HB 389 (Session 34, Alaska) — Summary
Purpose
- To regulate retainage practices on public and private construction contracts in Alaska. The bill sets specific timelines, penalties, and interest requirements aimed at ensuring timely payment to contractors and subcontractors and clarifying retainage handling.
Key Provisions
Public construction and public works (AS 36.90.210 amendments)
- Required contractual terms for public projects:
- Public contracts must include a clause requiring the prime contractor to pay:
1) Subcontractors for satisfactory performance within eight working days after the subcontractor’s payment is due.
2) Subcontractors all retainage due within the period provided in AS 45.45.940(c) (eight working days after final payment from the state/subdivision or after the notice period under AS 36.25.020(b), whichever is later).
3) Subcontractors interest on any late payment (interest rate aligned with AS 45.45.010(a)).
4) Penalty and interest on retainage withheld, at the rate in AS 45.45.010(a).
- Requires similar payment terms for service providers/suppliers (non-employee) within eight working days after payment is due and retainage payments within the specified period, plus interest and penalties for late retainage.
Notice requirements (AS 36.90.240)
- Notices related to withholdings must be in writing and specify the amount withheld, the causes for withholding, and remedial actions to receive payment.
Public contract payment timing (AS 36.90.250)
- State or political subdivisions must pay to the prime contractor the penalty and interest on retainage (including warranty retainage) as provided by AS 45.45.940(e) (interest.
New subsections and scope (AS 36.90.265, 36.90.270)
- Adds that AS 45.45.940 applies to retainage on public contracts with political subdivisions.
- Prohibits waiving required provisions in the relevant sections of AS 36.90 and AS 45.45.940.
Private construction retainage (AS 45.45.940)
- Maximum retainage limits:
- Public retention on private projects: cannot exceed 5% of each progress payment or the total contract price.
- Timing for release of retainage:
- Contractor must pay subcontractor all retainage within 10 days after receiving retainage or within 30 days after the subcontractor’s satisfactory completion, whichever is sooner.
- Project owner must pay the contractor all retainage within 30 days after the contractor’s satisfactory completion, unless the contract specifies a different period.
- Escrow and interest:
- Retainage money must be placed in an interest-bearing escrow account.
- Interest earned on retainage must be distributed proportionally with retainage payments to those from whom the retainage was withheld.
- Penalties for nonpayment:
- If a project owner or contractor fails to timely pay retainage, a 2% penalty is assessed on the unpaid amount, plus interest beginning the day after the due date, calculated using the prime rate.
- Penalties may be waived by the affected party.
- Attorney fees:
- In civil actions to recover retainage, prevailing parties may be awarded attorney fees: 40% of the judgment up to $25,000, and 20% on the portion exceeding $25,000.
- Definitions:
- Clarifies definitions for contractor, project owner, retainage, etc., and applies retainage concepts consistently to private contracts.
Miscellaneous
- Repeals outdated or conflicting provisions: 36.90.220(2) and 36.90.250(b) are repealed.
- Applicability: The act applies to construction contracts entered into on or after the act’s effective date.
Who Is Affected
- Prime contractors, subcontractors, project owners (both public and private sector), and service providers/suppliers involved in construction projects.
- Public entities (state and political subdivisions) and private project owners will be subject to stricter retainage timing, escrow, penalties, and interest rules.
- Civil actions related to retainage disputes could involve substantial attorney fees provisions.
Timeline and Implementation
- Applicability: The act applies to contracts entered into on or after the act’s effective date (not yet specified in the text provided).
- The bill undergoes standard legislative process (House Labor & Commerce and Administration/Finance references shown in action history).
Overall Impact
- The bill strengthens protections for contractors and subcontractors by standardizing timely payment, imposing penalties for delayed retainage, mandating escrow and interest on retained funds, and reducing the opportunity to withhold retainage without accountability.
- It imposes clear financial consequences (penalties, interest, and attorney fees) for noncompliance and ensures greater transparency in notice and withholding practices on both public and private construction projects.
