PA 17-182—sHB 7073

General Law Committee

AN ACT CONCERNING REMEDIES IN LAWSUITS AGAINST PROPERTY OWNERS BY SUBCONTRACTORS AND THE RELEASE OF RETAINAGE WITHHELD IN PRIVATE CONSTRUCTION CONTRACTS

SUMMARY: This act modifies the way in which contractors, subcontractors, and suppliers receive payment for work done under private construction contracts. By law, private-sector construction contracts must contain certain payment schedule provisions and may allow for withholding by the owner of up to 5% of the estimated amount of progress payments made for the life of the construction project (i.e., “retainage”).

The act (1) requires that the contracts' payment provisions concerning subcontractors or suppliers apply to those who have a direct contractual relationship with the contractor, instead of with the owner; (2) restricts the amount due under certain claims to the amount owed to the contractor by the owner; and (3) expands the circumstances under which an owner, contractor, subcontractor, or supplier against whom a claim is made may refuse to place funds in escrow. It also establishes a 30-day deadline by which owners must pay retainage.

By law, a “construction contract” generally covers a contractual relationship between (1) an owner and contractor, (2) a contractor and subcontractor, or (3) a subcontractor and any other subcontractor (CGS 42-158i(2)).

EFFECTIVE DATE: July 1, 2017 for the retainage provision; October 1, 2017 for the payment schedule and escrow provisions.

PAYMENT SCHEDULE AND CLAIMS

By law, each construction contract must include a provision requiring that owners pay amounts due to contractors, subcontractors, or suppliers for labor and materials within 30 days after receiving a written payment request. Under prior law, this provision applied to contractors, subcontractors, and suppliers in a direct contractual relationship with the owner. The act maintains this provision for contractors, but it applies the subcontractor and supplier provisions to those subcontractors or suppliers in a direct contractual relationship with the contractor.

If an owner fails to make a payment by the deadline, existing law allows a contractor, subcontractor, or supplier to pursue a claim against the owner for the amount due by sending notice by registered or certified mail. The act limits the payments from the owner in these circumstances to the amount owed to the contractor for work performed under the contract as of the date of the notice.

ESCROW

The act expands the circumstances under which an owner, contractor, subcontractor, or supplier against whom a nonpayment claim is made may refuse a request to place certain funds in escrow.

Existing law contains payment schedule provisions for amounts due under a nonpayment claim from (1) owners to contractors, (2) contractors to subcontractors and suppliers, and (3) subcontractors and suppliers to other subcontractors and suppliers. The party owing the debt, beginning 10 days after receiving a notice of claim, is liable for 1% interest per month on the amount as of the date of the notice. And, if requested, such party must place the amount due, plus the accruing 1% interest, in an interest-bearing escrow account.

The act allows such party to refuse the request to place the funds in escrow when the demanded funds are not due under the owner's contract with the contractor. Existing law also allows a refusal when the party making the demand has not substantially performed the work or supplied materials according to the contract's terms. However, such a party may be liable for the amount due, interest, and reasonable attorney's fees if the party is found to have unreasonably withheld payment.

RETAINAGE

The act requires owners to pay retainage no later than 30 days after the (1) owner or his or her authorized representative issues a certificate of final completion or (2) owner issues an equivalent written acceptance of the construction project work. The act subjects violators to existing law's enforcement provision for other retainage requirements. Specifically, it authorizes courts to award court costs and reasonable attorney's fees in any action to enforce the deadline (CGS 42-158r).

By law, “retainage” is the amount withheld from progress payments conditioned on substantial or final completion of all work in accordance with a construction contract, but not amounts withheld for failing to comply with construction plans and specifications.