H.B. 355






Chief Sponsor: Brad R. Wilson

Senate Sponsor: ____________

             8      LONG TITLE
             9      General Description:
             10          This bill modifies provisions regarding retention proceeds related to construction
             11      contracts.
             12      Highlighted Provisions:
             13          This bill:
             14          .    requires an owner or public agency to accrue and pay interest on retention proceeds
             15      related to a construction contract if the contract requires total payment of
             16      $1,000,000 or more over the course of the contract; and
             17          .    makes technical changes.
             18      Money Appropriated in this Bill:
             19          None
             20      Other Special Clauses:
             21          None
             22      Utah Code Sections Affected:
             23      AMENDS:
             24           13-8-5 , as last amended by Laws of Utah 2012, Chapters 86 and 278
             26      Be it enacted by the Legislature of the state of Utah:
             27          Section 1. Section 13-8-5 is amended to read:

             28           13-8-5. Definitions -- Limitation on retention proceeds withheld -- Deposit in
             29      interest-bearing escrow account -- Release of proceeds -- Payment to subcontractors --
             30      Penalty -- No waiver.
             31          (1) As used in this section:
             32          (a) (i) "Construction contract" means a written agreement between the parties relative
             33      to the design, construction, alteration, repair, or maintenance of a building, structure, highway,
             34      appurtenance, appliance, or other improvements to real property, including moving,
             35      demolition, and excavating for nonresidential commercial or industrial construction projects.
             36          (ii) If the construction contract is for construction of a project that is part residential
             37      and part nonresidential, this section applies only to that portion of the construction project that
             38      is nonresidential as determined pro rata based on the percentage of the total square footage of
             39      the project that is nonresidential.
             40          (b) "Construction lender" means any person, including a bank, trust company, savings
             41      bank, industrial bank, land bank, safe deposit company, private banker, savings and loan
             42      association, credit union, cooperative bank, small loan company, sales finance company,
             43      investment company, or any other financial institution that advances money to a borrower for
             44      the purpose of making alterations or improvements to real property. A construction lender
             45      does not include a person or entity who is acting in the capacity of contractor, original
             46      contractor, or subcontractor.
             47          (c) "Contractor" means a person who, for compensation other than wages as an
             48      employee, undertakes any work in a construction trade, as defined in Section 58-55-102 and
             49      includes:
             50          (i) any person engaged as a maintenance person who regularly engages in activities set
             51      forth in Section 58-55-102 as a construction trade; or
             52          (ii) a construction manager who performs management and counseling services on a
             53      construction project for a fee.
             54          (d) "Original contractor" has the same meaning as provided in Section 38-1a-102 .
             55          (e) "Owner" means the person who holds any legal or equitable title or interest in
             56      property. Owner does not include a construction lender unless the construction lender has an
             57      ownership interest in the property other than solely as a construction lender.
             58          (f) "Public agency" means any state agency or a county, city, town, school district, local

             59      district, special service district, or other political subdivision of the state that enters into a
             60      construction contract for an improvement of public property.
             61          (g) "Retention payment" means release of retention proceeds as defined in Subsection
             62      (1)(h).
             63          (h) "Retention proceeds" means money earned by a contractor or subcontractor but
             64      retained by the owner or public agency pursuant to the terms of a construction contract to
             65      guarantee payment or performance by the contractor or subcontractor of the construction
             66      contract.
             67          (i) "Subcontractor" has the same meaning as defined in Section 38-1a-102 .
             68          (2) (a) This section is applicable to all construction contracts relating to construction
             69      work or improvements entered into on or after July 1, 1999, between:
             70          (i) an owner or public agency and an original contractor;
             71          (ii) an original contractor and a subcontractor; and
             72          (iii) subcontractors under a contract described in Subsection (2)(a)(i) or (ii).
             73          (b) This section does not apply to a construction lender.
             74          (3) (a) Notwithstanding Section 58-55-603 , the retention proceeds withheld and
             75      retained from any payment due under the terms of the construction contract may not exceed 5%
             76      of the payment:
             77          (i) by the owner or public agency to the original contractor;
             78          (ii) by the original contractor to any subcontractor; or
             79          (iii) by a subcontractor.
             80          (b) The total retention proceeds withheld may not exceed 5% of the total construction
             81      price.
             82          (c) The percentage of the retention proceeds withheld and retained pursuant to a
             83      construction contract between the original contractor and a subcontractor or between
             84      subcontractors shall be the same retention percentage as between the owner and the original
             85      contractor if:
             86          (i) the retention percentage in the original construction contract between an owner and
             87      the original contractor is less than 5%; or
             88          (ii) after the original construction contract is executed but before completion of the
             89      construction contract the retention percentage is reduced to less than 5%.

