2024 Regular Session
To: Business and Commerce
By: Representative Bell (21st)
AN ACT TO ESTABLISH TERMS FOR PAYMENT BY OWNERS, CONTRACTORS AND SUBCONTRACTORS TO CONTRACTORS, SUBCONTRACTORS, SUB-SUBCONTRACTORS AND MATERIAL SUPPLIERS WITH RESPECT TO THE PERFORMANCE OF CONTRACTS; TO DEFINE CERTAIN TERMS FOR THE PURPOSES OF THIS ACT; TO PROVIDE THAT IF AN OWNER, CONTRACTOR, OR SUBCONTRACTOR DOES NOT MAKE PAYMENT IN COMPLIANCE WITH THIS ACT, THE OWNER, CONTRACTOR, OR SUBCONTRACTOR SHALL BE OBLIGATED TO PAY INTEREST ON THE UNPAID BALANCE DUE; TO PROVIDE THAT A CONTRACTOR WHO RECEIVES A PAYMENT FROM AN OWNER IN CONNECTION WITH A CONTRACT SHALL PAY EACH OF ITS SUBCONTRACTORS THE PORTION OF THE OWNER'S PAYMENT TO THE EXTENT OF THAT SUBCONTRACTOR'S INTEREST IN THE OWNER'S PAYMENT AND THAT SUCH PAYMENT SHALL BE MADE NOT LATER THAN THE SEVENTH DAY AFTER THE DATE THE CONTRACTOR RECEIVES THE OWNER'S PAYMENT; TO ESTABLISH A MAXIMUM AMOUNT OF RETAINAGE AND ESTABLISH THE TIMING FOR RELEASE OF RETAINAGE WITH RESPECT TO THE PERFORMANCE OF CONTRACTS AND TO PROVIDE FOR THE PAYMENT OF INTEREST FOR IMPROPERLY HELD RETAINAGE; TO PROVIDE TYPES OF CONTRACTS TO WHICH THE PROVISIONS OF THIS ACT DO NOT APPLY; TO AMEND SECTION 31-5-33, MISSISSIPPI CODE OF 1972, TO DEFINE THE TERM "RETAINAGE" FOR PURPOSES OF CERTAIN PUBLIC WORKS CONTRACTS; TO BRING FORWARD SECTION 31-5-15, MISSISSIPPI CODE OF 1972, WHICH RELATES TO THE WITHDRAWAL BY CONTRACTORS OF AMOUNTS RETAINED ON PUBLIC CONTRACTS, FOR THE PURPOSES OF POSSIBLE AMENDMENT; AND FOR RELATED PURPOSES.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MISSISSIPPI:
SECTION 1. (1) For the purposes of this section, the following words and phrases shall have the meanings ascribed in this section unless the context clearly indicates otherwise:
(a) "Retainage" means that money, or other security as agreed to by the parties to a construction contract, earned by the contractor, subcontractor or lower tier sub-subcontractor or supplier, as the case may be, for work properly performed or materials suitably stored if payment for stored materials is provided for in the contract, which has been retained by the owner conditioned on final completion, to include, but not be limited to, deliverable and non-deliverable requirements such as completion of contractual close-out, provision of equipment manuals, provision of warranty documents, completion of punch list and acceptance of all work in connection with a project or projects by the contractor, subcontractor or lower tier sub-subcontractor or supplier.
(b) "Substantial completion" means the stage in the progress of a project when the project or designated portion thereof is sufficiently complete in accordance with the contract documents, with all necessary certificates of occupancy having been issued, or when the owner begins to use or could have begun to use the project, whichever occurs first.
(2) (a) When a contractor has performed pursuant to his or her contract and submits an application or pay request for payment or an invoice for materials to the owner or owner's representative, the owner shall timely pay the contractor by mailing via first class mail or delivering the amount of the application or pay request or invoice in accordance with the payment terms agreed to by the owner and the contractor, which agreed upon payment terms must be specified in all contract documents, but if payment terms are not agreed to, then within thirty (30) days after receipt of the application or pay request or invoice.
