid to date or shall

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be paid from the proceeds of the periodic estimate.

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     (c) The contractor may include in a periodic estimate the value of materials or equipment

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delivered at the site (or at some other location agreed to in writing) only upon delivery to the

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awarding authority of:

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     (1) An acceptable transfer of title on a form provided by the awarding authority;

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     (2) Written certification by the contractor (or applicable subcontractor) on a form

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provided by the awarding authority that the contractor (or the subcontractor) is the lawful owner

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and that the materials or equipment are free from all encumbrances, accompanied by invoices or

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other acceptable proof of prior payment for such materials;

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     (3) A stored materials insurance binder that covers the materials for which payment is

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requested that names the owner as an insured party should the stored materials be subjected to

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any casualty, loss or theft prior to their inclusion in the work. The material(s) or equipment must,

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in the judgment of the designer:

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     (i) Meet the requirements of the contract, including prior shop drawing, product data, and

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sample approval;

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     (ii) Be ready for use; and

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     (iii) Be properly stored by the contractor and be adequately protected until incorporated

 

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into the work.

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     (d) The awarding authority may make changes in any periodic estimate submitted by the

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contractor and the payment due shall be computed in accordance with the changes made. The

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provisions of the general laws shall govern payments on which the awarding authority has made

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changes.

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     (e) No certificate for payment and no progress payment shall constitute acceptance of

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work that is not in accordance with the contract documents.

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     (f) The contractor and all subcontractors furnishing labor on this contract agree to furnish

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certified payroll reports if requested to do so, at no additional expense to the awarding authority.

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The awarding authority may at all reasonable times audit such reports.

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     37-25-2. Periodic payments. – (a) The awarding authority shall make payment to the

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contractor in accordance with existing law. Within fifteen (15) days (thirty (30) days in the case

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of the state, including local housing authorities) after receipt from the contractor, at the place

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designated by the awarding authority if such a place is so designated, of a periodic estimate

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requesting payment of the amount due for the preceding month, the awarding authority shall

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make a periodic payment to the contractor for the work performed during the preceding month

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and for the materials not incorporated in the work but delivered and suitably stored at the site or

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at some location agreed upon in writing to which the contractor has title or to which a

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subcontractor has title and has authorized the contractor to transfer title to the awarding authority

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upon certification by the contractor that they are the lawful owner and that the materials are free

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from all encumbrances, but less:

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     (1) A retention based on its estimate of the fair value of its claims against the contractor;

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less

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     (2) A retention for direct payments to subcontractors based on demands for same; and

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less

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     (3) A retention not exceeding five percent (5%) of the approved amount of the periodic

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payment.

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     (b) After the receipt of a periodic estimate requesting final payment and within sixty-five

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(65) days after:

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     (1) The contractor fully completes the work or substantially completes the work so that

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the value of the work remaining to be done is, in the estimate of the awarding authority, less than

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one percent (1%) of the original contract price; or

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     (2) The contractor substantially completes the work and the awarding authority takes

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possession for occupancy, whichever occurs first, the awarding authority shall pay the contractor

 

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the entire balance due on the contract less:

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     (i) A retention based on its estimate of the fair value of its claims against the contractor

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and of the cost of completing the incomplete and unsatisfactory items of work; and less

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     (ii) A retention for direct payments to subcontractors based on demands for same, or

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based on the record of payments by the contractor to the subcontractors under this contract if such

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record of payment indicates that the contractor has not paid subcontractors. If the awarding

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authority fails to make payment as herein provided, there shall be added to each payment daily

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interest at the rate of three (3) percentage points above the discount rate then charged by the

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Federal Reserve Bank of Boston commencing on the first day after payment is due and

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continuing until the payment is delivered or mailed to the contractor; provided, that no interest

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shall be due, in any event, on the amount due on a periodic estimate for final payment until fifteen

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(15) days (twenty-four (24) days in the case of the state) after receipt of such periodic estimate

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from the contractor, at the place designated by the awarding authority if such a place is so

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designated. The contractor agrees to pay to each subcontractor a portion of any interest paid in

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accordance with the amount due each subcontractor.

