Second Regular Session Sixty-ninth General Assembly STATE OF COLORADO INTRODUCED LLS NO. 14-0445.03 Jery Payne x2157 HOUSE BILL 14-1165 HOUSE SPONSORSHIP Fischer, SENATE SPONSORSHIP Tochtrop, House Committees Senate Committees Business, Labor, Economic, & Workforce Development A BILL FOR AN ACT Concerning a limit on the retainage allowed under a private construction contract. Bill Summary (Note: This summary applies to this bill as introduced and does not reflect any amendments that may be subsequently adopted. If this bill passes third reading in the house of introduction, a bill summary that applies to the reengrossed version of this bill will be available at http://www.leg.state.co.us/billsummaries.) The bill requires property owners who contract for improvements to real property to: Pay 95% of the amount due, which limits the amount retained to ensure the quality of work to 5%; and Pay subcontractors the retainage after the work is finally accepted. If a person fails to make required payments, the person must pay interest and is liable for attorney fees. These requirements are enforceable in court. Contractual provisions that do not comply with the requirements are unenforceable. A statute of limitations to enforce the bill is set for one year. Be it enacted by the General Assembly of the State of Colorado: SECTION 1. Legislative declaration. (1) The general assembly hereby finds and declares that: (a) It is necessary and appropriate to apply the type of retentions that presently apply, in accordance with section 24-91-103 (1) (a), Colorado Revised Statues, to construction contracts with public entities to private contracts; (b) To the extent reasonable and in accordance with the purpose for which this act is adopted, this act is intended to be construed in a manner similar to the construction of section 24-91-103 (1) (a), Colorado Revised Statues; and (c) This act is intended to assure that private construction contract retention remains an efficient means of assuring timely and satisfactory performance without imposing an undue burden upon those contractors, subcontractors, and sub-subcontractors subject to retention. SECTION 2. In Colorado Revised Statutes, add article 46 to title 38 as follows: ARTICLE 46 Retainage and Payment of Contracts in Real Property 38-46-101. Definitions. As used in this article, unless the context otherwise requires: (1) "Contractor" means a person that is a party to a contract with an owner to construct, erect, alter, install, or repair a building, improvement, structure , or system. (2) "Owner" means a person that contracts with a contractor to construct, erect, alter, install, or repair a building, improvement, structure, or system in or on real property. (3) "Subcontractor" means a person that: (a) Is a party to a subcontract with a contractor to construct, erect, alter, install, or repair a building, improvement, structure, or system in or on real property; and (b) Furnishes and performs on-site labor under a subcontract with or without furnishing materials. (4) "Sub-subcontractor" means a person that: (a) Is a party to a subcontract with a subcontractor to construct, erect, alter, install, or repair a building, improvement, structure, or system in or on real property; and (b) Furnishes and performs on-site labor under a subcontract with or without furnishing materials. 38-46-102. Applicability of article. (1) This article does not apply to a contract, subcontract, or sub-subcontract: (a) That concerns or affects property owned or operated by a federally regulated railroad; (b) For the construction, improvement, alteration, moving, or demolition of one: (I) Single-family dwelling; or (II) Multi-family dwelling with no more than four family dwelling units; (c) For the construction, alteration, or repair of an improvement for less than one hundred fifty thousand dollars, but subcontracts or sub-subcontracts of less than one hundred fifty thousand dollars are not exempted by this paragraph (c) unless the contract that generates the subcontract or sub-subcontracts is less than one hundred fifty thousand dollars; or (d) With a public entity as defined by section 24-91-102, C.R.S. 38-46-103. Limits on retainage. With respect to a contract, subcontract, or sub-subcontract between an owner and a contractor, between a contractor and a subcontractor, or between a subcontractor and a sub-subcontractor, the owner, contractor, or subcontractor shall pay at least ninety-five percent of the calculated value of completed work in accordance with an agreed-upon payment schedule. An owner, contractor, or subcontractor shall remit the retainage to the contractor, subcontractor, or sub-subcontractor after the contract, subcontract, or sub-subcontract has been completed satisfactorily and finally accepted. 38-46-104. Unenforceability of contrary contract provisions. Without regard for a choice-of-law provision in a contract, subcontract, or sub-subcontract, a provision of a contract, subcontract, or sub-subcontract that establishes retainage in an amount that exceeds the limit of section 38-46-103 is unenforceable and void as against public policy. A provision in a contract to improve real property that conflicts with this article is unenforceable to the degree it conflicts with this article. 38-46-105. Payments may be recovered in court - interest - attorney fees. A party to a contract, subcontract, or sub-subcontract may bring a civil action to enforce section 38-46-103 if the other party withholds more than the retainage allowed by section 38-46-103. In addition to any other award of damages made to a party bringing an action under this section, a court shall award interest at the rate of one and one-half percent per month upon any amounts withheld in violation of this article after the date that the improper withholding began. A court shall award reasonable attorney fees and costs to the prevailing party in an action to enforce this article. 38-46-106. Limitation of actions - one year. An action brought to enforce section 38-46-103 may be commenced within one year after the cause of action accrues, and not thereafter. For purposes of this section, a cause of action accrues when a party to a contract, subcontract, or sub-subcontract has reason to know that retainage exceeding the amount permitted by this article has been withheld from that party. SECTION 3. Applicability. This act applies to contracts entered into on or after the effective date of this act. SECTION 4. Safety clause. The general assembly hereby finds, determines, and declares that this act is necessary for the immediate preservation of the public peace, health, and safety.