2018 -- S 2749

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LC005338

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2018

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A N   A C T

RELATING TO BUSINESSES AND PROFESSIONS -- CONTRACTORS' REGISTRATION

AND LICENSING BOARD

     Introduced By: Senators Lombardi, Archambault, Lombardo, McCaffrey, and Lynch
Prata

     Date Introduced: March 27, 2018

     Referred To: Senate Labor

     It is enacted by the General Assembly as follows:

     SECTION 1. Section 5-65-1 of the General Laws in Chapter 5-65 entitled "Contractors'

Registration and Licensing Board" is hereby amended to read as follows:

     5-65-1. Definitions.

     As used in this chapter:

     (1) "Board" means the contractors' registration and licensing board established pursuant

to the provisions of Rhode Island general laws § 5-65-14 or its designees.

     (2) "Claim" means an allegation that a person seeking payment of retainage breached the

person's contract for construction for the project; provided, however, that a "claim" shall be

subject to the applicable dispute resolution procedure, notice and other requirements in the

contract for construction.

     (2)(3) "Commission" means the building code commission supportive of the contractors'

registration and licensing board.

     (3)(4) (i) "Contractor" means a person who, in the pursuit of an independent business,

undertakes or offers to undertake or submits a bid, or for compensation and with or without the

intent to sell the structure arranges to construct, alter, repair, improve, move over public

highways, roads or streets or demolish a structure or to perform any work in connection with the

construction, alteration, repair, improvement, moving over public highways, roads or streets or

demolition of a structure, and the appurtenances thereto. For the purposes of this chapter,

"appurtenances" includes the installation, alteration or repair of wells connected to a structure

consistent with chapter 46-13.2. "Contractor" includes, but is not limited to, any person who

purchases or owns property and constructs or for compensation arranges for the construction of

one or more structures.

     (ii) A certificate of registration is necessary for each "business entity" regardless of the

fact that each entity may be owned by the same individual.

     (5) "Contract for construction" means a contract for which a lien may be established

under chapter 28 of title 34 on a project for which the person on whose contract with the project

owner has an original contract price of not less than two hundred fifty thousand dollars

($250,000); provided, however, that "contract for construction" shall not include a project

containing or designed to contain at least one, but not more than four (4) dwelling units.

     (6) "Deliverable" means a project close-out document that shall be submitted by the

person seeking payment of retainage under the person's contract for construction; provided,

however, that a lien waiver or release, which is a deliverable, shall comply with chapter 28 of title

34; provided, further, that "deliverable" shall not include any document affirming, certifying or

confirming completion or correction of labor, materials or other items furnished or incomplete or

defective work.

     (4)(7) "Dwelling unit" means a single unit providing complete independent living

facilities for one or more persons, including permanent provisions for living, sleeping, eating,

cooking, and sanitation.

     (5)(8) "Hearing officer" means a person designated by the executive director, to hear

contested claims or cases, contested enforcement proceedings, and contested administrative fines,

in accordance with the Administrative Procedures Act "administrative procedures act", chapter 35

of title 42.

     (9) "Incomplete or defective work" means labor, materials or any other item required for

full performance by a person seeking payment of retainage which remains to be furnished by the

person under the person's contract for construction or which has been furnished by the person but

requires correction, repair, further completion, revision or replacement; provided, however, that

"incomplete or defective work" shall not include deliverables or labor, materials or any other item

to be repaired or replaced after substantial or final completion pursuant to a warranty, guarantee

or other contractual obligation to correct defective work after substantial or final completion.

     (6)(10) "Monetary damages" means the dollar amount required in excess of the contract

amount necessary to provide the claimant with what was agreed to be provided under the terms of

the contract reduced by any amount due and unpaid to the respondent inclusive of any and all

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awards and restitution.

     (11) "Person" means any natural person, joint venture, partnership, corporation or other

business or legal entity who enters into a contract for construction.

     (12) "Prime contractor" means a person who enters into a contract for construction with

the project owner.

