S.B. 136

1

RETENTION PROCEEDS REFORM FOR
2 CONSTRUCTION PROJECTS
3 1997 GENERAL SESSION
4 STATE OF UTAH
5 Sponsor: Craig A. Peterson
6 AN ACT RELATING TO COMMERCE AND TRADE, UNENFORCEABLE AGREEMENTS;
7 PROVIDING DEFINITIONS; SPECIFYING LIMITS TO THE AMOUNT OF RETENTION
8 PROCEEDS WITHHELD IN CONSTRUCTION PROJECTS; REQUIRING ALLOWABLE
9 RETENTION PROCEEDS TO BE DEPOSITED IN AN INTEREST-BEARING ESCROW
10 ACCOUNT; PROVIDING STANDARDS FOR REQUIRING RELEASE OF ANY
11 RETENTION PROCEEDS; AND PROVIDING FOR ATTORNEY'S FEES TO THE
12 PREVAILING PARTY.
13 This act affects sections of Utah Code Annotated 1953 as follows:
14 AMENDS:
15 38-1-2, Utah Code Annotated 1953
16 ENACTS:
17 13-8-3, Utah Code Annotated 1953
18 13-8-4, Utah Code Annotated 1953
19 Be it enacted by the Legislature of the state of Utah:
20 Section 1. Section 13-8-3 is enacted to read:
21 13-8-3. Definitions.
22 (1) As used in Section 13-8-4:
23 (a) "Construction contract" means any written agreement between the parties to perform
24 or superintend the construction of any residential or commercial construction project of:
25 (i) single family residences more than 6,000 square feet;
26 (ii) multi-family residences of more than four units; and
27 (iii) buildings more than three stories above ground or more than 10,000 square feet.

1 (b) "Contractor" means any person who, for compensation other than wages as an
2 employee, undertakes any work in the construction, plumbing, or electrical trade for which
3 licensure is required under this chapter and includes:
4 (i) a person who builds any structure on his own property for the purpose of sale or who
5 builds any structure intended for public use on his own property;
6 (ii) any person who represents himself to be a contractor by advertising or any other
7 means;
8 (iii) any person engaged as a maintenance person, other than an employee, who regularly
9 engages in activities set forth under the definition of "construction trade";
10 (iv) any person engaged in any construction trade for which licensure is required under this
11 chapter; or
12 (v) a construction manager who performs management and counseling services on a
13 construction project for a fee.
14 (c) "Original contractor" means the definition as provided in Section 38-1-2.
15 (d) "Owner" means the person or public agency who possesses title to the property.
16 (e) "Public agency" means any state agency or political subdivision of the state who enters
17 into a construction contract or who issues a permit to build or to occupy a newly constructed or
18 remodeled building.
19 (f) "Retention payment" means release of retention proceeds as defined in Subsection (g).
20 (g) "Retention proceeds" means monies earned by a contractor or subcontractor but
21 retained by the owner to guarantee total completion of the construction contract.
22 (h) "Subcontractor" means the definition as provided in Section 38-1-2.
23 (i) "Successful party" as defined in Section 38-1-18 means the prevailing party in any civil
24 matter determined by court adjudication, arbitration, mediation, or other means of dispute
25 resolution.
26 Section 2. Section 13-8-4 is enacted to read:
27 13-8-4. Limitation on retention proceeds withheld -- Deposit in interest-bearing
28 escrow account -- Release of proceeds -- Payment to subcontractors -- Penalty -- No waiver.
29 (1) This section is applicable to all construction contracts entered into on or after May 5,
30 1997, between an owner or a public agency and an original contractor, between an original
31 contractor and a subcontractor, and between all subcontractors thereunder, relating to the

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1 construction work or improvement.
2 (2) (a) Notwithstanding the provisions of Section 58-55-603, the retention proceeds
3 withheld and retained from any payment by the owner or public agency to the original contractor,
4 by the original contractor to any subcontractor, and by a subcontractor to any subcontractor shall
5 not exceed 5% of the payment. In no event shall the total retention proceeds withheld exceed 5%
6 of the total construction price.
7 (b) In a construction contract between the original contractor and a subcontractor, and in
8 a contract between a subcontractor and a subcontractor, the percentage of the retention proceeds
9 withheld and retained if less than 5% shall be the same percentage retention as between the owner
10 and the original contractor.
11 (3) Any retention proceeds withheld and retained by the owner or public agency pursuant
12 to this section shall be deposited in an interest-bearing escrow account in a bank chartered to do
13 business in the state of Utah. Upon the release of any retention proceeds, the contractor or
14 subcontractor shall be entitled to its pro rata share of the released retention proceeds and any
15 interest earned in the escrow account.
16 (4) Any retention proceeds withheld and retained pursuant to this section and any accrued
17 interest shall be released within 30 days from:
18 (a) the date that a certificate of occupancy is issued to:
19 (i) the original contractor who obtained the building permit from the building inspector,
20 agency of the state, or political subdivision of the state; or
21 (ii) to the owner or architect.
22 (b) the date that a public agency not responsible to any other public agency, political
23 subdivision or building inspector permits partial or complete occupancy of a newly constructed
24 or remodeled building.
25 (5) (a) Notwithstanding the provisions of Subsections (2)(a) and (b), if a project has been
26 substantially completed, the owner may nevertheless continue to retain up to twice the fair market
27 value of the work of the original contractor or of any subcontractor who has not completed his
28 portion of the work according to the plans and specifications, or in the absence of plans and
29 specifications, to generally accepted craft standards.
30 (b) Any uncompleted or deficient work for which release of retention proceeds is denied
31 pursuant to this subsection shall be described in writing by the owner refusing payment.

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1 (6) Within ten days from the time that all or any portion of the retention proceeds are
2 received by the original contractor from the owner or public agency, by the subcontractor from the
3 contractor, or by the subcontractor from the subcontractor, this contractor or subcontractor shall
4 pay each of its subcontractors from whom retention has been withheld each subcontractor's share
5 of the retention received, unless a retention payment received by the original contractor is
6 specifically designated for a particular subcontractor. In this case, payment of the retention shall
7 be made to the designated subcontractor.
8 (7) (a) In any action for the collection of the retained proceeds withheld and retained in
9 violation of this section, the successful party shall be entitled to attorney's fees and other allowable
10 costs.
11 (b) Any owner, public agency, original contractor, or subcontractor who wrongfully
12 withholds a retention shall be subject to a charge of 2% per month on the improperly withheld
13 amount, in addition to any interest otherwise due. This charge shall be paid to the contractor or
14 subcontractor from whom the retention proceeds have been wrongfully withheld.
15 (8) It shall be against public policy for any party to require any other party to waive any
16 provision of this section.
17 Section 3. Section 38-1-2 is amended to read:
18 38-1-2. "Contractors" and "subcontractors" defined.
19 [Whoever shall do] Any person who does work or [furnish] furnishes materials by contract,
20 express or implied, with the owner, as provided in this chapter [provided], shall be [deemed]
21 considered an original contractor, and all other persons doing work or furnishing materials shall
22 be [deemed] considered subcontractors.




Legislative Review Note
as of 12-31-96 12:05 PM

A limited legal review of this bill raises no obvious constitutional or statutory concerns.

Office of Legislative Research and General Counsel

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