HB 4697 Text

H. B. 4697

(By Delegate Klempa)
[Introduced February 18, 2008; referred to the
Committee on Finance.]

A BILL to amend the Code of West Virginia, 1931, as amended, by adding thereto a new article, designated §5-22B-1, §5-22B-2, §5-22B-3, §5-22B-4, §5-22B-5, §5-22B-6 and §5-22B-7; all relating to prompt payment for public construction contracts; enacting the West Virginia Fairness in Public Construction Contract Act.

Be it enacted by the Legislature of West Virginia:
That the Code of West Virginia, 1931, as amended, be amended by adding thereto a new article, designated §5-22B-1, §5-22B-2, §5-22B-3, §5-22B-4, §5-22B-5, §5-22B-6 and §5-22B-7, all to read as follows:
ARTICLE 22B. FAIRNESS IN PUBLIC CONSTRUCTION CONTRACT ACT.
§5-22B-1. Short title; applicability of article.
This article shall be known and may be cited as the "West Virginia Fairness in Public Construction Contract Act". The rights and duties prescribed by this article are not waivable or variable under the terms of a contract. The terms of any contract waiving the rights and duties prescribed by this article is unenforceable.
§5-22B-2. Definitions.
For the purpose of this article:
(1) "Construction" means furnishing labor, equipment, material or supplies used or consumed for the design, construction, alteration, renovation, repair or maintenance of a building, water or waste water treatment facility, oil line, gas line, appurtenance or other improvement to real property, including any moving, demolition or excavation of a building. "Construction" does not mean the design, construction, alteration, renovation, repair or maintenance of a road, highway or bridge.
(2) "Contract" means a contract or agreement concerning construction made and entered into by and between an owner and a contractor, a contractor and a subcontractor or a subcontractor and another subcontractor.
(3) "Contractor" means a person performing construction and having a contract with an owner of the real property or with a trustee or agent of an owner.
(4) "Owner" means a public entity that holds an ownership interest in real property.
(5) "Public entity" means the State of West Virginia, political subdivisions, cities, counties, state universities or colleges, school districts, all special districts, joint agreement entities, public authorities, public trusts, nonprofit corporations and other organizations which are operated with public money for the public good.
(6) "Retainage" means money earned by a contractor or subcontractor but withheld to ensure timely performance by the contractor or subcontractor.
(7) "Subcontractor" means any person performing construction covered by a contract between an owner and a contractor but not having a contract with the owner.
(8) "Substantial completion" means the stage of a construction
project where the project, or a designated portion thereof, is sufficiently complete in accordance with the contract, so that the owner can occupy or utilize the constructed project for its intended use.
(9) "Undisputed payment" means payments which all parties to the contract agree are owed to the contractor.
§5-22B-3. Contract payments; provisions against public policy.
(a) Subject to the provisions of subsections (b), (c), (d),
(e), (f), (g) and (h) of this section, and sections four and five of this article, and any amendments thereto, all owners, contractors and subcontractors, who enter into a contract for public construction after the effective date of this article, shall make all payments pursuant to the terms of the contract.
(b) The following provisions in a contract for public construction are against public policy and are void and unenforceable:
(1) A provision that purports to waive, release or extinguish the right to resolve disputes through litigation in court or substantive or procedural rights in connection with such litigation except that a contract may require nonbinding alternative dispute resolution as a prerequisite to litigation;
(2) A provision that purports to waive, release or extinguish rights to file a claim against a payment or performance bond, except that a contract may require a contractor or subcontractor to provide a waiver or release of such rights as a condition for payment, but only to the extent of the amount of payment received; and
(3) A provision that purports to waive, release or extinguish rights of subrogation for losses or claims covered or paid by liability or workers compensation insurance except that a contract may require waiver of subrogation for losses or claims paid by a consolidated or wrap-up insurance program, owners and contractors protective liability insurance, or project management protective liability insurance or a builder's risk policy.
(c) All contracts for public construction shall provide that payment of amounts due a contractor from an owner, except retainage, shall be made within thirty days after the owner receives a timely, properly completed, undisputed request for payment according to terms of the contract, unless extenuating circumstances exist which would preclude approval of payment within thirty days. If such extenuating circumstances exist, then payment shall be made within forty-five days after the owner receives such payment request.
