SF 431 (LSB 1936XS (2) 91)

SENATE FILE 431

BY  BOUSSELOT

A BILL FOR

An Act relating to retention of fees for public improvement contracts.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  Section 573.7, Code 2025, is amended by adding the following new subsections:
   NEW SUBSECTION.  3.  After a claim has been filed, upon the general contractor filing with the public corporation or person withholding the funds a surety bond in double the amount of the claim in controversy, conditioned to pay any final judgment rendered for the claim so filed, the public corporation or person withholding the funds shall pay to the contractor the full amount of retention held for the project or double the amount of the claim, whichever is less. Payment shall be made to the contractor within twenty days of receipt by the public corporation of the surety bond. Failure to make payment by that date shall cause interest to accrue on the unpaid amount during the period commencing on the twenty-first day after the public corporation’s receipt of the surety bond and ending on the date of payment. The rate of interest shall be determined pursuant to section 573.14, subsection 2. This subsection is not subject to or limited by section 573.14, subsection 1, or section 573.16 or 573.28.
   NEW SUBSECTION.  4.  Upon written demand of the contractor served, in the manner prescribed for original notices, on the person filing a claim, requiring the claimant to commence action in court to enforce the claim, an action shall be commenced within thirty days. The claim is barred if an action is not commenced within thirty days. Upon the claim being barred, the public corporation or person withholding the funds shall pay to the contractor the full amount of retention held for the project or double the amount of the claim, whichever is less. Payment shall be made to the contractor within twenty days of receipt by the public corporation of a payment demand by the contractor accompanied by copies of the written demand and proof of service upon the person filing the claim. Failure to make payment within twenty days shall cause interest to accrue on the unpaid amount, commencing on the twenty-first day after the date of the public corporation’s receipt of the payment demand by the contractor with the accompanying documents and ending on the date of the payment. The rate of interest shall be determined pursuant to section 573.14, subsection 2. This subsection is not subject to or limited by section 573.14, subsection 1, or section 573.16 or 573.28.
    Sec. 2.  Section 573.12, subsection 1, Code 2025, is amended by adding the following new paragraph:
   NEW PARAGRAPH.  c.  At any time, a principal contractor may post with the public corporation a retention bond, with surety, in the amount of five percent of the original contract price to serve as a substitute for the retention funds. Upon the public corporation’s receipt of the retention bond, the public corporation shall pay to the contractor all retention funds being held, if any, and shall not hold any further retention funds on the project. Payment shall be made to the contractor within twenty days of receipt by the public corporation of the retention bond. Failure to make payment within twenty days shall cause interest to accrue on the unpaid amount beginning on the twenty-first day after the public corporation’s receipt of the retention bond and ending on the date of the payment. The rate of interest shall be determined pursuant to section 573.14, subsection 2. This paragraph is not subject to or limited by section 573.14, subsection 1, or section 573.16 or 573.28.
    Sec. 3.  Section 573.14, Code 2025, is amended to read as follows:
   573.14  Retention of unpaid funds.
   1.  The Except as otherwise provided in this chapter, the fund provided for in section 573.13 shall be retained by the public corporation for a period of thirty days after the completion and final acceptance of the improvement. If at the end of the thirty-day period claims are on file, the public corporation shall continue to retain from the unpaid funds a sum equal to double the total amount of all claims on file. The remaining balance of the unpaid fund, or if no claims are on file, the entire unpaid fund, shall be released and paid to the contractor.
   2.  The public corporation shall order payment of any amount due the contractor to be made in accordance with the terms of the contract. Except as provided in section 573.12 for progress payments, failure to make payment pursuant to this section, of any amount due the contractor, within forty days, unless a greater time period not to exceed fifty days is specified in the contract documents, after the work under the contract has been completed and if the work has been accepted and all required materials, certifications, and other documentations required to be submitted by the contractor and specified by the contract have been furnished the awarding public corporation by the contractor, shall cause interest to accrue on the amount unpaid to the benefit of the unpaid party. Interest shall accrue during the period commencing the thirty-first day following the completion of work and satisfaction of the other requirements of this subsection and ending on the date of payment. The rate of interest shall be determined by the period of time during which interest accrues, and shall be the same as the rate of interest that is in effect under section 12C.6, as of the day interest begins to accrue, for a deposit of public funds for a comparable period of time. However, for institutions governed pursuant to chapter 262, the rate of interest shall be determined by the period of time during which interest accrues, and shall be calculated as the prime rate plus one percent per year as of the day interest begins to accrue. This subsection does not abridge any of the rights set forth in section 573.16 elsewhere in this chapter. Except as provided in sections 573.7, 573.12, and 573.16 573.28, interest shall not accrue on funds retained by the public corporation to satisfy the provisions of this section regarding claims on file. This chapter does not apply if the public corporation has entered into a contract with the federal government or accepted a federal grant which that is governed by federal law or rules that are contrary to the provisions of this chapter. For purposes of this subsection, “prime rate” means the prime rate charged by banks on short-term business loans, as determined by the board of governors of the federal reserve system and published in the federal reserve bulletin.
    Sec. 4.  Section 573.16, subsection 2, Code 2025, is amended by striking the subsection.
    Sec. 5.  Section 573.21, Code 2025, is amended to read as follows:
   573.21  Attorney fees.
   The court may shall tax, as costs, a reasonable attorney fee in favor of any claimant under section 573.7 for labor or materials who has, in whole or in part, established prevails on a claim.  The court shall tax, as costs, a reasonable attorney fee in favor of any principal contractor who prevails, in whole or in part, in any dispute with the public corporation related to or arising out of the contract, retention funds, or the public improvement.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
   This bill relates to retention fees and bonds for public improvement contracts.
   The bill provides that after a claim has been filed for costs incurred in the construction of a public improvement and the general contractor has filed a surety bond in double the amount of the claim in controversy with a public corporation or person withholding funds, the public corporation or person must pay to the contractor the full amount of retention funds held for the project or double the amount of the claim, whichever is less. Interest will accrue on the unpaid amount beginning on the 21st day after the public corporation’s receipt of the surety bond.
   The bill requires that after the contractor serves a written demand on the person filing a claim, an action must be commenced within 30 days, or the claim will be barred and the public corporation or person withholding the funds must pay the contractor the full amount of retention funds held for the project or double the amount of the claim, whichever is less. Beginning on the 21st day after the public corporation’s receipt of a payment demand by the contractor with the accompanying documents, interest shall accrue on the unpaid amount.
   The bill allows a principal contractor to post with the public corporation a retention bond, with surety, in the amount of 5 percent of the original contract price as a substitute for the retention funds that are retained by a public corporation from each monthly payment for labor and material on a public improvement contract. The public corporation must pay all retention funds being held to the contractor within 20 days and hold no further retention funds on the project. Beginning on the 21st day after the public corporation’s receipt of the retention bond, interest shall accrue on the unpaid amount of the retention funds.
   The bill strikes the requirement that the retained and unpaid funds owed to the contractor be released if an action is not commenced within 30 days of the contractor serving written demand on the person filing a claim and that the public corporation or person pay the contractor the withheld funds after an action is commenced and the general contractor has filed a surety bond.
   Under current law, a court may grant a reasonable attorney fee to a claimant who has established a claim. The bill changes this to require a court to grant a reasonable attorney fee to a claimant who prevails and to a principal contractor who prevails in a dispute with a public corporation related to the contract, retention funds, or the public improvement.