House Study Bill 575 - Introduced HOUSE FILE _____ BY (PROPOSED COMMITTEE ON STATE GOVERNMENT BILL BY CHAIRPERSON VANDER LINDEN) A BILL FOR An Act concerning the rights of parties to private construction 1 contracts and including applicability provisions. 2 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 3 TLSB 5188YC (4) 85 je/rj
H.F. _____ Section 1. NEW SECTION . 573B.1 Title. 1 This chapter shall be known as the “Iowa Fairness in Private 2 Construction Contracts Act” . 3 Sec. 2. NEW SECTION . 573B.2 Definitions. 4 For the purposes of this chapter: 5 1. “Construction” means furnishing labor, equipment, 6 material, or supplies used or consumed for the design, 7 construction, alteration, renovation, repair, or maintenance of 8 a building, structure, appurtenance, or other improvement to 9 real property, including any moving, demolition, or excavation. 10 2. “Contract” means a contract or agreement concerning 11 construction entered into by and between an owner and 12 a contractor, a contractor and a subcontractor, or a 13 subcontractor and another subcontractor. 14 3. “Contractor” means a person or entity that engages in 15 the business of construction and has a contract with an owner 16 of the real property or with a trustee, agent, or spouse of an 17 owner. 18 4. “Owner” means the record titleholder or a person or 19 entity for whose use or benefit any construction is undertaken, 20 who has the capacity to contract, including a guardian. 21 5. “Private construction” means construction of or on 22 private property. 23 6. “Retainage” means money earned by a contractor or 24 subcontractor but withheld to ensure proper performance by the 25 contractor or subcontractor. 26 7. “Subcontractor” means a person or entity that engages 27 in the business of construction, except a person or entity 28 entering into a contract directly with the owner of the real 29 property. 30 Sec. 3. NEW SECTION . 573B.3 Private construction contracts 31 —— payment —— provisions against public policy —— failure to pay. 32 1. A person or entity that enters into a contract for 33 private construction shall make all payments pursuant to the 34 terms of the contract and in accordance with this chapter. 35 -1- LSB 5188YC (4) 85 je/rj 1/ 5
H.F. _____ 2. A provision in a contract for private construction 1 that purports to waive, release, or extinguish the right to 2 resolve disputes through litigation in court or substantive or 3 procedural rights in connection with such litigation is void 4 and unenforceable as contrary to public policy. However, a 5 contract may require binding arbitration as a substitute for 6 litigation or require nonbinding alternative dispute resolution 7 as a prerequisite to litigation. 8 3. A provision in a contract for private construction 9 providing that a payment from a contractor or subcontractor 10 to a subcontractor is contingent or conditioned upon receipt 11 of a payment from any other private party is no defense to a 12 claim to enforce a mechanic’s lien or bond to secure payment of 13 claims pursuant to chapter 572. 14 4. A contract for private construction shall provide that 15 payment of amounts due a contractor from an owner, except 16 retainage, shall be made within thirty days after the owner 17 receives a timely, properly completed, undisputed request for 18 payment. If an owner fails to pay a contractor by the date 19 payment is due, the owner shall pay interest to the contractor 20 beginning on the first business day after payment is due, 21 computed at the rate of twelve percent per annum. 22 5. For a contract for private construction, a contractor 23 shall pay a subcontractor any amounts due within seven business 24 days of whichever of the following is later: 25 a. Receipt of payment by the contractor from the owner, 26 including payment of retainage, if retainage is released by the 27 owner. 28 b. The date payment to the subcontractor is due pursuant to 29 the contract. 30 6. If a contractor fails to pay a subcontractor pursuant 31 to subsection 5, the contractor shall pay interest to the 32 subcontractor beginning on the first business day after payment 33 becomes due, computed at the rate of twelve percent per annum. 34 7. The provisions of subsections 5 and 6 shall apply to a 35 -2- LSB 5188YC (4) 85 je/rj 2/ 5