(b) When a subcontractor has performed pursuant to his or her contract and submits an application or pay request for payment or an invoice for materials to a contractor in sufficient time to allow the contractor to include the application, request or invoice in his or her own pay request submitted to an owner, the contractor shall timely pay to the subcontractor in accordance with the payment terms agreed to by the contractor and subcontractor, but if payment terms are not agreed to, then within seven (7) days after receipt of payment from the owner by mailing via first class mail or delivering the amount received for the subcontractor's work and materials based on work properly completed or service properly provided under the contract.
(c) When a sub-subcontractor has performed labor or supplied materials for a subcontractor pursuant to his or her contract and submits an application or pay request for payment or an invoice for materials to a subcontractor in sufficient time to allow the subcontractor to include the application, request or invoice in his or her own pay request submitted to a contractor, the subcontractor shall timely pay the sub-subcontractor in accordance with the payment terms agreed to by the subcontractor and sub-subcontractor, but if payment terms are not agreed to, then within seven (7) days after receipt of payment from the contractor by mailing via first class mail or delivering the amount received for the sub-subcontractor's work and materials based on work properly completed or service properly provided under the contract.
(d) If the owner, contractor or subcontractor, as the case may be, does not make payment in compliance with this section, the owner, contractor or subcontractor shall be obligated to pay his or her contractor, subcontractor or sub-subcontractor interest at the rate of one percent (1%) per month (twelve percent (12%) per annum) on the unpaid balance due. The interest provided for in this subsection is in addition to any interest or penalty prescribed by agreement, contract or any other law of this state.
(3) A contractor who receives a payment under subsection (2)(a) of this section or otherwise, from an owner in connection with a contract shall pay each of its subcontractors the portion of the owner's payment to the extent of that subcontractor's interest in the owner's payment. The payment shall include interest, if any, that is attributable to work properly performed or materials suitably stored by that subcontractor if payment for stored materials is provided for in the contract. The payment required by this subsection shall be made not later than the seventh day after the date the contractor receives the owner's payment.
(4) (a) Subject to the provisions of subsection (5)(b) of this section, the percentage of retainage on payments by the contractor to the subcontractor shall not exceed the percentage of retainage on payments made by the owner to the contractor. Any percentage of retainage on payments made by the contractor to the subcontractor that exceeds the percentage of retainage on payments made by the owner to the contractor shall be subject to interest to be paid by the contractor to the subcontractor at the rate of one percent (1%) per month (twelve percent (12%) per annum).
(b) Subject to the provisions of subsection (5)(c) of this section, the percentage of retainage on payments by the subcontractor to the sub-subcontractor shall not exceed the percentage of retainage on payments made by the contractor to the subcontractor. Any percentage of retainage on payments made by the subcontractor to the sub-subcontractor that exceeds the percentage of retainage on payments made by the contractor to the subcontractor shall be subject to interest paid at the rate of one percent (1%) per month (twelve percent (12%) per annum).
(5) (a) A construction contract on any project in this state may provide for the owner's withholding of retainage from payments to its contractor for work performed by that contractor on a construction project. There may be retained not more than five percent (5%) of the estimated amount of work properly done and the value of materials stored on the site or suitably stored and insured off-site, and after fifty percent (50%) completion of the work has been accomplished, no further retainage may be withheld. If an owner withholds an amount greater than that allowed by this paragraph (a), the owner shall be liable to the contractor for interest accruing on the excess amount withheld at the rate of one percent (1%) per month.
(b) A construction contract on any project in this state may provide for the contractor's withholding of retainage from payments to its subcontractors for work performed by the subcontractors on a construction project. There may be retained not more than five percent (5%) of the estimated amount of work properly done and the value of materials stored on the site or suitably stored and insured off-site, and after fifty percent (50%) completion of the work has been accomplished, no further retainage may be withheld. If a contractor withholds an amount greater than that allowed by this paragraph (b), the contractor shall be liable to the subcontractor for interest accruing on the excess amount withheld at the rate of one percent (1%) per month.
(c) A construction contract on any project in this state may provide for the subcontractor's withholding of retainage from payments to its sub-subcontractors or material suppliers for work performed by such sub-subcontractors or material suppliers on a construction project. There may be retained not more than five percent (5%) of the estimated amount of work properly done and the value of materials stored on the site or suitably stored and insured off-site, and after fifty percent (50%) completion of the work has been accomplished, no further retainage may be withheld. If a subcontractor withholds an amount greater than that allowed by this paragraph (c), the subcontractor shall be liable to the sub-subcontractor or material supplier for interest accruing on the excess amount withheld at the rate of one percent (1%) per month.
