May 22, 2008, Introduced by Rep. Farrah and referred to the Committee on Regulatory Reform.
A bill to amend 1980 PA 524, entitled
"An act to provide for the terms of certain construction contracts
with certain public agencies; to regulate the payment and retainage
of payments on construction contracts with certain public agencies;
and to provide for the resolution of certain disputes,"
by amending sections 1, 2, 3, and 4 (MCL 125.1561, 125.1562,
125.1563, and 125.1564); and to repeal acts and parts of acts.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 1. As used in this act:
(a)
"Agent" means the person or persons agreed to or selected
by
the contractor and the public agency pursuant to section 4(2).
(a) (b)
"Architect or professional
engineer" means an
architect
or professional engineer licensed under Act No. 299 of
the
Public Acts of 1980, being sections 339.101 to 339.2601 of the
Michigan Compiled Laws article 20 of the occupational code, 1980 PA
299, MCL 339.2001 to 339.2014, and designated by a public agency in
a construction contract to recommend progress payments.
(b) "Assessment district" means the real property within a
distinct area upon which special assessments are levied or imposed
for the construction, reconstruction, betterment, replacement, or
repair of a facility to be paid for by funds derived from those
special assessments imposed or levied on the benefited real
property.
(c) "Construction contract" or "contract" means a written
agreement between a contractor and a public agency or between a
contractor and a construction manager acting for or on behalf of a
public agency for the construction, alteration, demolition, or
repair of a facility, other than a contract having a dollar value
of less than $30,000.00 or a contract that provides for 3 or fewer
payments.
(d) "Construction manager" means an individual, sole
proprietorship, partnership, corporation, limited liability
company, or joint venture, or other legal entity that, pursuant to
an engagement by a public agency and acting primarily in an
administrative or managerial capacity, procures and enters into 1
or more contracts for the construction, alteration, demolition, or
repair of a facility.
(e) (d)
"Contract documents"
means the construction contract;
instructions to bidders; proposal; conditions of the contract;
performance bond; labor and material bond; drawings;
specifications; all addenda issued before execution of the
construction contract and all modifications issued subsequently.
(f) (e)
"Contractor" means an
individual, sole proprietorship,
partnership, corporation, or joint venture, that is a party to a
construction contract with a public agency or with a construction
manager.
(g) (f)
"Facility" means a
building, utility, road, street,
boulevard, parkway, bridge, ditch, drain, levee, dike, sewer, park,
playground, school, or other structure or work that is paid for
with public funds or a special assessment.
(h) "Mediator" means the person or persons agreed to or
selected to resolve disputes, pursuant to section 4(2), that is not
an employee, agent, or representative of the public agency,
construction manager, contractor, or any subcontractor.
(i) (g)
"Progress payment" means
a payment by a public agency
or construction manager to a contractor for work or materials in
place under the terms of a construction contract, including the
final progress payment.
(j) (h)
"Public agency" means
this state , or a
county, city,
township, village, assessment district, school district, state
institution of higher education, or other political subdivision,
corporation, commission, agency, or authority created by law.
However, public agency does not include the state transportation
department, a
school district, junior or community college, the
Michigan state housing development authority created in
Act No. 346
of
the Public Acts of 1966, as amended, being sections 125.1401 to
125.1496
of the Michigan Compiled Laws under the Michigan housing
development authority act of 1966, 1966 PA 346, MCL 125.1401 to
125.1499c, and a municipal electric utility or agency. "Assessment
district"
means the real property within a distinct area upon which
special
assessments are levied or imposed for the construction,
reconstruction,
betterment, replacement, or repair of a facility to
be
paid for by funds derived from those special assessments imposed
or
levied on the benefited real property.
(k) (i)
"Retainage" or
"retained funds" means the amount
withheld from a progress payment to a contractor pursuant to
section 3.
(l) "State institution of higher education" means a public
community or junior college established under section 7 of article
VIII of the state constitution of 1963 or part 25 of the revised
school code, 1976 PA 451, MCL 380.1601 to 380.1607, or a state
university described in section 4, 5, or 6 of article VIII of the
state constitution of 1963.
(m) "Subcontractor" means a person, other than a laborer or
supplier, who, pursuant to a contract between himself or herself
and a person other than the public agency, performs any part of the
construction contract.
Sec. 2. (1) The construction contract for a facility shall
designate a person representing the contractor who will submit
written requests for progress payments, and a person representing
the
public agency or construction
manager to whom request requests
for progress payments are to be submitted. The written requests for
progress payments shall be submitted to the designated person in a
manner and at such times as provided in the construction contract.
