Bill Text: MI SB1121 | 2017-2018 | 99th Legislature | Introduced
Bill Title: Construction; contracts; prompt payment law; establish for contractors to pay subcontractors and suppliers in a timely manner. Creates new act.
Spectrum: Partisan Bill (Republican 1-0)
Status: (Introduced - Dead) 2018-09-26 - Referred To Committee On Commerce [SB1121 Detail]
Download: Michigan-2017-SB1121-Introduced.html
SENATE BILL No. 1121
September 26, 2018, Introduced by Senators JONES and HERTEL and referred to the Committee on Commerce.
A bill to promote the prompt payment for labor, materials, and
services provided for the improvement of real property in the
private contractual construction industry; to provide for certain
contract provisions; and to provide for certain remedies and
penalties.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 1. This act shall be known and may be cited as the
"construction payment act".
Sec. 2. As used in this act:
(a) "Billing period" means the payment cycle agreed to by the
parties, or, in the absence of an agreement, the calendar month
within which the work is performed.
(b) "Construction project" means any improvement, renovation,
addition, or development to real property.
(c) "Contract" means a contract, including any and all
additions to, deletions from, and amendments to the contract, of
whatever nature, to provide improvements to real property.
(d) "Contractor" includes, but is not limited to, an
architect, engineer, general contractor, construction manager,
subcontractor, lower-tiered subcontractors, supplier, or other
person, who enters into any contract with another person to furnish
services, labor, or materials in connection with the erection,
construction, completion, alteration, or repair of any building or
commercial project that provides actual improvement to the real
property.
(e) "Court" means the district or circuit court of this state
subject to the venue and jurisdictional requirements of each court.
(f) "General contractor" means a contractor who contracts with
an owner or lessee to provide, directly or indirectly, through
contracts with subcontractors, suppliers, or laborers, the
improvements to the real property described in the notice of
commencement under section 108 of the constructions lien act, 1980
PA 497, MCL 570.1108.
(g) "Improvement" means the result of services, labor, or
material provided by a contractor, subcontractor, supplier, or
laborer, including, but not limited to, surveying, engineering and
architectural planning, construction management, clearing,
demolishing, excavating, filling, building, erecting, constructing,
altering, repairing, ornamenting, landscaping, paving; leasing
equipment, prefabricated materials, or components stored on or off
site; or installing or affixing a fixture or material, pursuant to
a contract. Improvement does not include stock material stored off
site.
(h) "Laborer" means an individual who, pursuant to a contract
with a contractor or subcontractor, provides an improvement to real
property through the individual's personal labor.
(i) "Money or funds" includes, but is not limited to, all
money or funds due to a contractor, subcontractor, supplier, or
laborer in connection with a contract for the development,
erection, construction, completion, alteration, or repair of any
building or construction project.
(j) "Owner" means a person, or its agent, that has an interest
in the lands or premises upon which a contractor has undertaken to
erect, construct, complete, alter, or repair any building or
addition to a building, construction project, or development.
(k) "Person" means a corporation, partnership, limited
liability company, association, or other legal entity or a natural
person.
(l) "Subcontractor" means a person that enters into a contract
to furnish labor or materials to a contractor.
(m) "Supplier" means a person that enters into a contract with
a person to supply materials, rental equipment, prefabricated
materials, or components, which by its use or incorporation into
the project improve the real estate.
Sec. 3. (1) Each construction contract awarded by an owner to
a contractor shall include all of the following:
(a) A payment clause that obligates the owner to pay the
contractor for satisfactory performance under the contract within
30 days from the end of the billing period.
(b) A statement that the owner has sufficient funds or
financing in place as of the effective date of the contract to
complete the scope of work identified in the contract.
(c) An interest clause that obligates the owner to pay the
contractor interest on wrongfully withheld amounts due, equal to
12% per annum, on each payment not made in accordance with the
contracts payment clause included in the contract. The interest
shall apply to the period beginning on the day after the required
date and ending on the date on which payment of that amount due is
made. Any amount of an interest which remains unpaid at the end of
any 30-day period shall be added to the principal amount of the
debt, and thereafter interest penalties shall accrue on that
amount.
