13-8-5 - Definitions -- Limitation on retention proceeds withheld -- Deposit in interest-bearing escrow account -- Release of proceeds -- Payment to subcontractors -- Penalty -- No waiver.
13-8-5. Definitions -- Limitation on retention proceeds withheld -- Deposit ininterest-bearing escrow account -- Release of proceeds -- Payment to subcontractors --Penalty -- No waiver.
(1) As used in this section:
(a) (i) "Construction contract" means a written agreement between the parties relative tothe design, construction, alteration, repair, or maintenance of a building, structure, highway,appurtenance, appliance, or other improvements to real property, including moving, demolition,and excavating for nonresidential commercial or industrial construction projects.
(ii) If the construction contract is for construction of a project that is part residential andpart nonresidential, this section applies only to that portion of the construction project that isnonresidential as determined pro rata based on the percentage of the total square footage of theproject that is nonresidential.
(b) "Construction lender" means any person, including a bank, trust company, savingsbank, industrial bank, land bank, safe deposit company, private banker, savings and loanassociation, credit union, cooperative bank, small loan company, sales finance company,investment company, or any other financial institution that advances money to a borrower for thepurpose of making alterations or improvements to real property. A construction lender does notinclude a person or entity who is acting in the capacity of contractor, original contractor, orsubcontractor.
(c) "Contractor" means a person who, for compensation other than wages as anemployee, undertakes any work in a construction trade, as defined in Section 58-55-102 andincludes:
(i) any person engaged as a maintenance person who regularly engages in activities setforth in Section 58-55-102 as a construction trade; or
(ii) a construction manager who performs management and counseling services on aconstruction project for a fee.
(d) "Original contractor" is as provided in Section 38-1-2.
(e) "Owner" means the person who holds any legal or equitable title or interest inproperty. Owner does not include a construction lender unless the construction lender has anownership interest in the property other than solely as a construction lender.
(f) "Public agency" means any state agency or political subdivision of the state that entersinto a construction contract for an improvement of public property.
(g) "Retention payment" means release of retention proceeds as defined in Subsection(1)(h).
(h) "Retention proceeds" means money earned by a contractor or subcontractor butretained by the owner or public agency pursuant to the terms of a construction contract toguarantee payment or performance by the contractor or subcontractor of the constructioncontract.
(i) "Subcontractor" is as defined in Section 38-1-2.
(j) "Successful party" has the same meaning as it does under Section 38-1-18.
(2) (a) This section is applicable to all construction contracts relating to constructionwork or improvements entered into on or after July 1, 1999, between:
(i) an owner or public agency and an original contractor;
(ii) an original contractor and a subcontractor; and
(iii) subcontractors under a contract described in Subsection (2)(a)(i) or (ii).
(b) This section does not apply to a construction lender.
(3) (a) Notwithstanding Section 58-55-603, the retention proceeds withheld and retainedfrom any payment due under the terms of the construction contract may not exceed 5% of thepayment:
(i) by the owner or public agency to the original contractor;
(ii) by the original contractor to any subcontractor; or
(iii) by a subcontractor.
(b) The total retention proceeds withheld may not exceed 5% of the total constructionprice.
(c) The percentage of the retention proceeds withheld and retained pursuant to aconstruction contract between the original contractor and a subcontractor or betweensubcontractors shall be the same retention percentage as between the owner and the originalcontractor if:
(i) the retention percentage in the original construction contract between an owner andthe original contractor is less than 5%; or
(ii) after the original construction contract is executed but before completion of theconstruction contract the retention percentage is reduced to less than 5%.
(4) (a) If any payment on a contract with a private contractor, firm, or corporation to dowork for an owner or public agency is retained or withheld by the owner or the public agency, asretention proceeds, it shall be placed in an interest-bearing account.
(b) The interest accrued under Subsection (4)(a) shall be:
(i) for the benefit of the contractor and subcontractors; and
(ii) paid after the project is completed and accepted by the owner or the public agency.
(c) The contractor shall ensure that any interest accrued on the retainage is distributed bythe contractor to subcontractors on a pro rata basis.
(5) Any retention proceeds retained or withheld pursuant to this section and any accruedinterest shall be released pursuant to a billing statement from the contractor within 45 days fromthe later of:
(a) the date the owner or public agency receives the billing statement from the contractor;
(b) the date that a certificate of occupancy or final acceptance notice is issued to:
(i) the original contractor who obtained the building permit from the building inspectoror public agency;
(ii) the owner or architect; or
(iii) the public agency;
(c) the date that a public agency or building inspector having authority to issue its owncertificate of occupancy does not issue the certificate but permits partial or complete occupancyof a newly constructed or remodeled building; or
(d) the date the contractor accepts the final pay quantities.
(6) If only partial occupancy of a building is permitted, any retention proceeds withheldand retained pursuant to this section and any accrued interest shall be partially released within 45days under the same conditions as provided in Subsection (5) in direct proportion to the value ofthe part of the building occupied.
(7) The billing statement from the contractor as provided in Subsection (5)(a) shallinclude documentation of lien releases or waivers.
(8) (a) Notwithstanding Subsection (3):
(i) if a contractor or subcontractor is in default or breach of the terms and conditions ofthe construction contract documents, plans, or specifications governing construction of theproject, the owner or public agency may withhold from payment for as long as reasonablynecessary an amount necessary to cure the breach or default of the contractor or subcontractor; or
(ii) if a project or a portion of the project has been substantially completed, the owner orpublic agency may retain until completion up to twice the fair market value of the work of theoriginal contractor or of any subcontractor that has not been completed:
(A) in accordance with the construction contract documents, plans, and specifications; or
(B) in the absence of plans and specifications, to generally accepted craft standards.
(b) An owner or public agency that refuses payment under Subsection (8)(a) shalldescribe in writing within 45 days of withholding such amounts what portion of the work was notcompleted according to the standards specified in Subsection (8)(a).
(9) (a) Except as provided in Subsection (9)(b), an original contractor or subcontractorwho receives retention proceeds shall pay each of its subcontractors from whom retention hasbeen withheld each subcontractor's share of the retention received within 10 days from the daythat all or any portion of the retention proceeds is received:
(i) by the original contractor from the owner or public agency; or
(ii) by the subcontractor from:
(A) the original contractor; or
(B) a subcontractor.
(b) Notwithstanding Subsection (9)(a), if a retention payment received by the originalcontractor is specifically designated for a particular subcontractor, payment of the retention shallbe made to the designated subcontractor.
(10) (a) In any action for the collection of the retained proceeds withheld and retained inviolation of this section, the successful party is entitled to:
(i) attorney's fees; and
(ii) other allowable costs.
(b) (i) Any owner, public agency, original contractor, or subcontractor who knowinglyand wrongfully withholds a retention shall be subject to a charge of 2% per month on theimproperly withheld amount, in addition to any interest otherwise due.
(ii) The charge described in Subsection (10)(b)(i) shall be paid to the contractor orsubcontractor from whom the retention proceeds have been wrongfully withheld.
(11) A party to a construction contract may not require any other party to waive anyprovision of this section.
Amended by Chapter 9, 2001 General Session