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S1455.......................................by COMMERCE AND HUMAN RESOURCES
CONSTRUCTION CONTRACTS - Amends existing law to allow the release of
retention on progress payments on construction contracts on receipt of lien
waivers and to eliminate interest and additional charges on retention.
02/13 Senate intro - 1st rdg - to printing
02/16 Rpt prt - to Com/HuRes
03/04 Rpt out - rec d/p - to 2nd rdg
03/04 2nd rdg - to 3rd rdg
03/09 3rd rdg - PASSED - 32-1-2
AYES--Andreason, Boatright, Branch, Bunderson, Burtenshaw, Cameron,
Crow, Danielson, Darrington, Deide, Dunklin, Frasure, Geddes, Hansen,
Hawkins, Ingram, Ipsen, Keough, King, Lee, McLaughlin, Noh, Parry,
Richardson, Riggs, Risch, Sandy, Schroeder, Stennett, Twiggs,
Wheeler, Whitworth
NAYS--Thorne
Absent and excused--Sorensen, Sweeney
Floor Sponsor - Burtenshaw
Title apvd - to House
03/10 House intro - 1st rdg - to Bus
03/16 Rpt out - rec d/p - to 2nd rdg
03/17 2nd rdg - to 3rd rdg
03/18 3rd rdg - PASSED - 66-0-4
AYES -- Alltus, Barraclough, Barrett, Bell, Bieter, Bivens,
Black(15), Black(23), Boe, Bruneel, Callister, Campbell, Chase,
Clark, Crow, Cuddy, Deal, Denney, Ellsworth, Field(13), Field(20),
Gagner, Geddes, Gould, Hadley, Henbest, Hornbeck, Jaquet, Jones(9),
Jones(22), Jones(20), Judd, Kellogg, Kempton, Kendell, Kjellander,
Kunz, Lake, Linford, Loertscher, Mader, Marley, McKague, Meyer,
Mortensen, Newcomb, Pomeroy, Reynolds, Richman, Ridinger, Robison,
Sali, Schaefer, Stevenson, Stoicheff, Stone, Stubbs, Taylor, Tilman,
Tippets, Trail, Watson, Wheeler, Wood, Zimmermann, Mr Speaker
NAYS -- None
Absent and excused -- Crane, Hansen, Miller, Pischner
Floor Sponsor - Gagner
Title apvd - to Senate
03/19 To enrol
03/20 Rpt enrol - Pres signed
03/23 Sp signed - to Governor
03/24 Governor signed
Session Law Chapter 271
Effective: 07/01/98
S1455|||| LEGISLATURE OF THE STATE OF IDAHO |||| Fifty-fourth Legislature Second Regular Session - 1998IN THE SENATE SENATE BILL NO. 1455 BY COMMERCE AND HUMAN RESOURCES COMMITTEE 1 AN ACT 2 RELATING TO CONSTRUCTION CONTRACTS; AMENDING SECTION 29-115, IDAHO CODE, TO 3 ALLOW OWNERS TO CONDITION FINAL RELEASE OF RETENTION FROM PROGRESS PAY- 4 MENTS ON RECEIPT OF LIEN WAIVERS, TO ELIMINATE THE REQUIREMENT OF INTEREST 5 ON RETENTION, TO ELIMINATE THE ADDITIONAL CHARGE ON THE UNPAID BALANCE OF 6 RETENTION, AND TO ELIMINATE THE REQUIREMENT THAT RETENTION PROCEEDS BE 7 PLACED IN A SEGREGATED BANK ACCOUNT. 8 Be It Enacted by the Legislature of the State of Idaho: 9 SECTION 1. That Section 29-115, Idaho Code, be, and the same is hereby 10 amended to read as follows: 11 29-115. CONSTRUCTION CONTRACTS. (1) This section is applicable with 12 respect to all contracts entered into on or after July 1, 1990, between owners 13 and original contractors relating to the construction of any private work of 14 improvement. 15 (2) In any contract relating to the construction of any private work of 16 improvement, the retention proceeds withheld by the owner from the original 17 contractor or by the original contractor from any subcontractor from any pay- 18 ment shall not exceed five percent (5%) of the payment and in no event shall 19 the total retention withheld exceed five percent (5%) of the contract price. 20 However, the five percent (5%) maximum that may be withheld does not apply if 21 the original contractor or the subcontractor fails to provide a performance 22 bond issued by a surety acceptable to the owner or original contractor if 23 requested to do so by the owner or original contractor respectively. The five 24 percent (5%) maximum shall not apply to any contract for the performance of a 25 private work of improvement to residential real property consisting of one (1) 26 to four (4) units occupied or to be occupied by the owner. 27 (3) Within thirty-five (35) days from the date on which the work of 28 improvement is substantially complete, as mutually agreed to by the parties to 29 the contract, the retention withheld by the owner shall be reduced to the 30 lesser of one hundred fifty percent (150%) of the estimated value of work yet 31 to be completed in accordance with the contract or the retention then withheld 32 by the owner, not to exceed five percent (5%) of the contract price. 33 Within thirty-five (35) days from the date of final completion of the work 34 of improvement, the retention withheld by the owner shall be released, except 35 in the event of a dispute between the owner and the original contractor, the 36 owner may withhold from the final retention payment an amount not to exceed 37 one hundred fifty percent (150%) of the estimated value of the issue in dis- 38 pute. The owner may condition the final release of the retention upon 39 receipt of satisfactory lien waivers from all persons with actual or potential 40 lien claims on the work of improvement. 