(2) A contract provision required by this section shall not be
construed to impair the right of the owner to include in its
contracts provisions that permit the owner to retain a specified
percentage, which bears a reasonable relationship to the value of
the dispute or claim, of each progress payment otherwise due to a
contractor for unsatisfactory, incomplete performance or disputed
scope of work under the contract without incurring any obligation
to incur interest. In such a case, the owner must provide written
or electronic notice to the contractor as to why all or a portion
of the payment is being withheld within 10 days of receipt of the
disputed invoice. In the event the owner and contractor are unable
to come to an agreement within 30 days after the issuance of the
notice to withhold payment, the owner shall deposit the amount of
the withheld payment into a verifiable and federally insured
interest-bearing bank account or credit union account created for
the subject project. The contractor shall be entitled to receive
verification of the deposit within 10 days of issuing a written or
electronic notice requesting verification of the deposit to the
owner. The deposited money shall remain in that account until the
owner and contractor resolve their dispute or a court or arbitrator
order how the deposited funds are to be disbursed.
(3) If it is determined by a court of competent jurisdiction
or arbitrator that a payment withheld pursuant to subsection (2)
was not withheld in good faith for reasonable cause, the court or
arbitrator may award reasonable attorney fees to the prevailing
party. In any civil action or arbitration brought pursuant to this
section, if a court or arbitrator determines after a hearing for
such purpose that the cause was initiated, or a defense was
asserted, or a motion was filed or any proceeding therein was done
frivolously or in bad faith, the court or arbitrator shall require
the party that initiated the cause, asserted the defense, filed a
motion, or caused a proceeding to be had to pay the other party
named in the action the amount of the costs attributable to those
actions and reasonable expenses incurred by that party, including
reasonable attorney fees.
(4) Once an owner has made payment to the contractor according
to the payment terms of the construction contract or the provisions
of this section, future claims for the withheld payment against the
owner by the contractor shall be barred.
Sec. 4. (1) Each construction contract awarded by a contractor
to a subcontractor or supplier shall include all of the following:
(a) A payment clause that obligates the contractor to pay the
subcontractor and each supplier for satisfactory performance under
the subcontract within 7 calendar days out of the amount paid to
the contractor.
(b) An interest clause that obligates the contractor to pay
the subcontractor or supplier interest on wrongfully withheld
amounts due, equal to 12% per annum, on each payment not made in
accordance with the contracts payment clause included in the
contract. The interest shall apply to the period beginning on the
day after the required date and ending on the date on which payment
of that amount due is made. Any amount of an interest which remains
unpaid at the end of any 30-day period shall be added to the
principal amount of the debt, and thereafter interest penalties
shall accrue on that amount.
(2) A contract provision required by this section shall not be
construed to impair the right of the contractor to include in its
contracts provisions that permit the contractor to retain a
specified percentage, which bears a reasonable relationship to the
value of the dispute or claim, of each progress payment otherwise
due to a subcontractor or supplier for unsatisfactory performance,
delays, or a dispute regarding the scope of work under the contract
without incurring any obligation to incur interest. In such a case,
the contractor must provide written or electronic notice to the
subcontractor or supplier as to why all or a portion of the payment
is being withheld within 10 days of receipt of the disputed
invoice. In the event the contractor, subcontractor, or supplier
are unable to come to an agreement within 30 days after the
issuance of the notice to withhold payment, the contractor shall
deposit the amount of the withheld payment into a verifiable and
federally insured interest-bearing bank account or credit union
account created for the subject project. The subcontractor or
supplier shall be entitled to receive written or electronic
verification of the deposit within 10 days of issuing a written or
electronic notice to the contractor requesting verification of the
deposit by the contractor. The deposited money shall remain in that
account until the contractor and subcontractor or supplier resolve
their dispute or a court or arbitrator order how the deposited
funds are to be disbursed.
(3) If it is determined by a court of competent jurisdiction
or arbitrator that a payment withheld pursuant to subsection (2)
was not withheld in good faith for reasonable cause, the court or
arbitrator may award reasonable attorney fees to the prevailing
party. In any civil action or arbitration brought pursuant to this
section, if a court or arbitrator determines after a hearing for
such purpose that the cause was initiated, or a defense was
asserted, or a motion was filed or any proceeding therein was done
frivolously or in bad faith, the court or arbitrator shall require
the party that initiated the cause, asserted the defense, filed the
motion, or caused the proceeding to be had to pay the other party
named in the action the amount of the costs attributable to those
actions and reasonable expenses incurred by the party, including
reasonable attorney fees.
