2019 -- S 0616

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LC002089

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2019

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A N   A C T

RELATING TO PUBLIC PROPERTY AND WORKS -- LABOR AND PAYMENT OF DEBTS

BY CONTRACTORS

     Introduced By: Senators Picard, Ciccone, and Lombardo

     Date Introduced: March 14, 2019

     Referred To: Senate Labor

     It is enacted by the General Assembly as follows:

     SECTION 1. Sections 37-13-1 and 37-13-2 of the General Laws in Chapter 37-13

entitled "Labor and Payment of Debts by Contractors" are hereby amended to read as follows:

     37-13-1. "Public works" defined Definitions.

     As used in this chapter:

     (1) "Awarding authority" means any entity or authorized agency other than the

department of transportation who awards contracts for construction on public works.

     (2) "Contractor" means the bidder whose bid has been accepted by an authorized agency

or awarding authority as the bidder possessing the skills, ability, and integrity necessary to the

faithful performance of the contract or work, and who shall certify that he or she is able to furnish

labor that can work in harmony with all other elements of labor employed or to be employed on

the contract or work.

     (3) "Public works" as used in this chapter shall mean means any public work consisting

of grading, clearing, demolition, improvement, completion, repair, alteration, or construction of

any public road or any bridge, or portion thereof, or any public building, or portion thereof, or

any heavy construction, or any public works projects of any nature or kind whatsoever.

     (4) "Subcontractor" means a person or entity that has entered into a contract with a

contractor to provide a portion of the work or service on a project which the contractor has agreed

to perform, and who has been approved by the awarding authority in writing as a person or entity

performing labor or furnishing of materials on a public works project as defined in this section.

     (5) "Substantial performance" means an honest endeavor in good faith by one party to

perform that party's obligations under a contract, when the results of that party's endeavor are

beneficial to and are retained by the other party.

     37-13-2. "Contractor" defined -- Information required Contractor information

required.

     The term "contractor" as used in this chapter shall mean the bidder whose bid has been

accepted by an authorized agency or awarding authority as the bidder possessing the skills,

ability, and integrity necessary to the faithful performance of the contract or work, and who shall

certify that he or she is able to furnish labor that can work in harmony with all other elements of

labor employed or to be employed on the contract or work. Essential information in regard to

contractor qualifications shall be submitted in such form to the awarding authority and the

director of labor and training as the director of labor and training shall require. The authorized

agency or awarding authority shall reserve the right to reject all bids, if it be in the public interest

to do so.

     SECTION 2. Chapter 37-13 of the General Laws entitled "Labor and Payment of Debts

by Contractors" is hereby amended by adding thereto the following section:

     37-13-5.1. Payments to subcontractors.

     (a) Upon receipt of a periodic payment from an awarding authority, a contractor shall pay

to each subcontractor any amount owed to the subcontractor for labor performed or materials

provided, less any amount specified in any court proceeding barring such payment or any amount

claimed due from the subcontractor to the contractor.

     (b) Not later than ninety (90) days after each subcontractor substantially completes its

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

any incomplete or unsatisfactory items of the subcontractor's work, shall be due to the

subcontractor; and the awarding authority shall pay that amount to the contractor. Upon receipt of

payments for labor or materials provided by a subcontractor, the contractor, shall pay to that

subcontractor the full amount received from the awarding authority, less any amount specified in

any court proceedings barring such payment or any amount claimed due from the subcontractor

by the contractor. Upon project completion and acceptance by the owner, any amounts retained

shall be reduced to no more than five percent (5%) of the total sum owed to the subcontractor

which shall be payable to the subcontractor within one year of project completion, if no claim is

pending related to the amount retained.

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     (c) If, sixty-one (61) days after the subcontractor has substantially completed the

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

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

contractor pursuant to a change order, less any amount retained pursuant to subsection (c) of this

section or by the awarding authority as the estimated cost of completing any incomplete and

unsatisfactory items of the subcontractor's work, the subcontractor may demand direct payment of

that balance from the awarding authority. The demand shall be by a sworn statement sent by

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

contractor at the same time. The demand shall contain an itemized accounting of the balance due

under the subcontract and a statement of the status of completion of the subcontract work. Within

ten (10) days after receipt of the demand for direct payment, the contractor shall submit a reply to

the demand by sworn statement to the awarding authority by certified mail and a copy shall be

sent by certified mail to the subcontractor. The reply shall contain an itemized accounting of

payments made to the subcontractor, amounts owed to the subcontractor, including any amount

due for extra labor and materials furnished to the contractor, and the amount due for each claim

made by the contractor against the subcontractor.

     (d) Within thirty (30) days after receipt of the demand from a subcontractor to the

awarding authority, but in no event prior to seventy (70) days 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 contractor pursuant to a change order, less any amount:

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

outstanding work or unsatisfactory items of work;

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

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

authority shall not deduct from a direct payment any amount as provided in this section if the

contractor's sworn reply is for work not related to the work described by the subcontractor's

demand in accordance with this section or for which the contractor's sworn reply does not contain

an itemized accounting. The awarding authority shall make further direct payments to the

subcontractor after resolution of the grounds for withholding payment.

