SENATE FILE 2129

BY  DOTZLER

A BILL FOR

An Act concerning the rights of parties to private and public construction contracts and including applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  NEW SECTION.  573B.1  Title.
   This chapter shall be known as the “Iowa Fairness in Private Construction Contracts Act”.
    Sec. 2.  NEW SECTION.  573B.2  Definitions.
   For the purposes of this chapter:
   1.  “Construction” means furnishing labor, equipment, material, or supplies used or consumed for the design, construction, alteration, renovation, repair, or maintenance of a building, structure, appurtenance, or other improvement to real property, including any moving, demolition, or excavation.
   2.  “Contract” means a contract or agreement concerning construction entered into by and between an owner and a contractor, a contractor and a subcontractor, or a subcontractor and another subcontractor.
   3.  “Contractor” means a person or entity that engages in the business of construction and has a contract with an owner of the real property or with a trustee, agent, or spouse of an owner.
   4.  “Owner” means the record titleholder or a person or entity for whose use or benefit any construction is undertaken, who has the capacity to contract, including a guardian.
   5.  “Private construction” means construction of or on private property.
   6.  “Retainage” means money earned by a contractor or subcontractor but withheld to ensure proper performance by the contractor or subcontractor.
   7.  “Subcontractor” means a person or entity that engages in the business of construction, except a person or entity entering into a contract directly with the owner of the real property.
    Sec. 3.  NEW SECTION.  573B.3  Private construction contracts —— payment —— provisions against public policy —— failure to pay.
   1.  A person or entity that enters into a contract for private construction shall make all payments pursuant to the terms of the contract and in accordance with this chapter.

   2.  The following provisions in a contract for private construction are void and unenforceable as contrary to public policy:
   a.  A provision that purports to waive, release, or extinguish the right to resolve disputes through litigation in court or substantive or procedural rights in connection with such litigation. However, a contract may require binding arbitration as a substitute for litigation or require nonbinding alternative dispute resolution as a prerequisite to litigation.
   b.  A provision that purports to waive, release, or extinguish rights provided by chapter 660, except that a contract may require a contractor or subcontractor to provide a waiver or release of such rights as a condition for payment, but only to the extent of the amount of payment received.
   c.  A provision that purports to waive, release, or extinguish rights of subrogation for losses or claims covered or paid by liability or workers’ compensation insurance unless permitted under chapter 87 or Title XIII, subtitle 1. 
   3.  A provision in a contract for private construction providing that a payment from a contractor or subcontractor to a subcontractor is contingent or conditioned upon receipt of a payment from any other private party is no defense to a claim to enforce a mechanic’s lien or bond to secure payment of claims pursuant to chapter 660. 
   4.  For a contract for private construction, if the owner fails to pay the contractor by the date payment is due pursuant to the contract, the owner shall pay interest to the contractor beginning on the first business day after payment is due, computed at the rate of eighteen percent per annum.
   5.  For a contract for private construction, a contractor shall pay a subcontractor any amounts due within seven business days of whichever of the following is later:
   a.  Receipt of payment by the contractor from the owner, including payment of retainage, if retainage is released by the owner.
   b.  The date payment to the subcontractor is due pursuant to the contract.
   6.  If a contractor fails to pay a subcontractor pursuant to subsection 5, the contractor shall pay interest to the subcontractor beginning on the first business day after payment becomes due, computed at the rate of eighteen percent per annum.
   7.  The provisions of subsections 5 and 6 shall apply to a payment from a subcontractor to its subcontractor.
    Sec. 4.  NEW SECTION.  573B.4  Retainage.
   1.  An owner, contractor, or subcontractor may withhold no more than ten percent retainage from the amount of any undisputed payment due. 
   2.  If an owner, contractor, or subcontractor fails to pay retainage pursuant to the terms of a contract for private construction or as required by this chapter, the owner, contractor, or subcontractor shall pay interest to the contractor or subcontractor to whom payment was due, beginning on the first business day after the payment was due, at a rate of eighteen percent per annum. 
    Sec. 5.  NEW SECTION.  573B.5  Suspension of performance.