H.F. _____ payment from a subcontractor to its subcontractor. 1 Sec. 4. NEW SECTION . 573B.4 Retainage. 2 1. An owner, contractor, or subcontractor may withhold 3 no more than five percent retainage from the amount of any 4 undisputed payment due. 5 2. If an owner, contractor, or subcontractor fails to pay 6 retainage pursuant to the terms of a contract for private 7 construction or as required by this chapter, the owner, 8 contractor, or subcontractor shall pay interest to the 9 contractor or subcontractor to whom payment was due, beginning 10 on the first business day after the payment was due, at a rate 11 of twelve percent per annum. 12 Sec. 5. NEW SECTION . 573B.5 Action or arbitration to 13 enforce. 14 In any action to enforce the provisions of this chapter, 15 including arbitration, the court or arbitrator shall award 16 costs and reasonable attorney fees to the prevailing party. 17 Venue of such an action shall be in the county where the 18 applicable real property is located. The hearing in such an 19 arbitration shall be held in the county where the applicable 20 real property is located. 21 Sec. 6. NEW SECTION . 573B.6 Waiver or variance prohibited. 22 The rights and duties prescribed by this chapter shall not be 23 waived or varied under the terms of a contract. The terms of a 24 contract waiving or varying the rights and duties prescribed by 25 this chapter shall be unenforceable. 26 Sec. 7. NEW SECTION . 573B.7 Applicability. 27 The provisions of this chapter do not apply to single-family 28 residential housing and multifamily residential housing of four 29 units or less. The provisions of this chapter shall not apply 30 to public works or public improvement projects. 31 Sec. 8. APPLICABILITY. This Act applies to construction 32 contracts entered into on or after the effective date of this 33 Act. 34 EXPLANATION 35 -3- LSB 5188YC (4) 85 je/rj 3/ 5
H.F. _____ The inclusion of this explanation does not constitute agreement with 1 the explanation’s substance by the members of the general assembly. 2 This bill creates the “Iowa Fairness in Private Construction 3 Contracts Act”. The bill requires a person or entity that 4 enters into a contract for private construction to make 5 all payments pursuant to the terms of the contract and in 6 accordance with the bill. The bill provides that a provision 7 in a private construction contract that waives, releases, or 8 extinguishes the right to resolve disputes through litigation 9 is void as contrary to public policy, although arbitration 10 may be required as a prerequisite to or a substitution for 11 litigation. 12 The bill provides that a provision in a contract for 13 private construction making a payment from a contractor or 14 subcontractor to a subcontractor contingent or conditioned upon 15 receipt of a payment from any other private party is no defense 16 to a claim to enforce a mechanic’s lien or bond to secure 17 payment of claims pursuant to Code chapter 572. 18 The bill requires that a contract for private construction 19 provide that payment of amounts due a contractor from an owner, 20 except retainage, shall be made within 30 days after the owner 21 receives a timely, properly completed, undisputed request for 22 payment. The bill provides that if an owner fails to pay a 23 contractor by the date payment is due, the owner must pay 24 interest to the contractor beginning the first business day 25 after payment is due, at the rate of 12 percent per annum. 26 The bill provides that for a contract for private 27 construction, a contractor must pay a subcontractor any 28 amounts due within seven business days of the later of either 29 the receipt of payment by the contractor from the owner, 30 including retainage, if released, or the date payment to the 31 subcontractor is due pursuant to the subcontract. The bill 32 provides that if a contractor fails to pay a subcontractor in 33 this way, the contractor must pay interest to the subcontractor 34 beginning the first business day after payment is due, at a 35 -4- LSB 5188YC (4) 85 je/rj 4/ 5
H.F. _____ rate of 12 percent per annum. 1 The bill defines “retainage” for the purposes of the “Iowa 2 fairness in private construction contracts Act” as money 3 earned by a contractor or subcontractor but withheld to ensure 4 proper performance by the contractor or subcontractor. The 5 bill provides that an owner, contractor, or subcontractor may 6 withhold no more than 5 percent retainage from the amount of 7 any undisputed payment due. The bill provides that if an 8 owner, contractor, or subcontractor fails to pay retainage 9 as required, they must pay interest beginning on the first 10 business day after the payment was due, at a rate of 12 percent 11 per annum. 12 The bill provides that in any action to enforce the 13 provisions of the bill, including arbitration, the court or 14 arbitrator will award costs and reasonable attorney fees to the 15 prevailing party. The bill provides that such an action will 16 take place in the county where the applicable real property is 17 located. 18 The bill provides that the rights and duties prescribed 19 by the bill cannot be waived or varied under the terms 20 of a contract, and a provision of a contract doing so is 21 unenforceable. 22 The bill does not apply to single-family residential housing 23 and multifamily residential housing of four units or less or 24 public works or public improvement projects. 25 The bill applies to construction contracts entered into on 26 or after the effective date of the bill. 27 -5- LSB 5188YC (4) 85 je/rj 5/ 5