     (e) The awarding authority shall withhold an amount equal to any disputed amount unless

both the contractor and subcontractor agree to release the disputed amount to a mutually agreed

escrow agent. The disputed amount shall be all direct payments and all of the deductions from the

demands for direct payments made. If the monies are released to an escrow agent, the agent shall

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keep an accounting of said monies in an interest bearing account and shall not release the monies

to either the contractor or subcontractor until directed by a court of competent jurisdiction or until

a signed settlement agreement is provided to the agent including a release from liability from all

parties. The agent shall send a copy of the court order or the settlement agreement to the awarding

authority.

     (f) The disputed amount deposited in an interest bearing account of an escrow agent shall

be deducted from amounts payable to the contractor at the time of receipt of a demand for direct

payment from a subcontractor and from amounts which shall later become payable to the

contractor. Demands for direct payments shall be made in the order of receipt of such demands

from subcontractors. All direct payments shall discharge the obligation of the awarding authority

to the contractor to the extent of such payment.

     (g) The awarding authority shall deduct from payments to a contractor amounts which,

together with the disputed amount, are sufficient to satisfy all unpaid balances of demands for

direct payment received from subcontractors. 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 contractor.

     (h) A subcontractor may demand direct payment for a periodic payment and a contractor

may file a sworn reply in accordance with the provisions of subsection (c) of this section if the

subcontractor does not receive periodic payments as provided in subsection (a) of this section, or

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

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

same when due, less any deductions provided for pursuant to this section.

     Thereafter the awarding authority shall proceed as provided in subsection (d) of this

section. A demand, made after the first day of the month following performance by the

subcontractor for which the subcontractor seeks payment shall be valid even if mailed prior to the

time payment was due on a periodic estimate from the contractor.

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

company furnishing a bond under the provisions of § 37-13-14 shall be invalid. The assignment

or subrogation rights of the surety to amounts included in a demand for direct payment which are

in the possession of the awarding authority or which are on deposit pursuant to this section shall

be subordinate to the rights of all subcontractors who are entitled to be paid under this section and

who have not been paid in full.

     (j) A contractor or a subcontractor shall enforce a claim to any portion of the amount of a

demand for direct payment deposited in accordance with this section by a petition in equity in the

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superior court against the other, and the awarding authority shall be a necessary party. A

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

by this section by a petition in equity in the superior court against the awarding authority, and the

contractor shall not be a necessary party. Upon motion of any party, the court shall provide for

priority assignment for trial any petition filed as provided for in this section. The court shall enter

an interlocutory decree upon which execution shall issue for any part of a claim found due and,

upon motion of any party, shall advance by priority assignment for 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 on 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 that 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 earned for the

period of any such deposit.

     SECTION 3. Section 37-12-2 of the General Laws in Chapter 37-12 entitled

"Contractors' Bonds" is hereby amended to read as follows:

     37-12-2. Rights of persons furnishing labor and materials.

     (a) Every person who shall have performed labor and every person who shall have

furnished or supplied labor, material, or equipment in the prosecution of the work provided for in

the contract, in respect of which a payment bond is furnished under § 37-12-1, and who has not

been paid in full therefor before the expiration of a period of ninety (90) days after the day on

which the last of the labor was performed or furnished by him or her, or material or equipment

furnished or supplied by him or her for which a claim is made, shall have the right to sue on the

payment bond for the amount, or the balance thereof, unpaid at the time of institution of the suit

and to prosecute the action to final execution and judgment for the sum or sums justly due him or

her; provided, however, that any person having direct contractual relationship with a

subcontractor but no contractual relationship express or implied with the contractor furnishing the

payment bond shall have a right of action upon the payment bond upon giving written notice to

the contractor within ninety (90) days from the date on which the person furnished or performed

the last of the labor, or furnished or supplied the last of the material or equipment for which the

claim is made, stating with substantial accuracy the amount claimed and the name of the party to

whom the labor was furnished or performed or the material or equipment was furnished or

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supplied. The notice shall be served by mailing the same by certified mail, postage prepaid, in an

envelope addressed to the contractor at any place he or she maintains an office, conducts his or

her business, or his or her residence.

     (b) A judgment, decree or other award in favor of any claimant under this section shall

include reasonable attorneys' fees and costs.

     SECTION 4. 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 -- LABOR AND PAYMENT OF DEBTS

BY CONTRACTORS

***

     This act would provide that subcontractors for public works contracts may seek payment

directly from the awarding authority for amounts due for work and materials supplied. It would

also provide for priority assignment for trial of disputes between subcontractors and contractor.

The act would provide that a judgment in favor of a subcontractor on the payment bond for the

contractor would include an award of reasonable attorneys' fees and costs.

     This act would take effect upon passage.

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