             90          (4) (a) [If any] For a construction contract that requires total payment of $1,000,000 or
             91      more over the course of the contract, if any payment on a contract with a private contractor,
             92      firm, or corporation to do work for an owner or public agency is retained or withheld by the
             93      owner or the public agency[,] as retention proceeds, [it] the payment amount shall be placed in
             94      an interest-bearing account and accounted for separately from other amounts paid under the
             95      contract.
             96          (b) The interest accrued under Subsection (4)(a) shall be:
             97          (i) for the benefit of the contractor and subcontractors; and
             98          (ii) paid after the project is completed and accepted by the owner or the public agency.
             99          (c) The contractor shall ensure that any interest accrued on the retainage pursuant to
             100      this Subsection (4) is distributed by the contractor to subcontractors on a pro rata basis.
             101          (d) Retention proceeds [and accrued interest retained by an owner or public agency]
             102      retained by an owner or public agency pursuant to this section, and any interest accrued
             103      pursuant to this Subsection (4):
             104          (i) are considered to be in a constructive trust for the benefit of the contractor and
             105      subcontractors who have earned the proceeds; and
             106          (ii) are not subject to assignment, encumbrance, attachment, garnishment, or execution
             107      levy for the debt of any person holding the retention proceeds and accrued interest.
             108          (5) Any retention proceeds retained or withheld pursuant to this section, and any
             109      [accrued] interest accrued pursuant to Subsection (4), shall be released pursuant to a billing
             110      statement from the contractor within 45 days from the later of:
             111          (a) the date the owner or public agency receives the billing statement from the
             112      contractor;
             113          (b) the date that a certificate of occupancy or final acceptance notice is issued to:
             114          (i) the original contractor who obtained the building permit from the building inspector
             115      or public agency;
             116          (ii) the owner or architect; or
             117          (iii) the public agency;
             118          (c) the date that a public agency or building inspector having authority to issue its own
             119      certificate of occupancy does not issue the certificate but permits partial or complete occupancy
             120      of a newly constructed or remodeled building; or

             121          (d) the date the contractor accepts the final pay quantities.
             122          (6) If only partial occupancy of a building is permitted, any retention proceeds withheld
             123      and retained pursuant to this section, and any [accrued] interest accrued pursuant to Section (4),
             124      shall be partially released within 45 days under the same conditions as provided in Subsection
             125      (5) in direct proportion to the value of the part of the building occupied.
             126          (7) The billing statement from the contractor as provided in Subsection (5)(a) shall
             127      include documentation of lien releases or waivers.
             128          (8) (a) Notwithstanding Subsection (3):
             129          (i) if a contractor or subcontractor is in default or breach of the terms and conditions of
             130      the construction contract documents, plans, or specifications governing construction of the
             131      project, the owner or public agency may withhold from payment for as long as reasonably
             132      necessary an amount necessary to cure the breach or default of the contractor or subcontractor;
             133      or
             134          (ii) if a project or a portion of the project has been substantially completed, the owner
             135      or public agency may retain until completion up to twice the fair market value of the work of
             136      the original contractor or of any subcontractor that has not been completed:
             137          (A) in accordance with the construction contract documents, plans, and specifications;
             138      or
             139          (B) in the absence of plans and specifications, to generally accepted craft standards.
             140          (b) An owner or public agency that refuses payment under Subsection (8)(a) shall
             141      describe in writing within 45 days of withholding such amounts what portion of the work was
             142      not completed according to the standards specified in Subsection (8)(a).
             143          (9) (a) Except as provided in Subsection (9)(b), an original contractor or subcontractor
             144      who receives retention proceeds shall pay each of its subcontractors from whom retention has
             145      been withheld each subcontractor's share of the retention received within 10 days from the day
             146      that all or any portion of the retention proceeds is received:
             147          (i) by the original contractor from the owner or public agency; or
             148          (ii) by the subcontractor from:
             149          (A) the original contractor; or
             150          (B) a subcontractor.
             151          (b) Notwithstanding Subsection (9)(a), if a retention payment received by the original

             152      contractor is specifically designated for a particular subcontractor, payment of the retention
             153      shall be made to the designated subcontractor.
             154          (10) (a) In any action for the collection of the retained proceeds withheld and retained
             155      in violation of this section, the successful party is entitled to:
             156          (i) attorney fees; and
             157          (ii) other allowable costs.
             158          (b) (i) Any owner, public agency, original contractor, or subcontractor who knowingly
             159      and wrongfully withholds a retention shall be subject to a charge of 2% per month on the
             160      improperly withheld amount, in addition to any interest otherwise due.
             161          (ii) The charge described in Subsection (10)(b)(i) shall be paid to the contractor or
             162      subcontractor from whom the retention proceeds have been wrongfully withheld.
             163          (11) A party to a construction contract may not require any other party to waive any
             164      provision of this section.

Legislative Review Note
    as of 2-14-14 5:57 AM

Office of Legislative Research and General Counsel

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