(6) (a) The owner shall release and pay retainage to the contractor for work completed on any construction contract no later than sixty (60) days after the completion of the contractor's work defined in its contract with the owner, or no later than sixty (60) days after substantial completion of the project, whichever occurs first, and in both events, with all necessary certificates of occupancy having been issued. The contractor shall release and pay retainage to its subcontractors for work completed pursuant to the terms of this section. If upon substantial completion of the work minor items remain uncompleted, retainage shall be released; however, an amount of not more than two hundred percent (200%) of the value of each item as determined by the architect and/or engineer may be withheld until the item is completed.
(b) For the purposes of this section, when work is performed by multiple contractors or multiple subcontractors, the work of each individual contractor or subcontractor is considered separate and distinct from the work of the others. As each is certified as substantially complete, that portion of the retainage allocable to the substantially completed work must be released by the owner to the contractor, who, within ten (10) days after receipt, must release to the subcontractor the full amount of retainage previously withheld.
(7) Nothing in this section limits or alters the paying party's right to withhold or not approve payment on grounds set forth in the party's contract otherwise for work not properly performed or payment not earned; rather, this section is intended only to establish a maximum amount of retainage, establish the timing for release of retainage, and provide for the payment of interest for improperly held retainage. Also, the paying party may condition payment on the receipt of a full release of any lien of the contractor, subcontractor or sub-subcontractor, as the case may be, for the amount of work being paid.
(8) A party may not waive the right to receive interest, as provided for in this section, before a payment is due under a contract subject to this section.
(9) A contractor, subcontractor or sub-subcontractor may file a civil action solely against the party contractually obligated for the payment of the amount claimed to recover the amount due plus the interest accrued in accordance with this section. If the court finds in the civil action that the party contractually obligated for the payment of the amount claimed has not made payment in compliance with this section, the court shall award the interest specified in this section in addition to the amount due. In any such civil action, the party in whose favor a judgement is rendered shall be entitled to recover payment of reasonable attorneys' fees, court costs and reasonable expenses from the other party.
(10) This section does not apply to the following:
(a) Residential homebuilding.
(b) Improvements to real property intended for residential purposes which consist of sixteen (16) or fewer residential units.
(c) Contracts, subcontracts or sub-subcontracts in the amount of Ten Thousand Dollars ($10,000.00) or less.
(d) Contracts awarded by the State of Mississippi, or any agency, unit or department of the State of Mississippi, or by any political subdivision thereof.
(11) This section does not amend or modify existing laws relating to mechanics and materialmen liens provided in Article 21, Chapter 7, Title 85, Mississippi Code of 1972.
(12) The rights and obligations created in this section cannot be modified or waived by any oral or written contract or agreement.
(13) The provisions of this section shall become effective for and apply to all prime contracts, as described in this section, entered into on or after July 1, 2024.
SECTION 2. Section 31-5-33, Mississippi Code of 1972, is amended as follows:
31-5-33. (1) In any contract for the construction, repair, alteration or demolition of any building, structure or facility awarded by the State of Mississippi, or any agency, unit or department of the State of Mississippi, or by any political subdivision thereof, which contract provides for progress payments in installments based upon an estimated percentage of completion with a percentage of the contract proceeds to be retained by the state agency, unit or department, or by the political subdivision or contractor pending completion of the contract, such retainage shall be five percent (5%), and the amount retained by the prime contractor from each payment due the subcontractor shall not exceed the percentage withheld by the state, or any agency, unit or department of the state, or by any political subdivision thereof, from the prime contractor. For the purposes of this section and Section 31-5-15, the term "retainage" means that money, or other security as agreed to by the parties to a construction contract, earned by the contractor, subcontractor or lower tier sub-subcontractor or supplier, as the case may be, for work properly performed or materials suitably stored if payment for stored materials is provided for in the contract, which has been retained by the owner conditioned on final completion, to include, but not be limited to, deliverable and non-deliverable requirements such as completion of contractual close-out, provision of equipment manuals, provision of warranty documents, completion of punch list and acceptance of all work in connection with a project or projects by the contractor, subcontractor or lower tier sub-subcontractor or supplier.