On contracts where the public agency has engaged a construction
manager to enter into contracts with contractors, the construction
manager shall submit the contractor's payment request to the public
agency for payment within the time specified in the construction
contract or within 15 days of receipt of the contractor's payment
request, whichever is the earlier to occur.
(2) The processing of progress payments on a construction
contract by the public agency may be deferred by the public agency
or construction manager until work having a prior sequence, as
provided in the contract documents, is in place and is approved.
(3)
Each request for a progress payment requested on a
construction
contract, including reasonable interest
if requested
under subsection (4), shall be paid by the public agency within 1
of the following time periods, whichever is later:
(a)
Thirty days after the architect, or professional engineer,
construction manager, or other designated agent of the public
agency has certified to the public agency that work is in place in
the portion of the facility covered by the applicable request for
payment in accordance with the contract documents, regardless of
whether the public agency issues payment to the construction
manager or directly to the contractor.
(b) Fifteen days after the public agency has received the
funds with which to make the progress payment from a department or
agency of the federal or state government, if any funds are to come
from either of those sources.
(4) Upon failure of a public agency or construction manager to
make
a timely progress payment pursuant to this section, the person
designated
to submit requests for progress payments may include
reasonable
interest on amounts past due in the next request for
payment
public agency or construction
manager shall pay interest on
amounts past due at the same rate payable on money judgments
pursuant to section 6013(8) of the revised judicature act of 1961,
1961 PA 236, MCL 600.6013, on amounts past due with the next
payment.
Sec. 3. (1) To assure proper performance of a construction
contract by the contractor, a public agency or construction manager
may retain a portion of each progress payment otherwise due as
provided in this section.
(2) The retainage shall be limited to the following:
(a)
Not more than 10% 5% of the dollar value of all work in
place. until
work is 50% in place.
(b)
After the work is 50% 90% in place, additional retainage
shall be reduced to not more than 1% of the dollar value of all
work in place. Additional retainage shall not be withheld unless
the public agency or construction manager determines that the
contractor is not making satisfactory progress, or for other
specific cause relating to the contractor's performance under the
contract. If the public agency or construction manager so
determines,
the public agency it may retain not more than 10% 5% of
the
dollar value of work more than 50% in place.
(c) The 5% maximum retainage specified in subdivisions (a) and
(b) may not be increased, either directly or indirectly, through
the use of contract provisions or procedures that defer all or any
portion of a payment for work in place beyond the time for payment
provided in subsection (2) or by requiring the contractor to
furnish additional security for completion of the work beyond the
assurance provided by the retainage specified in this act and the
contractor's performance bond.
(3) The retained funds shall not exceed the pro rata share of
the public agency's or construction manager's matching requirement
under the construction contract and shall not be commingled with
other funds of the public agency or construction manager and shall
be deposited in an interest bearing account in a regulated
financial institution in this state wherein all such retained funds
are
kept by the public agency which or
construction manager that
shall account for both retainage and interest on each construction
contract separately. A public agency or construction manager is not
required to deposit retained funds in an interest bearing account
if the retained funds are to be provided under a state or federal
grant and the retained funds have not been paid to the public
agency or construction manager.
(4) Except as provided in section 4(7) and (8), retainage and
interest earned on retainage shall be released to a contractor
together with the final progress payment.
(5)
At any time after 94% of work under the contract is in
place
and at the request of the original contractor, the public
agency
shall release the retainage plus interest to the original
contractor
only if the original contractor provides to the public
agency
an irrevocable letter of credit in the amount of the
retainage
plus interest, issued by a bank authorized to do business
in
this state, containing terms mutually acceptable to the
contractor
and the public agency.
(5) Upon the failure or refusal of a public agency to comply
with the provisions of subsections (3) and (4), the contractor
shall be entitled to recover interest on the retained funds at the
rate of 2 times the rate payable on money judgments pursuant to
section 6013(8) of the revised judicature act of 1961, 1961 PA 236,
MCL 600.6013, until such retained funds, inclusive of accrued
interest, are fully paid. A contractor shall not be required to,
but may at its option, utilize the dispute resolution procedure
provided in section 4 to seek enforcement of the provisions of this
subsection and to seek payment of the retainage due plus interest
accrued pursuant to this subsection. In any proceeding to enforce
the provisions of this subsection, a prevailing contractor shall be
entitled to recover the sum of $500.00 or the reasonable actual
amount of costs and attorney fees incurred in that proceeding,
whichever is the greater.
(6) Except as provided in section 4(7) and (8), and subject to
subsection (5), the contractor shall pay its subcontractors the pro
rata share of any interest paid by the public agency or
construction manager within 7 days of receipt by the contractor.
(7) The provisions in subsection (6) regarding pro rata
distribution of interest paid by the public agency shall not
otherwise apply to or regulate the terms and conditions of
contracts between a contractor and a subcontractor or supplier, or
any other lower-tier agreements.