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     (c) The awarding authority may make changes in any periodic estimate submitted by the

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contractor and the payment due on said periodic estimate shall be computed in accordance with

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the change so made, but such changes or any requirement for a corrected periodic estimate shall

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not affect the due date for the periodic payment or the date for the commencement of interest

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charges on the amount of the periodic payment computed in accordance with the changes made,

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as provided herein; provided, that the awarding authority may, within seven (7) days after receipt,

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return to the contractor for correction, any periodic estimate which is not in the required form or

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which contains computations not arithmetically correct and, in that event, the date of receipt of

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such periodic estimate shall be the date of receipt of the corrected periodic estimate in proper

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form and with arithmetically correct computations. The date of receipt of a periodic estimate

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received on a Saturday shall be the first working day thereafter. These provisions shall not apply

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to any contract for the construction, reconstruction, alteration, remodeling, repair or demolition of

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any public building to which this section applies.

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     (d) All periodic estimates shall be submitted to the awarding authority, or to its designee

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as set forth in writing to the contractor, and the date of receipt by the awarding authority or its

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designee shall be marked on the estimate. All periodic estimates shall contain a separate item for

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each filed subtrade and each sub-subtrade listed in sub-bid form as required by specifications and

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column listing the amount paid to each filed subcontractor as of the date of the periodic estimate

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is filed. The person making payment for the awarding authority shall add the daily interest

 

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provided for herein to each payment for each day beyond the due date of receipt marked on the

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estimate. A certificate of the architect to the effect that the contractor has fully or substantially

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completed the work shall be conclusive for the purposes of this section. Notwithstanding the

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provisions of this section, at any time after the value of the work remaining to be done is, in the

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estimation of the awarding authority, less than one percent (1%) of the adjusted contract price, or

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the awarding authority has determined that the contractor has substantially completed the work

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and the awarding authority has taken possession for occupancy, the awarding authority may send

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to the general contractor by certified mail, return receipt requested, a complete and final list of all

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incomplete and unsatisfactory work items, including, for each item on the list, a good faith

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estimate of the fair and reasonable cost of completing such item. The general contractor shall then

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complete all such work items within thirty (30) days of receipt of the list or before the contract

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completion date, whichever is later. If the general contractor fails to complete all incomplete and

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unsatisfactory work items within forty-five (45) days after receipt of such items furnished by the

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awarding authority or before the contract completion date, whichever is later, subsequent to an

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additional fourteen (14) days' written notice to the general contractor by certified mail, return

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receipt requested, the awarding authority may terminate the contract and complete the incomplete

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and unsatisfactory work items and charge the cost of same to the general contractor and such

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termination shall be without prejudice to any other rights or remedies the awarding authority may

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have under the contract. The awarding authority shall note any termination in the evaluation form

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to be filed by the awarding authority.

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     37-25-3. Payment of subcontractors. -- (a) Within five (5) business days after a general

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contractor receives payment on account of a periodic estimate, the general contractor shall pay to

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each subcontractor the amount paid for the labor performed and the materials furnished by that

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

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less any amount claimed due from the subcontractor by the general contractor.

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     (b) Not later than sixty-five (65) days after each subcontractor substantially completes

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

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

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

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authority shall pay that amount to the general contractor. The general contractor shall, within five

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(5) business days, pay to the subcontractor the full amount received from the awarding authority

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

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any amount 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 for the labor

 

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performed and the materials furnished by a subcontractor shall be made to the general contractor

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for the account of that subcontractor, and the awarding authority shall take reasonable steps to

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compel the general contractor to make each such payment to each such subcontractor. If the

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awarding authority has received a demand for direct payment from a subcontractor for any

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amount which has already been included in a payment to the general contractor or which is to be

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included in a payment to the general contractor for payment to the subcontractor, the awarding

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authority shall act upon 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. The demand shall be by a sworn

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

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delivered to or sent by certified mail to the general contractor at the same time. The reply shall

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contain a detailed breakdown of the balance due under the subcontract and also a statement of the

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status of completion of the subcontract work. Any demand made after substantial completion of

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the subcontract work shall be valid even if delivered or mailed prior to seventy (70) days after the

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

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subcontractor has delivered or so mailed the demand to the awarding authority and delivered or

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so mailed a copy to the general contractor, the general contractor shall reply to the demand. The

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reply shall be by a sworn statement to or sent by certified mail to the awarding authority and a

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

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

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

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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

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no event prior to seventy (70) days after substantial completion of the subcontract work, the

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

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

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contractor, less any amount:

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     (1) Retained by the awarding authority as the estimated cost of completing the

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incomplete or unsatisfactory items of work;

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     (2) Specified in any court proceedings barring such payment; or

 

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     (3) Disputed by the general contractor in the sworn reply; provided that the awarding

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authority shall not deduct from a direct payment any amount if the reply is not sworn to, or for

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which the sworn reply does not contain the detailed breakdown required. The awarding authority

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shall make further direct payments to the subcontractor after the removal of the basis for

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deduction from direct payments within five (5) business days.

