HB2436 94TH GENERAL ASSEMBLY

LRB094 08850 LCB 39069 b

94TH GENERAL ASSEMBLY
State of Illinois
2005 and 2006
HB2436

Introduced 02/17/05, by Rep. Timothy L. Schmitz

SYNOPSIS AS INTRODUCED:

New Act

Creates the Fair Pay for Construction Act. Applies to State and local governments. Establishes guidelines and procedures for proper invoices and for payment of construction contracts. Provides remedies for nonpayment of the construction contracts. Exempts certain projects from the application of the Act. Effective immediately.

FISCAL NOTE ACT MAY APPLY

STATE MANDATES ACT MAY REQUIRE REIMBURSEMENT

A BILL FOR

AN ACT concerning construction.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 1. Short title. This Act may be cited as the Fair Pay for Construction Act.

Section 5. Definitions. As used in this Act:

"Construction contract" means a written agreement relating to the construction, alteration, repair, maintenance, moving, or demolition of any building, structure, or improvement or relating to the excavation of or other development or improvement to land. "Construction contract" includes a subcontract for any of these provisions.

"Material supplier" means any entity that supplies materials, services, or equipment to be used in conjunction with the performance of work on a construction contract.

"Prime contractor" means any entity that has a direct contract with an owner to perform work under a construction contract.

"Owner" means any State government entity, municipality, township, public trust, or any other publicly funded entity in this State, or any entity designated by the owner to act on the owner's behalf, that requests work to be performed by a contractor under a construction contract.

"Proper invoice" means a request for payment or partial payment based on work performed on a construction contract.

"Retainage" means funds due and payable for satisfactory performance under a construction contract, but withheld until substantial completion, or as set forth in the construction contract documents.

"Subcontractor" means any entity that has a direct contract with a prime contractor to perform a portion of the work under a construction contract.

"Sub-subcontractor" means any entity that has a direct contract with another subcontractor to perform a portion of the work under a construction contract.

Section 10. Payment by owner; payment reductions.

(a) On all construction contracts exceeding $25,000 in value, an owner shall make progress payments to the prime contractor for work performed and materials properly stored, within 30 calendar days after a proper invoice is submitted to the owner or a representative designated by the owner.

(b) An owner or entity designated by the owner, may not reduce a payment application of a prime contractor without detailing and forwarding to the prime contractor, within 7 calendar days of receipt of the proper invoice, the reasons for reduction. The reduction may not be more than an amount that is reasonable to correct the work, as set forth in writing.

(c) If a prime contractor, subcontractor, sub-subcontractor, or materials supplier has had its proper invoice reduced by an owner or representative designated by an owner, prime contractor, subcontractor, sub-subcontractor, or materials supplier all other affected entities having a construction contract with the prime contractor, subcontractor, sub-subcontractor, or materials supplier shall be notified within 7 calendar days. Except as affected by a prior reduction, a prime contractor or subcontractor may not reduce the proper invoice of another subcontractor, sub-subcontractor, or material supplier without detailing and forwarding to the subcontractor, sub-subcontractor, or material supplier, within 7 calendar days of receipt of the proper invoice, the reasons for reduction. A prime contractor, subcontractor, or sub-subcontractor may also reduce a payment of a contracted party from a previous proper invoice. Any such reductions may not be more than an amount that is reasonable to correct the reasons for reduction, as set forth in writing. Any owner, prime contractor, subcontractor or sub-subcontractor may be exempt from notification if the reduction is less than one percent of its net proper invoice or is due to mathematical errors.

Section 15. Payments by contractor.

(a) If a subcontractor or material supplier has performed in accordance with the provisions of a construction contract, the prime contractor shall make payment to the subcontractor or material supplier no later than 10 calendar days after the prime contractor receives its corresponding payment for the work performed.

(b) If a sub-subcontractor or material supplier has performed in accordance with the provisions of a construction contract, the sub-subcontractor or material supplier shall be entitled to receive payment no later than 7 calendar days after subcontractor receives its corresponding payment for the work performed.

Section 20. Remedies for nonpayment.

