Public Works Contract Close-out

Transcription

1 Public Works Contract Close-out: Bonding, Retainage, and Claims Mike Purdy Michael E. Purdy Associates, LLC (206) (office) (206) (cell) Free Subscription to my Blog:

2 Agenda 3 1. Retainage and Payment Bonds 2. Completion Dates 3. Filing, Renewing, and Releasing Claims 4. Pre-Claim Notices 5. Foreclosure and Payment 6. Release of Retainage 7. Preventing Payment Disputes 8. Revisions to State Law 9. State Law References Purpose of Retainage 4 Retainage is a Trust Fund for: 1. Workers Subject to payment of prevailing wages 2. Subcontractors 3. Suppliers 4. Department of Revenue Payment of state excise taxes 5. Employment Security Department Payment of unemployment compensation premiums 6. Department of Labor and Industries Payment of industrial insurance (workers compensation) premiums 2

3 Retainage and Sales Tax Amount of Retainage and Sales Tax 5% of each progress payment withheld from the contractor Not including sales tax Amount earned by Contractor 5% Retainage Total to pay before sales tax Sales tax at 8% of amount earned Total amount of check to contractor $100,000 - $5,000 $95,000 + $8,000 $103,000 5 Management of Retainage 6 5 Options for Managing Retainage 1. Agency: Held by agency No interest earned by Contractor 2. Agency Bank Account: Agency controlled interest bearing account. Contractor is paid interest earned 3. Escrow: Held by financial institution Contractor pays any fees Contractor earns interest 3

4 Management of Retainage 5 Options for Managing Retainage 4. Not Withheld: No Retainage withheld for Limited Public Works less than $35, Bond: Retainage Bond 7 Payment and Performance Bonds 8 Purpose: Bonding company (surety) guarantees: Payment: Subcontractors, suppliers, and workers will be paid. Performance: Contractor will perform and complete the project. Amount: 100% of contract amount Get separate Payment and Performance Bond, each for 100% of contract amount Power of Attorney: Should be up to date 4

5 Payment and Performance Bonds 2 Exceptions to 100% Bonds 1. Limited Public Works Process less than $35,000 (Small Works Roster) RCW Bond may be waived by agency Agency assumes liability for non-payment of workers, subcontractors, and suppliers. 9 Payment and Performance Bonds 3. Retain 50% if contract less than $35,000 RCW No bond required (upon contractor s request and owner s agreement), and Retain 50% of contract amount for 30 days after date of final acceptance, or Until receipt of all releases from Revenue and L&I, and settlement of any claims filed against the retainage Whichever is later

6 Completion Dates Key Dates: 1. Substantial Completion Date 2. Physical Completion Date 3. Final Acceptance Date State law: completion of all contract work RCW (3)(b) Corresponds to Final Acceptance Date 11 Notification to State Agencies Notification applies for contracts of $35,000 or more $35,000 amount is before sales tax 3 State Agencies to Notify and Obtain Releases From Department of Revenue Employment Security Department Department of Labor & Industries (workers comp)

7 Filing of Claims What is the Deadline for Filing a Claim? Clock starts when the Owner has declared the contract complete and formally accepted the project. Different deadline for filing claim against Payment Bond versus Retainage. Payment Bond: 30 days after (RCW ) Retainage: 45 days after (RCW ) 13 Renewal of Claim - Retainage What is the Deadline for Renewing a Claim? Every 4 months, or File a lawsuit to foreclose on the claim After the 45 th day following Final Acceptance by Owner, a claimant may not: File a claim for the first time, or Renew a previously filed claim If deadlines are missed: Claim lapses May not re-file the claim

8 Renewal of Claim Payment Bond What is the Deadline for Renewing a Claim? No deadline After the 30 th day following Final Acceptance by Owner, a claimant may not: File a claim for the first time 15 Release of Claim If the subcontractor, supplier, or worker is subsequently paid, they should file a Release of Claim with the Owner