     (13) "Retainage" means a portion or percentage of a payment due pursuant to a contract

for construction that is withheld to ensure full performance of the contract for construction.

     (7)(14) "Staff" means the executive director for the contractors' registration and licensing

board, and any other staff necessary to carry out the powers, functions and duties of the board

including inspectors, hearing officers and other supportive staff.

     (8)(15) "State" means the state of Rhode Island.

     (9)(16) "Structure" means (i) any commercial building; or (ii) any building containing

one or more residences and their appurtenances. The board's dispute resolution process shall

apply only to residential structures containing dwelling units as defined in the state building code

or residential portions of other types of buildings without regard to how many units any structure

may contain. The board retains jurisdiction and may conduct hearings regarding violations

against all contractors required to be registered or licensed by the board.

     (10)(17) "Substantially" means any violation, which affects the health, safety, and

welfare of the general public.

     (18) "Substantial completion" means the stage in the progress of the project when the

work required by the contract for construction with the project owner is sufficiently complete in

accordance with the contract for construction so that the project owner may occupy or utilize the

work for its intended use; provided, further, that "substantial completion" may apply to the entire

project or a phase of the entire project if the contract for construction with the project owner

expressly permits substantial completion to apply to defined phases of the project.

     SECTION 2. Section 37-12-10 of the General Laws in Chapter 37-12 entitled

"Contractors' Bonds" is hereby repealed.

     37-12-10. Retainers relating to contracts for public works, sewer, or water main

construction.

     (a) Upon substantial completion of the work required by a contract aggregating in amount

less than five hundred thousand dollars ($500,000) with any municipality, or any agency or

political subdivision thereof, for the construction, reconstruction, alteration,remodeling, repair, or

improvement of sewers and water mains, or any public works project defined in § 37-13-1, the

awarding authority may deduct from its payment a retention to secure satisfactory performance of

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the contractual work not exceeding five percent (5%) of the contract price unless otherwise

agreed to by the parties. Upon substantial completion of the work required by a contract

aggregating in an amount of five hundred thousand dollars ($500,000) or greater with any

municipality, or any agency or political subdivision thereof, for the construction, reconstruction,

alteration, remodeling, repair, or improvement of sewers and water mains, or any public works

project defined in § 37-13-1, the awarding authority may deduct from its payment a retention to

secure satisfactory performance of the contractual work not exceeding five percent (5%) of the

contract price. In the case of periodic payments with respect to contracts less than the aggregate

amount of five hundred thousand dollars ($500,000), the awarding authority may deduct from its

payment a retention to secure satisfactory performance of the contractual work not exceeding five

percent (5%) of the approved amount of any periodic payment unless otherwise agreed to by the

parties. In the case of periodic payments with respect to contracts in the aggregate amount of five

hundred thousand dollars ($500,000) or greater, the awarding authority may deduct from its

payment a retention to secure satisfactory performance of the contractual work not exceeding five

percent (5%) of the approved amount of any periodic payment.

     (b) The retainage shall be paid to any contractor or subcontractor within ninety (90) days

of the date the work is accepted by the awarding authority unless a dispute exists with respect to

the work. If payment is not made within ninety (90) days for any reason other than a dispute,

which, if resolved and it is not the fault of the contractor, interest shall be assessed at the rate of

ten percent (10%) per annum on all money which is to be paid to the contractor or subcontractor.

     (c) The retainage shall be paid to any contractor or subcontractor within ninety (90) days

of the date his or her work is completed and accepted by the awarding authority. If payment is not

made, interest shall be assessed at the rate of ten percent (10%) per annum.

     (d) There shall also be deducted and retained from the contract price an additional sum

sufficient to pay the estimated cost of municipal police traffic control on any public works

project. Municipalities shall directly pay the officers working traffic details and shall bill and be

reimbursed by the withholding authority for which the contract is being performed every thirty

(30) days until the project is complete.

     (e) Notwithstanding the foregoing, with respect to projects located within the town of

Warren, the withholding authority shall hold an amount from the contract price which shall be

reasonably sufficient to pay the estimated cost of municipal police traffic control. The

withholding authority shall pay to the town of Warren within seventy-two (72) hours of written

demand the actual costs of police traffic control associated with said project on an ongoing basis.

