Contracts and Procurement

Specifies that subcontractors provide evidence to contractors of
a current trust fund contribution bond, a performance and payment
bond, any other bond, or another mutually agreeable form of
collateral.  Imposes penalties on prime contractors for failing
to properly pay amounts owed to subcontractors.  Requires the
policy board to adopt rules on prompt and retainage.  (HB2878

HOUSE OF REPRESENTATIVES                H.B. NO.           H.D. 2
TWENTIETH LEGISLATURE, 2000                                
STATE OF HAWAII                                            

                   A  BILL  FOR  AN  ACT



 1      SECTION 1.  The legislature finds that after receiving
 2 payment for construction projects, prime contractors sometimes do
 3 not make timely payments to subcontractors.  One of the principal
 4 reasons for this is the prime contractors' liability for
 5 subcontractors union trust fund payments.  Often, the long delay
 6 in receiving full clearance from union trust funds results in
 7 corresponding delays in payments to subcontractors.
 8      The legislature also finds that earlier legislative action
 9 on the issue resulted in divisive conflict between construction
10 industry groups.  To avoid further rancor, representatives from
11 various construction industry organizations established an
12 informal task force to reconcile differences.  After many months
13 of open, sometimes heated debate, the members of the task force
14 acquired a new respect for the unique problems facing their
15 counterparts and managed to craft a partial solution to the
16 thorny issue of prompt payment.  The proposal provides that prime
17 contractors make timely payments to subcontractors who possess a
18 trust fund contribution bond or a performance/payment bond.  This
19 proposal makes significant progress toward addressing the
20 subcontractors' concern for prompt payment, and the prime

Page 2                                                     2878
                                     H.B. NO.           H.D. 2

 1 contractors' concern regarding liability for union trust fund
 2 benefit payments.
 3      The purpose of this Act is to ensure prompt payment on state
 4 projects by contractors to subcontractors by:
 5      (1)  Specifying that subcontractors provide evidence to
 6           contractors of a valid union trust fund benefit payment
 7           bond, performance/payment bond, other bond, or another
 8           mutually agreeable form of collateral;
 9      (2)  Imposing penalties on contractors for failing to
10           properly pay amounts owed to subcontractors; and
11      (3)  Requiring the policy board to adopt rules on prompt
12           payment and retainage.
13      SECTION 2.  Section 103-10.5, Hawaii Revised Statutes, is
14 amended to read as follows:
15      "[[]103-10.5[]]  Prompt payment.  (a)  Any money, other
16 than retainage, paid to a contractor shall be dispersed to
17 subcontractors within ten days after receipt of the money in
18 accordance with the terms of the subcontract[,]; provided that
19 the subcontractor has met all the terms and conditions of the
20 subcontract and there are no bona fide disputes[.] on which the
21 procurement agency has withheld payment.
22      (b)  Upon final payment to the contractor, full payment to
23 the subcontractor, including retainage, shall be made within ten

Page 3                                                     2878
                                     H.B. NO.           H.D. 2

 1 days after receipt of the money[,]; provided there are no bona
 2 fide disputes over the subcontractor's performance under the
 3 subcontract[.], and the subcontractor has provided evidence to
 4 the contractor of:
 5      (1)  A current trust fund contribution bond acceptable to
 6           the contractor in an amount no fewer than three months
 7           of the subcontractor's trust fund contribution;
 8      (2)  A performance and payment bond for the project executed
 9           by a surety company authorized to do business in the
10           State;
11      (3)  Any other bond acceptable to the contractor; or
12      (4)  Any form of collateral acceptable to the contractor may
13           be substituted for the trust fund contribution bond.
14      (c)  Where a contractor fails to pay in accordance with
15 subsection (b), a penalty of one and one-half per cent per month
16 shall be imposed on the outstanding amounts due to the
17 subcontractor.  The penalty may be withheld from future payment
18 due to the contractor.  Where a contractor has violated
19 subsection (b), three or more times within two years of the first
20 violation, the contractor shall be referred to the contractor
21 license board by the procurement agency for action under section
22 444-17(14)."

Page 4                                                     2878
                                     H.B. NO.           H.D. 2

 1      SECTION 3.  Section 103D-501, Hawaii Revised Statutes, is
 2 amended by amending subsection (d) to read as follows:
 3      "(d)  The policy board shall adopt rules requiring the
 4 inclusion in contracts of clauses providing for appropriate
 5 remedies and covering the following subjects:
 6      (1)  Liquidated damages as appropriate;
 7      (2)  Specified excuses for delay or nonperformance;
 8      (3)  Termination of the contract for default; [and]
 9      (4)  Termination of the contract in whole or in part for the
10           convenience of the governmental body[.]; and
11      (5)  Prompt payment and retainage."
12      SECTION 4.  Statutory material to be repealed is bracketed.
13 New statutory material is underscored.
14      SECTION 5.  This Act shall take effect on July 1, 2000, and
15 shall apply to all public contracts entered into after June 30,
16 2000.