9 Keeping Track of Claims Owner should designate one central file where claims, renewals, and releases should be filed. 17 Pre-Claim Notices What is it? Suppliers notifying contractors and subcontractors that they ve started to deliver materials to the site When must it be filed? Must be filed within 60 days of beginning to furnish materials (retainage), or 10 days after first delivery of materials (payment bond) 18 Who must file? Applies to suppliers and 2 nd tier subcontractors supplying labor and materials 9

10 Pre-Claim Notices Materials Defined Materials" are only those articles that have actually been incorporated into and become a part of the building or that have been delivered to the construction site for incorporation into the finished structure. 19 Pre-Claim Notices Must 2 nd Tier Subs File Pre-Claim Notice? Yes No Labor Only X Labor and Materials Materials Only X X

11 Foreclosure and Payment Foreclosure: To preserve their legal rights, a claimant must perfect their claim against the Retainage by filing a lawsuit for foreclosure on the claim. 21 Timing: Action to foreclose must be within 4 months of filing, unless claim is renewed before expiration of 4 months of filing If initial filing or renewal is after Final Acceptance date, no more renewals are permitted, and claimant has 4 months from such filing or renewal to foreclose Foreclosure and Payment Payment Based on a Claim Agency doesn t decide whether the claim or claim amount is correct Agency should not pay a claim from retainage without a court order

12 Foreclosure and Payment When Payment Bond Kicks in If an inadequate amount of money remains in the Retainage to cover all claims due to be paid, the protections provided by the Payment Bond become applicable The amounts due to subcontractors, suppliers, materialmen, and workers should be paid by the contractor s bonding company. Taxes not covered by Payment Bond Lawsuit against bonding company normally required. 23 Priority of Claims Against Retainage # Priority of Claims Against Retainage Court Order? 1 Workers not paid prevailing wages Yes 2 Dept. of Revenue taxes due on No public works project 3 Dept. of Revenue taxes due on other No projects 4 ESD and L&I for taxes due on public No works project 5 Subcontractors and suppliers Yes 6 Other taxes due (ESD, L&I for taxes No due on other projects; other taxes) 24 7 The Agency No 12

13 When to Release Retainage 60 Days: Must release within 60 days of Final Acceptance date, provided the agency has received: 1. Department of Revenue release 2. Employment Security Department release 3. Department of Labor and Industries release 4. Prevailing wage documents Statement of Intent to Pay Prevailing Wages Affidavit of Wages Paid From contractor and all subcontractors Revisions to State Law House Bill 1199 Repealed various laws that relate to public works contracts entered into prior to September 1, 1992 Approved by Legislature Old Law Current Law Subject RCW RCW Retainage RCW RCW Retainage RCW RCW Retainage 26 RCW RCW Prompt Payment 13

14 State Law References RCW Public Works RCW Bonds RCW Retainage 27 Michael E. Purdy Associates, LLC - Contact Information 28 Office Cell Web Blog (206) (206) mpurdy@mpurdy.com hael-e-purdy-associates- LLC/ PO Box 46181, Seattle, WA Mike Purdy Principal 14

15 Michael E. Purdy Associates, LLC - Brief Bio of Mike Purdy 29 Public Contracting Manager: Retired in February 2010 after more than 30 years City of Seattle, Contracting Manager Seattle Housing Authority, Contracting and Procurement Manager University of Washington, Contracts Manager Procurement and Contracting Consultant: Consultant and frequent speaker/trainer since 2005 Helps public agencies, contractors, and consultants in understanding complexities of public contracting issues Author of the popular Mike Purdy s Public Contracting Blog ( Education: Bachelor s degree in business and public administration and MBA from University of Puget Sound (Tacoma, WA) Master of divinity degree from Fuller Theological Seminary (Pasadena, CA) Michael E. Purdy Associates, LLC - The Fine Print 1. Copyright: This document is copyrighted by Michael E. Purdy Associates, LLC. All rights reserved. No part of this document may be reproduced, modified, or transmitted in any form or by any means, electronic, mechanical or otherwise without prior written permission from Mike Purdy Not Legal Advice: The opinions, information, and interpretations provided in this document are the personal opinions of Mike Purdy, are for educational and informational purposes only, and do not represent legal advice. Mike Purdy is not an attorney. When appropriate, readers of this document are encouraged to consult with an attorney to obtain legal advice. 15