OLR Bill Analysis

SB 70

AN ACT CONCERNING FAIRNESS IN CERTAIN COMMERCIAL CONSTRUCTION CONTRACTS.

SUMMARY:

The law establishes certain requirements, including payment schedule provisions, for private-sector contracts for building, renovating, or rehabilitating commercial or industrial buildings. It covers contracts between (1) a property owner or lessee and a general contractor, (2) a general contractor and a subcontractor, and (3) subcontractors. This bill (1) relieves contractors and subcontractors from performing additional work that exceeds 5% of the original total contract cost while a change order or directive is pending and (2) sets a minimum payment percentage rate for change orders or directives.

Generally, if payment is not made according to the law's contract provisions, the general contractor, subcontractor, or supplier must state their claim by giving notice by registered or certified mail. Ten days after receiving the notice, the party owing the debt is liable for interest at the rate of 1% per month, accruing from the day the notice is received. Further, the party owing the debt must, at the claimant's demand, place the amount being claimed, plus the interest, in an interest-bearing escrow account in a bank in Connecticut. The bill gives a subcontractor a direct right of action against an owner who has not paid the contractor for labor and materials supplied to the project by the subcontractor. Thus, the bill authorizes a subcontractor to give notice to an owner who must comply with the law's escrow account requirements.

An owner's payment to a subcontractor or supplier for labor or materials that were the subject of a contract between the subcontractor and a contractor discharges the contractor's obligation for the payment.

EFFECTIVE DATE: October 1, 2012

CONTRACT REQUIREMENTS

The bill requires commercial construction contracts to include a provision that relieves contractors and subcontractors from any duty to perform additional work if the cumulative amount of the pending construction change orders or other pending change directives exceeds 5% of the original total contract or subcontract cost. A contract must also include a requirement that for all change orders or directives, whether approved or pending, the allowable overhead and profit rate that a contractor or subcontractor who performs the work can charge must be at least 15% of the work's total value.

Under the bill, a “pending construction change order” or “other pending change directive,” means that a change order has not been approved and payment cannot be processed for the work.

BACKGROUND

Covered Contracts

The law covers commercial contracts or subcontracts for construction, renovation, or rehabilitation other than those (1) for public works entered into by the United States, this or any other state, or any municipality or political subdivision; (2) funded or insured by the U. S. Department of Housing and Urban Development; (3) between an owner and contractor for less than $ 25,000, or a subcontract made under one; or (4) for a building intended for residential occupancy with four or fewer units (CGS 42-158i).

COMMITTEE ACTION

General Law Committee

Joint Favorable

Yea

17

Nay

0

(03/13/2012)