1998 Legislation
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SENATE BILL NO. 1455 – Construction contract/retentn pymts


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Daily Data Tracking History

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
      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

Bill Text


 ||||              LEGISLATURE OF THE STATE OF IDAHO             ||||
Fifty-fourth Legislature                 Second Regular Session - 1998

                                      IN THE SENATE

                                   SENATE BILL NO. 1455


 1                                        AN ACT

 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  ,  together
43    with  interest, if applicable,  are received by the original contractor,


 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  the
 4    interest  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  retention   together with interest
 7    thereon, if applicable,  shall be made to the designated  subcontractor.
 8      The  original contractor may deduct from the interest paid to a subcon-
 9    tractor an amount equal to one percent (1%) per annum of the unpaid  principal
10    retention 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 dispute
16    and payment of the retention proceeds by the original contractor to  the  sub-
17    contractor,  interest at market rates available for deposit of that amount and
18    term shall be added to the principal due the subcontractor, accruing from  the
19    date the retention proceeds were payable to the subcontractor pursuant to sub-
20    section (4) of this section and up to and including the date of payment by the
21    original contractor to the subcontractor.
22        (6)  In  the  event  that  retention payments are not made within the time
23    periods required in this section, the unpaid amounts shall be  subject  to  an
24    additional charge over and above any interest due, of one and one-half percent
25    (1.5%) per month on the unpaid balance.
26        (7)  (a) The  lender for the work of improvement, or the owner if there is
27        no lender, shall establish and maintain a segregated account at  a  finan-
28        cial  institution  with  which the owner does business and has established
29        commercial accounts, which shall not be commingled with other funds of the
30        person establishing the account, with regard  to  all  retention  proceeds
31        withheld from progress payments to the original contractor.
32        (b)  All  retention  proceeds shall be deposited in the segregated account
33        as required by paragraph (a) of this  subsection,  when  withheld  by  the
34        owner  from  the  original contractor pursuant to the contract between the
35        parties. The segregated account shall bear interest at  the  market  rates
36        available for deposit of that amount and term at the financial institution
37        designated  in  paragraph  (a) of this subsection. The account shall be in
38        the name of the lender, or the owner if there is no lender, but all inter-
39        est earned on the account shall be for the benefit of  the  original  con-
40        tractor  and  shall be payable to the original contractor at the time that
41        the retention, or any portion thereof, is paid to the original  contractor
42        in accordance with the contract between the owner and original contractor.
43        The  owner may deduct from the interest paid to the original contractor an
44        amount sufficient to cover the direct cost of administering the segregated
45        account.
46        (c)  Title to  the  retention  principal  deposited  into  the  segregated
47        account  shall remain with the lender, or owner if there is no lender, and
48        shall be subject to all stop notice rights which  any  claimant  may  have
49        pursuant to this title.
50        (d)  When the retention is withheld from the last progress payment only, a
51        segregated account will not be required if all retention proceeds are paid
52        within thirty-five (35) days following substantial completion, as mutually
53        agreed  to by the parties to the contract, of works of improvement related
54        to the retention. 
55        ( 8  6 )  It shall be against public policy for  any


 1    party to require any other party to waive any provision of this statute.

Statement of Purpose / Fiscal Impact

                                  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.
             Name: Patrick V. Collins
             Hawley Troxell Ennis & Hawley LLP
             Counsel for the Idaho Bankers Association
             Phone: (208) 344-6000
                                                                                                       S 1455