Date: 02/24/2010
Final
BILL SUMMARY for HB10-1162
HOUSE COMMITTEE ON BUSINESS AFFAIRS AND LABOR
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03:24 PM -- House Bill 10-1162
Representative Soper, prime sponsor, presented House Bill 10-1162 concerning payment of amounts due under a construction contract. This bill sets payment standards for construction contracts between contractors and public entities with contracts exceeding $150,000, or private property owners. Among other things, the bill reduces the amount that may be withheld from a contractor to ensure that work is satisfactorily completed and requires this retainage be deposited in an escrow account. Retainage deposits and contract balances for completed work must be paid within 30 days, and a contractor is required to forward payments received for a subcontractor within 7 days. Unpaid balances are subject to interest of 15 percent per year, plus applicable penalties of 15 percent per year. Failure to pay interest may subject the property to a mechanic's lien. Representative Soper explained the concept of retainage.
03:30 PM -- Paul Hindman, the Executive Director of Urban Drainage and Flood Control District, testified against the bill. He talked about retainage, explaining that it is withheld to make sure the project is completed or used if subcontractors are not paid for a project. Mr. Hindman stated that if you reduce the retainage, it will not be sufficient enough to have the contractor come back and finish the project. Mr. Hindman talked about the problems with the provision in the bill that talks about paying when the job is substantially completed. He also discussed the provision in the bill that requires the retainage to be held in an interest-bearing escrow account. He explained he would need to have 98 separate escrow accounts under the bill. Representative Gagliardi asked whether Mr. Hindman currently holds all his accounts in one account rather than 98. He said he holds them between three financial institutions. Representative Rice commented on the bill. He urged Mr. Hindman to suggest an alternate solution to the bill. Mr. Hindman responded. Representative Soper asked what the average length of the CDs are that he currently invests his money in. Mr. Hindman said they average about 90-120 days.
03:44 PM -- Gary Meggison, Senior Vice President of the Weitz Company, testified against the bill. He explained that the company has about 75 projects a year and over 600 subcontracts. Mr. Meggison said it seems the bill was written without input from general contractors and owners. Representative Gagliardi asked when Mr. Meggison pays contractors on a project that lasts years. Mr. Meggison explained how payments are made. Representative Rice clarified one of Mr. Meggison's concerns stating that the time frame for when the contractor pays the subcontractor differs from when corrections must be made. Representative Soper asked a question regarding time frames.
03:52 PM -- Tony Milo, representing the Colorado Contractors Association (CCA), testified against the bill. He explained that CCA represents 400 private firms statewide. Mr. Milo stated that a majority of their members do not see a problem with current practice. Mr. Milo talked about an amendment. Representative Soper asked a question.
03:56 PM -- Kelly McMullen, representing Colorado Springs Utilities, as member of the Colorado Water Congress, testified against the bill. She talked about costs the bill will produce.
04:02 PM -- Bud O'Hara, representing Pueblo Water Works, testified against the bill. Mr. O'Hara gave an example of a current job he has that only has a small amount of work left in order to be finished and they are having troubles getting the contractor to finish even though they retained $10,000.
04:05 PM -- Andy Karsian, representing Colorado Counties Incorporated, testified against the bill. Representative Gagliardi asked him to explain why the bill would decrease the opportunity for counties to receive grants.
04:08 PM -- Fred Joseph, the acting Colorado Banking Commissioner, testified against the bill. He talked about how the bill would affect banks in the state due to the escrow requirement.
04:11 PM -- Judy Anderson, representing herself as a property manager, testified against the bill. She talked about effects the bill could have on routine operational contracts as it is written and gave some examples.
04:19 PM -- John Logan, an attorney from Denver representing the National Commercial Real Estate Development Association, testified against the bill and talked about some unintended consequences the bill may produce. He said the bill, as it is written, covers every contract, including residential contracts. Homeowners would have to open an escrow account for a contract in their homes and it would have to be paid upon a percentage of completion. Mr. Logan talked about the fact that home owners would not know at what point a job is completed enough to be paid under the bill. Mr. Logan also explained maintenance contacts would be included as well. He talked about what other states have done regarding retainage.
04:28 PM
Representative Balmer asked Mr. Logan to talk about the costs associated with the bill. Mr. Logan directed the committee to page 5, Section 38-15-103 of the bill regarding the trust accounts and responded. Representative Balmer asked Mr. Logan to discuss the possibility that the bill may cause job loss. Mr. Logan responded. Representative Balmer talked about building owner and tenant situations and the owners passing on costs to the tenants.
04:37 PM -- Evan Goulding, representing the Special District Association of Colorado, testified against the bill. He echoed the comments on contractors returning to finish the work. Mr. Goulding talked about mechanic's liens being placed on public facilities under the bill and the problems associated with doing so. Representative Rice talked about past efforts relating to this issue and finding a compromise. Representative Stephens talked about the opposition to the bill. A discussion ensued relating to a compromise.
04:48 PM -- Jim O'Neill, Director for Purchasing, City of Fort Collins and representing the Colorado Municipal League, testified against the bill. He gave some examples of problems the bill will create.
04:53 PM -- Jennifer Waller, representing the Colorado Bankers Association, testified against the bill. She talked about her concerns regarding the escrow account and the mechanics lien. Representative Balmer asked her to expand on some of her testimony.
04:57 PM -- Richard Forseberg, representing the American Subcontractors Association, testified in support of the bill. He said they the bill is attempting to control retainage. He said 26 states have issued statutes limiting the amount of allowable retainage on any billing for construction work to 5 percent or less and distributed a handout illustrating this (Attachment J). Mr. Forseberg talked about the fiscal note.
05:05 PM -- Diane Hills, representing Diamond Excavating, Inc., testified in support of the bill and distributed a handout (Attachment K). She said they have to wait until the end to get paid their money on contracts.
05:11 PM -- Rob Wilson, representing the Rocky Mountain Steel Construction Association, testified in support of the bill. He talked about the time frames for defects and incomplete work. Mr. Wilson addressed some of the prior witness' arguments against the bill regarding the mechanic's lien and the escrow accounts. He talked about how escrow accounts work in other states. Mr. Wilson talked about the argument that the bill will hinder lending. Representative Soper asked whether he has heard of any bond companies that have closed to which Mr. Wilson said no. Representative Rice asked about the escrow account and whether it would be required for every project. Mr. Wilson stated that there is an amendment that addresses the confusion that every project needs an escrow account.
05:26 PM -- Toni Gagliardi, representing the National Federation of Independent Businesses, testified in support of the bill. Representative Soper talked about additional support for the bill. Representative Rice commented on the bill and the amendments. Representative Soper suggested returning with a strike below that includes all the amendments. Mr. Forsberg discussed the amendments, one addresses holding a surety bond and another addresses the fiscal note by delaying the action of the bill until 2015. Representative Soper also clarified that the bill excludes residential contracts.
05:51 PM
The bill was laid over until March 2.
05:51 PM
The committee adjourned.