41 (4) Subject to subsection (5) of this section, within ten (10) days from 42 the time that all or any portion of the retention proceeds, together43with interest, if applicable,are received by the original contractor, 2 1 the original contractor shall pay each of its subcontractors from whom reten- 2 tion has been withheld, each subcontractor's share of the retention 3 received .together with the proportionate share of the4interest earned on the retention.However, if a retention payment 5 received by the original contractor is specifically designated for a particu- 6 lar subcontractor, payment of the retentiontogether with interest7thereon, if applicable,shall be made to the designated subcontractor. 8The original contractor may deduct from the interest paid to a subcon-9tractor an amount equal to one percent (1%) per annum of the unpaid principal10retention to cover the contractor's cost of administration.11 (5) The original contractor shall not be required to pay the retention to 12 a subcontractor if a bona fide dispute exists between the subcontractor and 13 the original contractor. The amount withheld from the retention payment shall 14 not exceed one hundred fifty percent (150%) of the estimated value of the work 15 yet to be completed or issue in dispute.Upon resolution of the dispute16and payment of the retention proceeds by the original contractor to the sub-17contractor, interest at market rates available for deposit of that amount and18term shall be added to the principal due the subcontractor, accruing from the19date the retention proceeds were payable to the subcontractor pursuant to sub-20section (4) of this section and up to and including the date of payment by the21original contractor to the subcontractor.22(6) In the event that retention payments are not made within the time23periods required in this section, the unpaid amounts shall be subject to an24additional charge over and above any interest due, of one and one-half percent25(1.5%) per month on the unpaid balance.26(7) (a) The lender for the work of improvement, or the owner if there is27no lender, shall establish and maintain a segregated account at a finan-28cial institution with which the owner does business and has established29commercial accounts, which shall not be commingled with other funds of the30person establishing the account, with regard to all retention proceeds31withheld from progress payments to the original contractor.32(b) All retention proceeds shall be deposited in the segregated account33as required by paragraph (a) of this subsection, when withheld by the34owner from the original contractor pursuant to the contract between the35parties. The segregated account shall bear interest at the market rates36available for deposit of that amount and term at the financial institution37designated in paragraph (a) of this subsection. The account shall be in38the name of the lender, or the owner if there is no lender, but all inter-39est earned on the account shall be for the benefit of the original con-40tractor and shall be payable to the original contractor at the time that41the retention, or any portion thereof, is paid to the original contractor42in accordance with the contract between the owner and original contractor.43The owner may deduct from the interest paid to the original contractor an44amount sufficient to cover the direct cost of administering the segregated45account.46(c) Title to the retention principal deposited into the segregated47account shall remain with the lender, or owner if there is no lender, and48shall be subject to all stop notice rights which any claimant may have49pursuant to this title.50(d) When the retention is withheld from the last progress payment only, a51segregated account will not be required if all retention proceeds are paid52within thirty-five (35) days following substantial completion, as mutually53agreed to by the parties to the contract, of works of improvement related54to the retention.55 (86 ) It shall be against public policy for any 3 1 party to require any other party to waive any provision of this statute.
STATEMENT OF PURPOSE
RS 07823
The purpose of this legislation is to clarify to requirements of Idaho Code § 29115
regarding the retention to be withheld from progress payments on private construction contracts, and to
simplify the requirements of that section. Idaho Code § 29-115 provides that no more than five percent
(5%) of a progress payment under a construction contract may be withheld by the owner or general
contractor, and those withheld amounts must be paid to the appropriate parties entitled thereto within
thirty-five (35) days after substantial completion of the project. Current law requires those monies to be
placed in a segregated, interest-bearing account at a bank where the owner does business. This bill would
eliminate that requirement, because in most cases the expenses of establishing and administering that bank
account exceed the amount of interest earned for the benefit of the subcontractors and suppliers. Also, it
is fairly difficult to allocate the interest on the bank account pro rata to the various parties entitled to it.
This bill also makes it clear that the owner may condition release of the retention
proceeds on receipt of appropriate lien waivers from all potential lien claimants.
FISCAL NOTE
This bill will have no impact on the general fund.
Contact:
Name: Patrick V. Collins
Hawley Troxell Ennis & Hawley LLP
Counsel for the Idaho Bankers Association
Phone: (208) 344-6000
S 1455