(d) The architect or engineer of record or agent of the owner shall review, approve and forward undisputed requests for payment to the owner within seven business days of receipt from the contractor.
(e) If the owner fails to pay a contractor within the time period set forth in subsection (c), the owner shall pay interest computed at the rate of eighteen percent per annum on the undisputed amount to the contractor beginning on the day following the end of the time period set forth in subsection (d).
(f) A contractor shall pay its subcontractors any amounts due within seven business days of receipt of payment from the owner, including payment of retainage, if retainage is released by the owner, if the subcontractor has provided a timely, properly completed and undisputed request for payment to the contractor.
(g) If the contractor fails to pay a subcontractor within seven business days, the contractor shall pay interest to the subcontractor beginning on the eighth business day after receipt of payment by the contractor, computed at the rate of eighteen percent per annum on the undisputed amount.
(h) The provisions of subsection (g) shall also apply to all payments from subcontractors to their subcontractors.
§5-22B-4. Retainage and withholding.
(a) An owner, contractor or subcontractor may withhold no more than ten percent retainage from the amount of any undisputed payment due.
(b) An owner must release the retainage on any undisputed payment due on a construction project within thirty days after substantial completion of the project; however, if any subcontractor is still performing work on the project under its subcontract, an owner may withhold that portion of the retainage attributable to such subcontract until thirty days after such work is completed.
(c) If an owner, contractor or subcontractor fails to pay retainage, if any, pursuant to the terms of a contract for public construction or as required by this article, the owner, contractor or subcontractor shall pay interest to the contractor or subcontractor to whom payment was due, beginning on the first business day after the payment was due, at a rate of eighteen percent per annum.
(d) Nothing in this section prevents early release of retainage if it is determined by the owner, the contractor and the project architect or engineer, that a subcontractor has completed performance satisfactorily and that the subcontractor can be released prior to substantial completion of the entire project without risk or additional cost to the owner or contractor. Once so determined, the contractor shall request such adjustment in retainage, if any, from the owner as necessary to enable the contractor to pay the subcontractor in full, and the owner shall, as part of the next contractual payment cycle, release the subcontractor's retainage to the contractor, who shall, as part of the next contractual payment cycle, release such retainage as is due to the subcontractor.
§5-22B-5. Undisputed payments.
If any undisputed payment is not made within seven business days after the payment date established in a contract for public construction or in this article, the contractor and any subcontractors, regardless of tier, upon seven additional business days' written notice to the owner and, in the case of a subcontractor, written notice to the contractor, shall, without prejudice to any other available remedy, be entitled to suspend further performance until payment, including applicable interest, is made. The contract time for each contract affected by the suspension shall be extended appropriately and the contract sum for each affected contract shall be increased by the suspending party's reasonable costs of demobilization, delay and remobilization.
§5-22B-6. Actions under this article.
In any action to enforce section three, four or five of this article and any amendments thereto, including arbitration, between a contractor and subcontractors or subcontractors and subcontractors, the court or arbitrator shall award costs and reasonable attorney fees to the prevailing party. Venue of such an action shall be in the county where the real property is located and under West Virginia law. The hearing in such an arbitration shall be held in the county where the real property is located.
§5-22B-7. Waiver of rights to collect damages ineffectual.
Any provision in a contract that purports to waive the rights of a party to the contract to collect damages for delays caused by
another party to the contract is void, unenforceable and against public policy. This provision is not intended to create a contract between parties where a contract did not otherwise exist.

NOTE: The purpose of this bill is to enact a comprehensive prompt payment law which requires public owners to pay contractors undisputed amounts due within thirty days of receiving a proper invoice - and contractors to pay subcontractors within seven days of receiving payment from owners.

Strike-throughs indicate language that would be stricken from the present law, and underscoring indicates new language that would be added.

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