   If any undisputed payment is not made within seven business days after the payment date established in this chapter, the contractor and any subcontractors may provide written notice to the owner and, in the case of a subcontractor, written notice to the contractor. Seven business days after the provision of the written notice, the contractor or subcontractor, without prejudice to any other available remedy, may suspend further performance until payment, including applicable interest, is made. The contract period for each contract affected by the suspension shall be extended for a period equal to the duration of the suspension, and the contract sum for each affected contract shall be increased by the suspending party’s reasonable costs of demobilization, delay, and remobilization.
    Sec. 6.  NEW SECTION.  573B.6  Action or arbitration to enforce.
   In any action to enforce the provisions of this chapter, including arbitration, the court or arbitrator shall award costs and reasonable attorney fees to the prevailing party. Venue of such an action shall be in the county where the applicable real property is located. The hearing in such an arbitration shall be held in the county where the applicable real property is located.
    Sec. 7.  NEW SECTION.  573B.7  Waiver or variance prohibited.
   The rights and duties prescribed by this chapter shall not be waived or varied under the terms of a contract. The terms of a contract waiving or varying the rights and duties prescribed by this chapter shall be unenforceable.
    Sec. 8.  NEW SECTION.  573B.8  Applicability.
   The provisions of this chapter do not apply to single-family residential housing and multifamily residential housing of four units or less. The provisions of this chapter shall not apply to public works or public improvement projects.
    Sec. 9.  NEW SECTION.  573C.1  Title.
   This chapter shall be known as the “Iowa Fairness in Public Construction Contracts Act”.
    Sec. 10.  NEW SECTION.  573C.2  Definitions.
   For the purposes of this chapter:
   1.  “Construction” means furnishing labor, equipment, material, or supplies used or consumed for the design, construction, alteration, renovation, repair, or maintenance of a building, structure, appurtenance, or other improvement to real property, including any moving, demolition, or excavation.
   2.  “Contract” means a contract or agreement concerning construction entered into by and between an owner and a contractor, a contractor and a subcontractor, or a subcontractor and another subcontractor. 
   3.  “Contractor” means a person or entity that engages in the business of construction and has a contract with an owner of the real property or with a trustee, agent, or spouse of an owner.
   4.  “Owner” means the record titleholder or a person or entity for whose use or benefit any construction is undertaken, who has the capacity to contract, including a guardian.
   5.  “Public construction” means construction under the control of a public entity and paid for in whole or in part with funds of a public entity.
   6.  “Public entity” means the state, an agency of the state, or a political subdivision.
   7.  “Subcontractor” means a person or entity that engages in the business of construction, except a person or entity entering into a contract directly with the owner of the real property.
    Sec. 11.  NEW SECTION.  573C.3  Public construction contracts —— payment —— provisions against public policy —— failure to pay.
   1.  A person or entity that enters into a contract for public construction shall make all payments pursuant to the terms of the contract and in accordance with this chapter.
   2.  The following provisions in a contract for public construction are void and unenforceable as contrary to public policy:
   a.  A provision that purports to waive, release, or extinguish the right to resolve disputes through litigation in court or substantive or procedural rights in connection with such litigation. However, a contract may require nonbinding alternative dispute resolution as a prerequisite to litigation.
   b.  A provision that purports to waive, release, or extinguish rights to file a claim against a payment or performance bond, except that a contract may require a contractor or subcontractor to provide a waiver or release of such rights as a condition for payment, but only to the extent of the amount of payment received.
   c.  A provision that purports to waive, release, or extinguish rights of subrogation for losses or claims covered or paid by liability or workers’ compensation insurance unless permitted under chapter 87 or Title XIII, subtitle 1.
   d.  A provision that purports to waive the right of a party to collect damages for delays caused by another party.
   3.  For a contract for public construction, if the owner fails to pay the contractor by the date payment is due pursuant to the contract, the owner shall pay interest to the contractor beginning on the first business day after payment is due, computed at the rate of eighteen percent per annum.
