CONSTRUCTION INDUSTRIES; ESCROW ACCOUNTS;
October 16, 2003
CONSTRUCTION CONTRACT ESCROW ACCOUNTS
By: Daniel Duffy, Principal Analyst
You asked whether the requirements imposed by PA 03-167 apply to construction contracts that are entered into before the act’s effective date (January 1, 2004) for projects that will be completed after the act’s effective date. This office is not authorized to give legal opinions and this report should not be considered one
The act requires most private sector construction contracts to provide for an escrow account to hold the retainage before a construction project has been completed. “Retainage” is an amount that is held back from progress payments under the terms of a construction contract. The act takes effect on January 1, 2004.
The act does not expressly address whether it applies to contracts that (1) take effect before the act’s effective date and (2) are for projects that will not be completed until after its effective date. Similarly, the issue was not discussed during the measure’s public hearing or during the legislative debate.
Under rules of statutory construction, an act has a prospective effect unless the legislature clearly indicated that it intended the act to have a retroactive effect. In this case, there is no such indication.
For the act not to have a retroactive effect, it would have to apply only to contracts signed after January 1, 2004. Thus, it could not apply to contracts signed before that date, regardless of whether all contractual obligations are fulfilled.
PA 03-167 requires, in part, certain construction contracts to contain provisions establishing escrow accounts for money withheld from contractors and subcontractors as retainage except under certain circumstances. In particular, the property owner must:
1. establish the account in a Connecticut bank or savings and loan association;
2. give contractors monthly reports of the value of the retainage in the account and any additions to the account or payments from it;
3. terminate the account when work is substantially or fully completed in accordance with the terms of the construction contract and after the contractor is paid in full;
4. pay all related fees and expenses; and
5. include the account form and provisions in all bids for construction services.
The act exempts certain residential construction contracts.
It takes effect on January 1, 2004.
Under the act, an owner must include the form and provisions of the escrow account in all bid solicitations and must be given to the contractor and any subcontractor before the contract is signed. Presumably, the legislature included the notice requirement because the requirement to establish an escrow account affects the pricing of the bids. Once the contract is signed, the escrow account must be established. The owner must provide the contractor with a monthly account report of the value of the retainage in the account, including any deposits or withdrawals. The account must be terminated upon substantial or final completion of all work in accordance with the construction contract and full payment to the contractor.
LEGISLATIVE HISTORY—PUBLIC HEARING
The act, as reported by the General Law Committee, did not have any provisions related to retainage. Senate Amendment “A” added these provisions. They were based on a bill hear by the committee, An Act Concerning Retainage (HB 5010). Neither the spoken nor the submitted testimony address the question you posed.
Senator Colapietro introduced the underlying bill and the amendment containing the retainage provisions in the Senate on May 20, 2003. Concerning the application of the retainage provisions, the Senate debate was solely concerned whether the act would apply to home improvement contracts.
Representative Fox introduced the amended bill in the House of Representatives on June 2, 2003. The House debate did not discuss whether the act applies to the contracts you described in your question.
Because the act does not explicitly indicate whether it applies to contracts executed before the act’s effective date but completed after it, the courts would have to interpret the act using rules of statutory construction. The rules support the view that the act applies only to contracts executed on or after its effective date.
Generally, under these rules, a law “will not be construed as retroactive unless the act clearly, by express language or necessary implication, indicates that the legislature intended a retroactive application” (Sutherland Statutory Construction, § 41. 04). “The general rule is that laws are to be interpreted as operating prospectively and considered as furnishing a rule for future cases only, unless they contain language unequivocally and certainly embracing past transactions” (Massa v. Nastri, 125 Conn. , pp. 146-147 (1939)). “A statute will not be given a retroactive construction by which it will impose liabilities not existing prior to its passage” (Massa, p. 148).