On any contract as described herein, of which the total amount is Two Hundred Fifty Thousand Dollars ($250,000.00) or greater, or on any contract with a subcontractor, regardless of amount, five percent (5%) shall be retained until the work is at least fifty percent (50%) complete, on schedule and satisfactory in the architect's and/or engineer's opinion, at which time fifty percent (50%) of the retainage held to date shall be returned to the prime contractor for distribution to the appropriate subcontractors and suppliers. Provided, however, that future retainage shall be withheld at the rate of two and one-half percent (2-1/2%).
(2) The provisions of this section shall not apply to contracts let by the Mississippi Transportation Commission for the construction, improvement or maintenance of roads and bridges.
SECTION 3. Section 31-5-15, Mississippi Code of 1972, is brought forward as follows:
31-5-15. Under any public contract heretofore or hereafter made or awarded by the State of Mississippi, or any agency or department of the State of Mississippi, or by any political subdivision thereof, the contractor may, with the written consent of his or its surety, from time to time, withdraw the whole or any portion of the amount retained from payments due the contractor pursuant to the terms of the contract by depositing with the State Treasurer of the State of Mississippi, or the treasurer or secretary of the political subdivision of the State of Mississippi holding funds belonging to the contractor, the following security, or any combination thereof in an amount equal to or in excess of the amount so withdrawn, said securities to be accepted at the time of deposit at market value but not in excess of par value, to wit:
(1) U.S. Treasury Bonds, U.S. Treasury Notes, U.S. Treasury Certificates of Indebtedness, or U.S. Treasury Bills, or
(2) Bonds or notes of the State of Mississippi, or
(3) Bonds of any political subdivision of the State of Mississippi, or
(4) Certificates of deposit issued by commercial banks located in the State of Mississippi, provided that such certificate is negotiable or is accompanied by a power of attorney executed by the owner of the certificate in favor of the Treasurer of the State of Mississippi or of the treasurer or the secretary of the political subdivision involved, or
(5) Certificates of deposit issued by savings and loan associations located in the State of Mississippi, the accounts of which are insured by the Federal Savings and Loan Insurance Corporation, or whose accounts are insured by a company approved by the State Board of Savings and Loan Associations, provided that such certificate is made payable with accrued interest on demand and is accompanied by a power of attorney executed by the owner of the certificate in favor of the Treasurer of the State of Mississippi or the treasurer or secretary of the political subdivision involved, and provided that any such certificate from any of the savings and loan associations referred to in this subparagraph shall not be for an amount in excess of the maximum dollar amount of coverage of the Federal Savings and Loan Insurance Corporation.
The agency or department of the state shall notify the State Treasurer of the amount of deposit required and shall also notify the State Treasurer when to release the deposit. The political subdivision of the state shall notify its treasurer or secretary of the amount of deposit required and shall also notify him when to release the deposit.
The State Treasurer, or the secretary or treasurer of the political subdivision holding said security, shall, from time to time, collect all interest or income on the security so deposited and shall, by and with the written consent of contractor's surety, pay the same when and as collected to the contractor or contractors who deposited said obligations. If the deposit be in the form of coupon bonds, the coupons as they respectively become due shall be delivered to the contractor.
If in the event of an overpayment to a contractor the contracting authority is unable to obtain reimbursement for such overpayments from the contractor, the chief administrative officer of the contracting authority shall notify the contractor, its surety and the State Treasurer or other holder of the security, of the nature of the overpayment and of the failure to obtain reimbursement. Upon such notification, the security holder shall retain the income on the deposited security until an amount equal to the overpayment is accumulated and paid to the contracting authority.
In the event the contractor shall default in the performance of the contract or any portion thereof, the securities deposited by him in lieu of retainage and all interest and coupons and income accruing on said securities after said default may be sold by the state or any agency or department thereof, or any political subdivision, and the proceeds of said sale used as if such proceeds represented the retainage provided for under the contract.
SECTION 4. This act shall take effect and be in force from and after July 1, 2024.