   4.  For a contract for public construction, a contractor shall pay a subcontractor any amounts due within seven business days of whichever of the following is later:
   a.  Receipt of payment by the contractor from the owner.
   b.  The date payment to the subcontractor is due pursuant to the contract.
   5.  If a contractor fails to pay a subcontractor pursuant to subsection 4, the contractor shall pay interest to the subcontractor beginning on the first business day after payment becomes due, computed at the rate of eighteen percent per annum.
   6.  The provisions of subsections 4 and 5 shall apply to a payment from a subcontractor to its subcontractor.
    Sec. 12.  NEW SECTION.  573C.4  Suspension of performance.
   If any undisputed payment is not made within seven business days after the payment date established in this chapter, the contractor and any subcontractors may provide written notice to the owner and, in the case of a subcontractor, written notice to the contractor. Seven business days after the provision of the written notice, the contractor or subcontractor, without prejudice to any other available remedy, may suspend further performance until payment, including applicable interest, is made. The contract period for each contract affected by the suspension shall be extended for a period equal to the duration of the suspension, and the contract sum for each affected contract shall be increased by the suspending party’s reasonable costs of demobilization, delay, and remobilization.
    Sec. 13.  NEW SECTION.  573C.5  Action or arbitration to enforce.
   In any action to enforce the provisions of this chapter, including arbitration, between a contractor and a subcontractor or a subcontractor and a subcontractor, the court or arbitrator shall award costs and reasonable attorney fees to the prevailing party. Venue of such an action shall be in the county where the applicable real property is located. The hearing in such an arbitration shall be held in the county where the applicable real property is located.
    Sec. 14.  NEW SECTION.  573C.6  Waiver or variance prohibited.
   The rights and duties prescribed by this chapter shall not be waivable or varied under the terms of a contract. The terms of a contract waiving the rights and duties prescribed by this chapter shall be unenforceable.
    Sec. 15.  NEW SECTION.  573C.7  Applicability.
   This chapter does not apply to retainage or the retention of funds as those terms are used in chapter 573. This chapter shall not be construed to prohibit the parties to a contract for public construction from contracting for the applicability of the provisions of chapter 573A.
    Sec. 16.  APPLICABILITY.  This Act applies to construction contracts entered into on or after the effective date of this Act.
EXPLANATION
   This bill relates to the rights of parties to private and public construction contracts.
   The bill creates the “Iowa Fairness in Private Construction Contracts Act”. The bill requires a person or entity that enters into a contract for private construction to make all payments pursuant to the terms of the contract and in accordance with the bill. The bill provides that certain provisions in a private construction contract are void and unenforceable as contrary to public policy, including a provision that waives, releases, or extinguishes the right to resolve disputes through litigation, although arbitration may be required as a prerequisite to or a substitution for litigation; a provision that waives, releases, or extinguishes rights provided by Code chapter 660 relating to quo warranto rights, although a contractor or subcontractor may be required to waive such rights as a condition for payment, to the extent of the amount of payment received; and a provision that waives, releases, or extinguishes rights of subrogation for losses or claims covered or paid by liability or workers’ compensation insurance unless otherwise permitted under Code chapter 87 or Code Title XIII, subtitle 1, relating to regulation of insurance.
   The bill provides that a provision in a contract for private construction making a payment from a contractor or subcontractor to a subcontractor contingent or conditioned upon receipt of a payment from any other private party is no defense to a claim to enforce a mechanic’s lien or bond to secure payment of claims pursuant to Code chapter 660.
   The bill provides that for a contract for private construction, if the owner fails to pay the contractor by the date payment is due pursuant to the contract, the owner must pay interest to the contractor beginning the first business day after payment is due, at a rate of 18 percent per annum.
   The bill provides that for a contract for private construction, a contractor must pay a subcontractor any amounts due within seven business days of the later of either the receipt of payment by the contractor from the owner, including retainage, if released, or the date payment to the subcontractor is due pursuant to the subcontract. The bill provides that if a contractor fails to pay a subcontractor in this way, the contractor must pay interest to the subcontractor beginning the first business day after payment is due, at a rate of 18 percent per annum.