     SECTION 3. Chapter 37-12 of the General Laws entitled "Contractors Bonds and" is

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hereby amended by adding thereto the following section:

     37-12-10.1 Contractor/subcontractor retainage.

     (a) No contract for construction as defined in § 5-65-1(5) shall include retainage that

exceeds five percent (5%) of any progress payment.

     (b) Not later than fourteen (14) days after reaching substantial completion as defined in §

5-65-1(18), the prime contractor shall submit to the project owner a notice of substantial

completion, substantially in the form provided in this subsection, stating the date on which the

project was substantially complete.

     FORM FOR NOTICE OF SUBSTANTIAL

     COMPLETION NOTICE OF SUBSTANTIAL COMPLETION

     For [project name]

     To [project owner]:

     The undersigned hereby gives notice that the project was substantially complete, as

defined under § 5-65-1(18), on [date of substantial completion]. This notice is certified as made

in good faith on [date of notice].

     By_______________

     [prime contractor]

     Accepted:

     By_______________

     [project owner]

     Dated: ____________

     (c) The project owner shall accept or reject the notice of substantial completion within

fourteen (14) days of receipt of the notice. The project owner shall indicate its acceptance by

signing the notice in the space provided, and shall deliver the notice to the prime contractor

within the same fourteen (14) day period. If the project owner fails to deliver the notice to the

prime contractor within the fourteen (14) day period, the notice shall be deemed accepted. If the

project owner rejects the notice of substantial completion, the project owner shall, within fourteen

(14) days of receipt of the notice described in subsection (b) of this section, notify the prime

contractor in writing of the rejection, and include in the rejection the factual and contractual basis

for the rejection, and a certification that the rejection is made in good faith. A rejection of the

notice shall be subject to the dispute resolution provisions of the contract for construction, which,

notwithstanding any provision in the contract to the contrary, shall be commenced by the prime

contractor within seven (7) days of receipt of the rejection of the project owner. The prime

contractor and project owner shall prosecute the dispute resolution procedures diligently,

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expeditiously, and in good faith. A notice of substantial completion not rejected by the project

owner within fourteen (14) days of receipt of the notice and in accordance with this subsection

shall be deemed accepted by the project owner. Upon an express or deemed acceptance of a

notice of substantial completion, the date of substantial completion shall be the date stated in the

prime contractor's notice for all purposes, and the acceptance shall be final and binding on the

project owner and its successors and assignees.

     (d) Not later than fourteen (14) days after the express or deemed acceptance of the notice

of substantial completion or, in the case of a dispute, final and binding resolution of the dispute,

the project owner shall submit to the prime contractor a written list describing all incomplete or

defective work items and deliverables required of the prime contractor under the prime

contractor's contract for construction. The list shall be certified by the project owner as made in

good faith. Not later than twenty-one (21) days after the express or deemed acceptance of the

notice of substantial completion, or, in the case of a dispute, final and binding resolution of the

dispute, the prime contractor shall submit to each person from whom the prime contractor is

withholding retainage, a written list describing all incomplete or defective work items and

deliverables required by the person under the person's contract for construction, which list may

include items beyond those on the project owner's list. The list shall be certified by the prime

contractor as made in good faith.

     (e) The project owner and prime contractor shall fulfill their obligations pursuant to

subsections (b), (c) and (d) of this section in good faith and in a timely manner. Except where the

contract for construction shall provide for an earlier submission, following the expiration of sixty

(60) days after substantial completion or, in the case of a dispute under subsection (c) of this

section, final and binding resolution of the dispute, a person may submit a written application for

payment of retainage in the form required by the person's contract for construction. An

application for payment of retainage shall be accompanied by a written list identifying the

incomplete or defective work items and deliverables on its received list that the person has

completed, repaired and delivered. The list shall be certified by the person submitting the

application for payment of retainage as made in good faith. Subject to subsection (f) of this

section, an application for payment of retainage shall be paid not later than thirty (30) days

following submission of the application; provided, however, that the time period for payment of

an application for retainage by the person at each tier of contract below the owner of the project

may be extended by seven (7) days longer than the time period applicable to the person at the tier

of contract above the person.