(a) Any prime contractor that performs work under a construction contract may suspend performance of the work or may terminate a construction contract if the prime contractor is not properly paid within 49 calendar days of the date that the corresponding proper invoice is submitted. Written notice must be received by the owner at least 7 calendar days before an intended suspension or termination.

(b) Any prime contractor, subcontractor, sub-subcontractor, or material supplier that suspends performance as provided in this Act, including those entities that suspend performance due to the suspension of a prime contractor, is not required to furnish further performance until the entity is paid for the full amount, less retainage, of work performed, material supplied, or services rendered, together with any costs incurred for mobilization resulting from the shutdown and start-up of a project.

(c) Any prime contractor, subcontractor, sub-subcontractor, or materials supplier that suspends performance of the work or terminates a construction contract for nonpayment under this Act shall not be held in breach of the construction contract.

(d) If the owner delays in making payments to the prime contractor, any agreed-upon schedule or completion date and its resulting penalties, damages, bonuses, or rewards shall be extended by the same amount of calendar days that payments were late.

(e) If a payment to a prime contractor is received later than as specified in this Act, that prime contractor shall be entitled to receive interest at the rate of one and one-half percent per month, if it is the prevailing party in any action brought to seek enforcement pursuant to this Act. In addition, the prevailing party may not be precluded from seeking dispute costs in a reasonable amount.

(f) If a payment to a subcontractor, sub-subcontractor, or material supplier is received later than as specified in this Act, that subcontractor, sub-subcontractor, or material supplier shall be entitled to receive interest at the rate of one and one-half percent per month, if it is the prevailing party in any action brought to seek enforcement pursuant to this Act. In addition, the prevailing party may not be precluded from seeking dispute costs in a reasonable amount.

Section 25. Retainage.

(a) A construction contract may include a provision for a retainage of a portion of the payment due. The retainage is not to exceed 10% of the amount of the payment due. When the gross proper invoice of the prime contractor first equals or exceeds 50% of the value of the contract, the amount of retainage withheld thereafter shall not exceed 5% of the total proper invoice.

(b) A subcontract may include a provision for a retainage of a portion of the payment due. The retainage is not to exceed 10% of the amount of the payment due. When the gross proper invoice of the subcontractor or sub-subcontractor first equals or exceeds 50% of the value of the subcontract, the retainage percentage withheld thereafter shall not exceed 5% of the total proper invoice.

(c) No later than 21 calendar days after a certificate of substantial completion is issued for the project or separate usable phase of the project and upon adequate performance of the prime contractor and with approval of any applicable surety, the retainage shall be released by the owner to the prime contractor less an amount no greater than 150% of the estimated costs to correct any incomplete or defective work as identified, itemized, and attached to the certificate of substantial completion. All remaining funds shall be released as each deficiency is satisfactorily completed. The prime contractor shall release within 10 calendar days of receipt, the share of those funds that have been withheld from other entities. All other entities shall release within 7 calendar days of receipt, the share of those funds that have been withheld from other entities.

Section 30. Exemptions.

(a) This Act shall not apply to highway construction or to railroad construction.

(b) Except as provided for in a construction contract, this Act shall not apply to:

(1) roads;

(2) bridges;

(3) utilities;

(4) traffic control;

(5) drainage construction;

(6) sanitary sewer construction; or

(7) waterline construction.

(c) This Act shall not apply to any contract relating to a single-family, two-family, three-family, or four-family dwellings.

Section 35. Unenforceable contracts. The following are against the public policy of this State and are void and unenforceable:

(1) a provision, covenant, clause, or understanding in, collateral to, or affecting a construction contract that makes the contract subject to the laws of another state or that requires any litigation, arbitration, or other dispute resolution proceeding arising from the contract to be conducted in another state; and

(2) a provision, covenant, clause, or understanding in, collateral to, or affecting a construction contract that disallows or alters the rights of any prime contractor, subcontractor, sub-subcontractor, or material supplier to receive and enforce any rights under this Act.

Section 99. Effective date. This Act takes effect upon becoming law.