   The bill defines “retainage” for the purposes of the “Iowa Fairness in Private Construction Contracts Act” as money earned by a contractor or subcontractor but withheld to ensure proper performance by the contractor or subcontractor. The bill provides that an owner, contractor, or subcontractor may withhold no more than 10 percent retainage from the amount of any undisputed payment due. The bill provides that if an owner, contractor, or subcontractor fails to pay retainage as required, they must pay interest beginning on the first business day after the payment was due, at a rate of 18 percent per annum.
   The bill provides that if an undisputed payment is not made within seven business days after payment is due, the contractor and any subcontractors may provide written notice to the owner and, if payment is not made for another seven business days, may suspend further performance until payment, including applicable interest, is made. The bill provides that the contract period shall be extended for a period equal to the duration of the suspension, and the contract sum will be increased by the suspending party’s reasonable costs of demobilization, delay, and remobilization. The bill provides that in any action to enforce the provisions of the bill, including arbitration, the court or arbitrator will award costs and reasonable attorney fees to the prevailing party. The bill provides that such an action will take place in the county where the applicable real property is located.
   The bill provides that the rights and duties prescribed by the bill cannot be waived or varied under the terms of a contract, and a provision of a contract doing so is unenforceable. The bill specifies that these provisions of the bill do not apply to single-family residential housing and multifamily residential housing of four units or less or public works or public improvement projects.
   The bill creates the “Iowa Fairness in Public Construction Contracts Act”. The bill requires a person or entity that enters into a contract for public construction to make all payments pursuant to the terms of the contract and in accordance with the bill. The bill provides that certain provisions in a public construction contract are void and unenforceable as contrary to public policy, including a provision that waives, releases, or extinguishes the right to resolve disputes through litigation, although arbitration may be required as a prerequisite to litigation; a provision that waives, releases, or extinguishes rights to file a claim against a payment or performance bond, although a contractor or subcontractor may be required to waive such rights as a condition for payment, to the extent of the amount of payment received; a provision that waives, releases, or extinguishes rights of subrogation for losses or claims covered or paid by liability or workers’ compensation insurance unless otherwise permitted under Code chapter 87 or Code Title XIII, subtitle 1, relating to regulation of insurance; and a provision that waives the right to collect damages for delays caused by another party.
   The bill provides that for a contract for public construction, if the owner fails to pay the contractor by the date payment is due pursuant to the contract, the owner must pay interest to the contractor beginning the first business day after payment is due, at a rate of 18 percent per annum.
   The bill provides that for a contract for public construction, a contractor must pay a subcontractor any amounts due within seven business days of the later of either the receipt of payment by the contractor from the owner or the date payment to the subcontractor is due pursuant to the subcontract. The bill provides that if a contractor fails to pay a subcontractor in this way, the contractor must pay interest to the subcontractor beginning the first business day after payment is due, at a rate of 18 percent per annum.
   The bill provides that if an undisputed payment is not made within seven business days after payment is due, the contractor and any subcontractors may provide written notice to the owner and, if payment is not made for another seven business days, may suspend further performance until payment, including applicable interest, is made. The bill provides that the contract period will be extended for a period equal to the duration of the suspension, and the contract sum will be increased by the suspending party’s reasonable costs of demobilization, delay, and remobilization. The bill provides that in any action to enforce the provisions of the bill, including arbitration, between a contractor and a subcontractor or a subcontractor and a subcontractor, the court or arbitrator will award costs and reasonable attorney fees to the prevailing party. The bill provides that such an action will take place in the county where the applicable real property is located. 
   The bill provides that the rights and duties prescribed by the bill cannot be waived or varied under the terms of a contract, and a provision of a contract doing so is unenforceable. The bill specifies that the provisions of the “Iowa Fairness in Public Construction Contracts Act” do not apply to retainage or the retention of funds as those terms are used in Code chapter 573. The bill specifies that the bill is not to be construed to prohibit the parties to a contract for public construction from contracting for the applicability of the provisions of Code chapter 573A, relating to stoppage of public contracts in the event of an emergency.
   The bill applies to construction contracts entered into on or after the effective date of the bill.