CHAPTER 364

FORMERLY

SENATE BILL NO. 418

AN ACT TO AMEND TITLE 29 OF THE DELAWARE CODE RELATING TO PAYMENT OF BILLS FOR PUBLIC WORKS CONTRACTS AND PROMPT PAYMENT.

BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF DELAWARE :

Section 1. Amend Section 6501 of Title 29 of the Delaware Code by redesignating subsection (b) as subsection (e) and adding new subsections“(b)”, "(c)", and "(d)" as follows:

“(b) As used in this chapter the term 'agency agent' shall mean an authorized official of the agency or the architect or construction manager designated pursuant to the public works contract documents.

(c) As used in this chapter, the term 'date of submission' shall mean either two days after the document is postmarked by the United States Postal Service, or the date the agency agent receives the hand-delivered document, verified by the agency agent’s receipt, or the date affixed to the document by the agency agent’s facsimile machine.

(d) As used in this chapter, the term 'reasonable evidence' shall mean 'information from a reliable source.'"

Section 2. Amend Section 6501 of Title 29 of the Delaware Code by adding a new subsection (f) as follows:

“(f) As used in this chapter, term 'final completion' shall mean final completion of the work as described in the public works contract documents.”

Section 3. Amend Section 6516, Title 29 of the Delaware Code by adding thereto a new subsection, "(f)" to read as follows:

"(f) For public works contracts as defined by Section 6902 of this title, the following shall apply:

(1) The agency agent, by mutual agreement, may make progress payments on contracts of less than ninety days and shall make monthly progress payments on all other contracts as provided for in this paragraph.

The agency agent shall approve or disapprove an estimate of the work submitted for payment within 7 days from the date of submission of the written application for payment. If the agency agent approves the estimate of work, such estimate shall be certified for payment. If the agency agent disapproves the estimate of work, the agency or the agency agent shall issue a specific written finding within 21 days from the submission of the applicant for payment setting forth those items in detail in the estimate of the work that are not approved for payment under the contract. The agency may withhold 150% of the amount of expenses the agency reasonably expects to incur, as approved by the Secretary of The Department of Administrative Services, in correcting the deficiency set forth in the written finding. The progress payments shall be paid on or before 21 days after the estimate of work is certified and approved. If the approval of a federal agency is required, the payment shall be deemed timely if the payment is made within ten days of a required federal agency’s approval.

(2) An agency agent, contractor or subcontractor may decline to approve and certify a billing or estimate or a portion of a billing or estimate for any of the following reasons:

a. Unsatisfactory job progress;

b. Defective construction work of materials not remedied;

c. Disputed work or materials;

d. Failure to comply with material provisions of the contract;

e. Third party claims filed or reasonable evidence that a claim will be filed;

f. Failure of the contractor or subcontractor to make timely payments for labor, equipment or materials;

g. Damage to the agency, contractor or subcontractor;

h. Reasonable evidence that the construction cannot be completed for the unpaid balance of the construction contract; or

i. Retainage of funds.

(3) The retainage, as allowed by §6962(d)(5) in this Title shall be retained by the agency as a guarantee for complete performance of the contract, to be paid to the contractor within 60 days after completion or filing notice of completion of the contract, or within 30 days of a required federal agency’s final approval or certification. Retention of payments by an agency longer than 60 days after final completion and acceptance requires a specific written finding by the agency of the reasons justifying the delay in payment. Such written finding shall be furnished by the agency within 10 days after completion or filing notice to the contractor or within 10 days of the required federal agency's final approval or certification. No agency may retain any monies after 60 days in an amount exceeding 150% of the necessary amount to pay the expenses the agency reasonably expects to incur in order to pay or discharge the expenses determined by the agency in the finding justifying the retention of monies.

(4) If a progress payment to a contractor is delayed by more than 21 days after the date of the agency agent’s approval or the final payment to a contractor is delayed by more than 60 days after the date of the final submission, the contractor may require the payment of interest by such agency, except for periods of time during which payment is withheld pursuant to subsection (2) of this subsection, beginning on the twenty-second day for progress payments and on the sixty-first day for final payment provided, however, that:

a. Presentment is deemed made when an invoice or bill is received by that agency or agency agent, provided that the invoice or bill is received in a form consistent with the State Accounting Manual and regulations issued by the Budget Director and the Secretary of Finance. Such forms shall be included in the project’s bid documents.

b. The contractor may not require interest with respect to any portion of such invoice or bill if such portion is controverted on reasonable grounds by the state agency or agency agent, provided that the agency notifies the contractor in writing, within the 21-day period for progress payments or 60 days for final payments of the reason or reasons for controverting the invoice or bill.

c. A vendor may require that interest under this subsection commence from the end of the 21-day period for progress payments or the 60-day period for final payment and continue until payment. All interest charges under this chapter shall be paid by the agency receiving the goods or services from the contractor. Such interest shall be calculated by the contractor in dollar amounts and expressly billed as such to the agency receiving goods or services from the contractor.

d. A contractor may require that interest under this subsection accrue on the unpaid balance at a rate not to exceed two percent above the prime interest rate as established by the Federal Reserve.

e. Agencies liable for interest payments under this subsection shall be authorized to make such payments from amounts appropriated for “contractual services” in the event an unencumbered balance shall exist in such line. In the case of agencies of public or higher education, such payment shall be made from local funds or state general funds not restricted to another purpose. The Budget Office shall establish procedures according to which interest payments under this subsection are recorded separately from other expenditures for contractual services.

f. The requirement that interest payments be made by the agency receiving goods or services be imposed upon a different agency when, in the sound discretion of the Budget Director and the Controller General, the receiving agency demonstrates that some other agency or agencies bear greater responsibility for causing the delay which occasioned the payment of interest, in which case the responsible agency or agencies shall reimburse the receiving agency for interest charges.

