An Act Concerning Construction Contracts

You asked for a summary of An Act Concerning Construction Contracts (SB477) as amended by Senate “A” (LCO 2965).

This bill (1) applies the existing private sector construction contract law to all types of construction work, (2) specifies that it applies to nonprofit corporations, (3) makes the use of statutory default payment schedule provisions mandatory, (4) establishes a subcontractor’s right to sue an owner for payment, and (5) specifies that the exemption from the law for United States government contracts includes contracts funded or insured by the federal Department of Housing and Urban Development. Existing law exempts state, federal, and municipal contracts and contracts intended for residential occupancy containing four or fewer units.

The bill redefines “owner” to include nonprofit corporations. Existing law defines it as an individual, corporation, partnership, limited partnership, limited liability corporation, or other business entity that is the owner of record or lessee of real property on which a commercial or industrial building is to be built, renovated, or rehabilitated. The bill also applies the law to all types of construction work rather than just to work performed on commercial or industrial buildings for which a certificate of occupancy is required. Under the bill, contracts for federal, state, and municipal work and contracts for residential construction containing four or fewer units continue to be exempt. The bill specifies that the exemption for federal contracts includes projects funded or insured by the federal Department of Housing and Urban Development.

The law requires contracts to include payment schedule provisions, unless the parties explicitly agree otherwise. The bill makes the payment schedule provisions mandatory and requires parties to pay within 30 days, instead of 15 days, after receiving a payment demand. It specifies that a demand made to an owner must be written. Specifically, the bill requires:

1. owners to pay amounts due for labor and materials within 30 days after receiving a written payment request,

2. general contractors to pay for labor and materials within 30 days after the general contractor received payment for such labor and materials from the owner, and

3. general contractors to require their subcontractors and suppliers to include comparable provisions in their contracts with other subcontractors and suppliers.

The bill requires each owner who has failed or neglected to pay a contractor for labor or materials as required by a construction contract to pay promptly when demanded to do so by someone who has not been paid by the contractor for such labor or materials. The bill requires the demand for payment to be served on the owner with a copy sent to the contractor by certified mail, return receipt requested, sent to any address at which the owner or contractor conducts business.

If the owner fails to make the payment, the bill gives the person making the demand a direct right of action against the owner in the superior court for the judicial district in which the construction project is located. The owner’s obligations to make direct payments to the contractor, subcontractors, or suppliers giving notice under this provision is limited to the amount owed to the contractor by the owner for work performed under the contract as of the date the notice was sent.

1. establishes default payment schedule provisions for private sector construction contracts,

2. limits retainage to 7. 5% and generally requires such funds to be kept in an escrow account,

3. prohibits contract provisions in which the subcontractor waives the right to a mechanic’s lien,

4. prohibits contract provisions requiring disputes to be settled in, or under the laws of, another state, and

5. requires certain notices to be posted at the job site (CGS §§ 42-158i to 42-158o).


April 16, 2004		2004-R-0404
AN ACT CONCERNING CONSTRUCTION CONTRACTS

By: Daniel Duffy, Principal Analyst