     (f) Not more than the following amounts may be withheld from the payment of retainage:

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     (1) For incomplete, incorrect or missing deliverables, either the value of the deliverables

as mutually agreed upon in writing by the parties to the contract for construction of the person

seeking payment of retainage pursuant to the contractor if no value has been agreed upon in

writing by the parties, the reasonable value of the deliverables which shall not exceed two and

one-half percent (2.5%) of the total adjusted contract price of the person seeking payment of

retainage;

     (2) One hundred fifty percent (150%) of the reasonable cost to complete or correct

incomplete or defective work items; and

     (3) The reasonable value of claims and any costs, expenses and attorneys' fees incurred as

a result of the claims if permitted in the contract for construction of the person seeking the

payment of retainage. No amount shall be withheld from the payment of retainage unless the

person seeking payment has received, before the date that the payment is due, a description, in

writing, of the incomplete or defective work items and incomplete, incorrect or missing

deliverables, the factual and contractual basis for the claims and the value attributable to each

incomplete or defective work item, deliverable and claim. The writing shall be certified as made

in good faith. A person may submit additional applications for payment of retainage in the form

required by the person's contract for construction following completion or correction of

incomplete or defective work items, the furnishing of deliverables or the resolution of claims. The

additional applications shall be paid, and amounts may be withheld from payment, in accordance

with subsection (f) and this subsection.

     (g) Retainage held by the project owner on account of the prime contractor's self-

performed labor, materials and equipment shall be eligible for payment to the same extent as if

the labor, materials and equipment had been provided by a person under a contract for

construction with the prime contractor.

     (h) If the prime contractor has not been declared in default under the requirements of the

contract for construction with the project owner and subject to this section, the project owner

shall not withhold any part of the retainage of a person under a contract for construction with the

prime contractor or the prime contractor's proportional retainage calculated thereon for a claim

that the project owner asserts against the prime contractor that is not based on the performance of

the person or a default of the person's contract for construction.

     (i) A contract for construction may establish the date of the month for submission of an

application for payment of retainage; provided, however, that the contract may not restrict the

submission to less frequently than one application per calendar month. An application submitted

prior to the date established in the contract for construction shall be deemed submitted as of the

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date established in the contract. A rejection of an application for payment of retainage and a

dispute regarding incomplete or defective work items, deliverables or claims shall be subject to

the applicable dispute resolution procedure. A provision in a contract for construction that

requires a person to delay commencement of the applicable dispute resolution procedure for more

than thirty (30) days after either the rejection of an application for payment of retainage or written

notice of the dispute is provided, whichever first occurs, shall be void and unenforceable. The

payment of retainage shall be subject to subsection (e) of this section.

     (j) A communication required by this section to be in writing may be submitted in

electronic form and by electronic means.

     (k) A provision in a contract for construction which purports to waive, limit or subvert

this section or redefine or expand the conditions for achievement of substantial completion for

payment of retainage shall be void and unenforceable.

     (l) Any contract under this section, as defined by § 37-13-1, that exceeds twelve (12)

months in duration shall allow those subcontractors who are substantially complete within the

first third (1/3) of the project to request through the prime contractor, release of retainage

pursuant to subsections (b), (c), (d) and (e) of this section.

     SECTION 4. Notwithstanding any general or special law to the contrary, this act shall not

apply to a contract for construction relating to a project for which the owner's contract was

entered into prior to the effective date of this act.

     SECTION 5. This act shall take effect upon passage.

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LC005338

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO BUSINESSES AND PROFESSIONS -- CONTRACTORS' REGISTRATION

AND LICENSING BOARD

***

     This act would provide procedures relative to contractor/subcontractor retainage.

     This act would take effect upon passage.

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LC005338

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