(5) The agency, contractor or subcontractor may change the time periods outlined in this subsection only if:

a. prior written approval is given by the Secretary of the Department of Administrative Services,

b. the public works contract specifically provides in a clear and conspicuous manner for a later payment defined by a specific number of days after certification and approval, and

c. all plan documents, including bid plans and construction plans, shall permanently display, in clear and conspicuous type, the following legend or substantially similar language:

“NOTICE OF EXTENDED PAYMENT PROVISION

This contract allows the agency, contractor, and subcontractor to make payment within ____ days after certification and approval of billings and estimates. Such changes shall also be indicated in a clear and conspicuous manner by contractors and subcontractors on all contracts with subcontractors and material suppliers.”

(6) An agency may change the time period to certify and approve a billing or estimate only if:

a. prior approval is given by the Secretary of the Department of Administrative Services,

b. the public works contract specifically provides in a clear and conspicuous manner for an extended time period within which a billing or estimate shall be certified or approved defined by a specific number of days after the agency has received the billing or estimate, and

c. all plan documents, including bid plans and construction plans, shall include, in clear and conspicuous type, the following legend or substantially similar language:

“NOTICE OF EXTENDED CERTIFICATION AND APPROVAL PERIOD PROVISION

This contract allows the agency to certify and approve billings and estimate within ___ days after the billings and estimates are received from the contractor.

Such changes shall also be indicated in a clear and conspicuous manner by contractors and subcontractors on all contracts with subcontractors and material suppliers.”

(7) The contractor shall pay the contractor’s subcontractors or material suppliers and each subcontractor shall pay the subordinate subcontractors or material supplier within 21 days of receipt of each progress payment, unless otherwise agreed to in writing by the parties, the respective amounts allowed the subordinate or subcontractor or material supplier on account of the work performed by subordinate contractors and material suppliers, to the extent of each subordinate subcontractor’s or material suppliers interest therein, except that no contract for public works may materially alter the rights of any contractor, subcontractor, subordinate subcontractor or material supplier to receive prompt and timely payment as provided under this subsection or Chapter 35 of Title 6. If a progress or final payment to a subordinate subcontractor or material supplier is delayed by more than 21days after receipt of a progress or final payment by the contractor or subcontractor, the subordinate subcontractor or material supplier may require payment of interest by the contractor or subcontractor except for periods of time during which payment is withheld pursuant to subsection (2) of this section, beginning on the twenty-second day, provided however, that:

a. Presentment is deemed made when an invoice or bill is received by that contractor or subcontractor, provided that the invoice or bill is received in a form consistent with the contractor’s or subcontractor requirements.

b. The subcontractor or material supplier may not require interest with respect to any portion of such invoice or bill if such portion is controverted on reasonable evidence by the contractor or subcontractor, provided that the contractor or subcontractor notifies the vendor in writing, within the 21-day period specified in this subsection, of the reason or reasons for controverting the invoice or bill.

c. A subordinate subcontractor or material supplier may require that interest under this subsection commence from the end of the 21-day period and continue until payment. All interest charges under this chapter shall be paid by the contractor or subcontractor and shall not be charged to any state agency. Such interest shall be calculated by the subordinate subcontractor or material supplier in dollar amounts and expressly billed as such to the contractor or subcontractor.

d. A subordinate subcontractor or material supplier may require that interest under this subsection accrue on the unpaid balance at a rate not to exceed two percent above the prime interest rate as established by the Federal Reserve.

(8) In any action or arbitration brought to collect payments or interest under this subsection, the arbitrator or court shall award damages equal to the amount that is determined by the arbitrator or court to have been wrongfully withheld. An amount shall not be deemed to have been wrongfully withheld to the extent it bears a reasonable relation to the value of any disputed amount or claim held in good faith by the agency contractor or subcontractor against whom the contractor, subcontractor of material supplier is seeking to recover payment.

Section 4. Amend Section 6962(d)(5) a., Title 29 of the Delaware Code by striking the words “all reports required of the contractor are received and final payment is authorized by the agency" and insert in lieu thereof the following:

"i. All reports required of the contract are received;

ii. All subcontractors in trades listed on the bid form are paid by the contractor, unless the amount owed to the subcontractor is disputed, in which case the agency may withhold 150% of the amount withheld by the contractor in its dispute with the subcontractor, and

iii. Final payment is authorized by the agency.”

Section 5. This Act shall apply to all public works contracts signed after December 31, 2002 or for projects for which the agency initially distributes or disseminates any plans, including bid plans and construction plans, specifications or contract documents to the contractor or subcontractor after October 1, 2002."

Approved July 08, 2002