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

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payment in an interest-bearing joint account in the names of the general contractor and the

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subcontractor in a bank in Rhode Island selected by the awarding authority or agreed upon by the

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general contractor and the subcontractor, and shall notify the general contractor and the

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subcontractor of the date of the deposit and the bank receiving the deposit. The bank shall pay the

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amount in the account, including accrued interest, as provided in an agreement between the

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

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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 shall be made out of amounts payable to the

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general contractor at the time of receipt of a demand for direct payment from a subcontractor and

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out of amounts which later become payable to the general contractor and in the order of receipt of

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such demands from subcontractors. All direct payments shall discharge the obligation of the

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awarding authority to the general contractor to the extent of such 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, are sufficient to satisfy all unpaid

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balances of demands for direct payment received from subcontractors. All such amounts shall be

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earmarked for direct payments, and the subcontractors shall have a right to such deductions prior

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to any claims against such amounts by creditors of the general contractor.

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     (i) If the subcontractor does not receive payment or if the general contractor does not

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submit a periodic estimate for the value of the labor or materials performed or furnished by the

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subcontractor and the subcontractor does not receive payment for same when due less the

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deductions, the subcontractor may demand direct payment by following the procedure herein and

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the general contractor may file a sworn reply. A demand made after the first day of the month

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

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

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

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authority shall proceed.

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     (j) Any assignment by a subcontractor of the rights under this section to a surety

 

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company furnishing a bond shall be invalid. The assignment and subrogation rights of the surety

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to amounts included in a demand for direct payment which are in the possession of the awarding

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authority or which are on deposit pursuant to subsection (f) of this section shall be subordinate to

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the rights of all subcontractors who are entitled to be paid under this section and who have not

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been paid in full.

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     (k)(1) "Subcontractor" as used herein means a person who files a sub-bid and received a

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subcontract as a result of that filed sub-bid or who is approved by the awarding authority in

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writing as a person performing labor or both performing labor and furnishing materials pursuant

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to a contract with the general contractor;

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     (2) "Contracts awarded" means a person approved by the awarding authority in writing as

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a person performing labor or both performing labor and furnishing materials pursuant to a

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contract with the general contractor, and

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     (3) "Contracts with the state not awarded" means a person contracting with the general

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contractor to supply materials used or employed in a public works project for a price in excess of

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five thousand dollars ($5,000).

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     (l) A general contractor or a subcontractor shall enforce a claim to any portion of the

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amount of a demand for direct payment deposit as provided in subsection (f) of this section by a

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petition in the superior court against the other and the bank shall not be a necessary party. A

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subcontractor shall enforce a claim for direct payment or a right to require a deposit as provided

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in subsection (f) of this section by a petition in the superior court against the awarding authority

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

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advance for speedy trial any petition filed. The court shall enter an interlocutory decree upon

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which execution shall issue for any part of a claim found due, upon motion of any party, and shall

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

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such interlocutory decree shall have the right to appeal therefrom. The court shall not consolidate

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for trial the petition of any subcontractor with the petition of one or more subcontractors or the

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same general contract unless the court finds that a substantial portion of the evidence is applicable

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

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

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disputed amount deposited in excess of the interest earned for the period of any such deposit. No

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person except a subcontractor filing a demand for direct payment for which no funds due the

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

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awarding authority claiming a demand for direct payment is premature and such subcontractor

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must file the petition before the awarding authority has made a direct payment to the

 

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subcontractor and has made a deposit of the disputed portion. In any petition to collect any claim

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

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

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authority any amount held under a writ of attachment or pursuant to a restraining order or

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injunction.

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     SECTION 2. This act shall take effect upon passage.

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO PUBLIC PROPERTY AND WORKS

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     This act would establish a procedure for the timely payment to contractors and

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subcontractors in connection with state contracts. The act would provide for an awarding

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authority to make a direct deposit into an interest-bearing joint account in the names of both the

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general contractor and the subcontractor. The act also would authorize a subcontractor to enforce

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a claim for a direct deposit directly against the awarding authority through an action in superior

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court.

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     This act would take effect upon passage.

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