Sec. 4. (1) The construction contract shall contain an
agreement to submit those matters described in subsection (3) to
the
decision of an agent a
mediator at the option of the public
agency.
(2) If a dispute regarding a matter described in subsection
(3) arises, the contractor and the public agency or construction
manager
shall designate an agent a mediator who has background,
training, and experience in the construction of facilities similar
to that which is the subject of the contract, as follows:
(a) In an agreement reached within 10 days after a dispute
arises.
(b) If an agreement cannot be reached within 10 days after a
dispute arises, the public agency or construction manager shall
designate
an agent a mediator who has background, training, and
experience in the construction of facilities similar to that which
is
the subject of the contract. and who is not an employee of the
agency.
(3) The public agency or construction manager may request
dispute
resolution by the agent mediator
regarding the following:
(a) At any time during the term of the contract, to determine
whether there has been a delay for reasons that were within the
control of the contractor, and the period of time that delay has
been caused, continued, or aggravated by actions of the contractor.
(b) At any time after 94% of work under the contract is in
place, whether there has been an unacceptable delay by the
contractor in the performance of the remaining 6% of work under the
contract.
The agent mediator shall consider the terms of the
contract and the procedures normally followed in the industry and
shall determine whether the delay was for failure to follow
reasonable and prudent practices in the industry for completion of
the project.
(4) This dispute resolution process shall be used only for the
purpose of determining the rights of the parties to retained funds
and interest earned on retained funds and is not intended to alter,
abrogate, or limit any rights with respect to remedies that are
available to enforce or compel performance of the terms of the
contract by either party.
(5)
The agent mediator may request and shall receive all
pertinent information from the parties and shall provide an
opportunity for an informal meeting to receive comments, documents,
and other relevant information in order to resolve the dispute. The
agent
mediator shall determine the time, place, and procedure for
the informal meeting. A written decision and reasons for the
decision shall be given to the parties within 14 days after the
meeting.
(6)
The decision of the agent mediator
shall be final and
binding upon all parties. Upon application of either party, the
decision
of the agent mediator may be vacated by order of the
circuit court only upon a finding by the court that the decision is
clearly erroneous or was procured by fraud, duress, or other
illegal means. In any circuit court proceeding pursuant to the
provisions of this subsection, the prevailing party is entitled to
recover from the nonprevailing party its reasonable costs and
attorney fees incurred in connection with the proceeding.
(7)
If the dispute resolution results in a decision :
(a)
That that there has been a delay as described in
subsection (3)(a), all interest earned on retained funds during the
period of delay shall become the property of the public agency or
construction
manager.
(b)
That If the dispute
resolution results in a decision that
there has been unacceptable delay as described in subsection
(3)(b), the public agency or construction manager may contract with
a subsequent contractor to complete the remaining 6% of work under
the contract, and interest earned on retained funds shall become
the property of the public agency or construction manager. A
subsequent
contractor under this subdivision subsection shall be
paid by the public agency or construction manager from the
following sources until each source is depleted, in the order
listed below:
(a) (i) The
dollar value of the original contract, less the
dollar value of funds already paid to the original contractor and
the dollar value of work in place for which the original contractor
has not received payment.
(b) (ii) Retainage
from the original contractor. , or funds
made
available under a letter of credit provided under section
3(5).
(c) (iii) Interest
earned on retainage from the original
contractor. ,
or funds made available under a letter of credit
provided
under section 3(5).
(8) If the public agency or construction manager contracts
with
a subsequent contractor as provided in subsection (7)(b) (7),
the final progress payment shall be payable to the original
contractor within the time period specified in section 2(3). The
amount of the final progress payment to the original contractor
shall not include interest earned on retained funds. The public
agency or construction manager may deduct from the final progress
payment all expenses of contracting with the subsequent contractor.
This act shall not impair the right of the public agency or
construction manager to bring an action or to otherwise enforce a
performance bond to complete work under a construction contract.
Enacting section 1. (1) This amendatory act takes effect
January 1, 2009.
(2) This amendatory act applies to any contracts entered into
on or after January 1, 2009.
Enacting section 2. This amendatory act does not take effect
unless all of the following bills of the 94th Legislature are
enacted into law:
(a) Senate Bill No.____ or House Bill No. 6176(request no.
04828'07).
(b) Senate Bill No.____ or House Bill No. 6174(request no.
04830'07).
(c) Senate Bill No.____ or House Bill No. 6173(request no.
04831'07).
Enacting section 3. Sections 5 and 6 of 1980 PA 524, MCL
125.1565 and 125.1566, are repealed effective January 1, 2009.