(4) Once a contractor has made payment to the subcontractor or
supplier according to the payment terms of the construction
contract or the provisions of this section, future claims for the
withheld payment against the contractor or any surety of the
contractor from the subcontractor or supplier on the subject
project shall be barred.
Sec. 5. (1) The owner shall pay the contractor strictly in
accordance with the terms of the contract.
(2) If the terms of the contract do not contain a term
governing payment, the contractor shall be entitled to submit an
invoice to the owner for payments at the end of the billing period
for 1 or more of the following:
(a) Work already commenced but not fully completed if the
invoiced work will be completed by the end of the billing period.
(b) Materials already supplied to the project.
(3) If the contract between the owner and a contractor does
not contain a provision governing when invoices may be submitted, a
contractor shall be entitled to submit a partial invoice every 30
days for payment for work performed or a final invoice when the
agreed-upon work is fully completed. The owner shall pay all
undisputed amounts owed to the contractor within 30 days after the
end of the billing period or 30 days after delivery of the invoice
by the contractor, whichever is later. This subsection shall
prohibit an owner from retaining a specified percentage of each
progress payment and final payment otherwise due to a contractor,
subcontractor, and supplier to ensure satisfactory performance
under the contract.
(4) If payment terms are not specified in the contract between
the general contractor and a subcontractor or supplier, a general
contractor shall pay all undisputed amounts owed to its
subcontractors, suppliers, or materialmen within 7 days after
receipt of payment for the subcontractor's work or supplier's
materials by the general contractor.
(5) If payment terms are not specified in the contract between
the subcontractor and its subcontractors or suppliers, a
subcontractor shall pay all undisputed amounts owed to its
subcontractors, suppliers, or materialmen within 7 days after
receipt of payment for the subcontractors' work or suppliers'
materials by the subcontractor.
Sec. 6. (1) An owner shall not retain a specified percentage
of each progress payment or final payment otherwise due to a
contractor, subcontractor, or supplier for satisfactory performance
under the contract.
(2) A general contractor, a construction manager, a prime
contractor, or a subcontractor or their agents shall not retain a
specified percentage of each progress payment or final payment
otherwise due to a subcontractor, supplier, lower-tiered
subcontractor, or lower-tiered supplier for satisfactory
performance under the contract.
Sec. 7. A provision in a contract for a construction project
that includes 1 or more of the following is against public policy
and shall be void and unenforceable:
(a) A requirement that a contractor assumes the risk of
nonpayment of the owner.
(b) A requirement that a contractor waive any statutory or
other right to commence litigation or arbitration until payment is
made to the general or prime contractor.
(c) A requirement to make subject to payment by the owner, the
obligation of a contractor and its surety under any payment or
performance bond, to make any payment to a claimant under such
bond.
(d) A requirement that a contractor rely on the credit of the
owner and not on the credit of the general or prime contractor or
of a bonding company.
(e) A requirement that a dispute or claim arising from a
construction project located in this state between the contractor,
subcontractor, or supplier be governed or subject to the laws of a
state other than this state or require litigation, arbitration,
mediation, or other dispute resolution processes to occur in a
state other than this state.
(f) A requirement that a contractor waive any provisions
provided by this act.
Sec. 8. (1) This act shall not apply to any of the following:
(a) Public works contracts.
(b) Residential contracts for the erection, alteration, or
repair of any single residential dwelling, attached multiple
residential dwellings less than 7 units, detached condominiums,
site condominiums, or premises used or intended to be used for
residency purposes and related facilities appurtenant to the
premises, used or intended to be used as an adjunct or residential
occupancy.
(2) The burden of proving an exemption from this act is upon
the person claiming the exemption.
(3) This act only applies to private commercial construction
projects, including, but not limited to, apartment buildings,
lofts, motels, hotels, office buildings, medical buildings, retail
buildings, industrial buildings, shopping malls, parking
structures, storage buildings, barns, mixed residential and
commercial use buildings, private schools, restaurants, churches,
places of worship, and related facilities, fixtures, and structures
appurtenant to the premises.
Sec. 9. If an owner or contractor disputes any amounts stated
in an invoice for payment, then all of the following apply:
(a) The party disputing the invoice must notify the other
party in writing within 10 days of the receipt of the disputed
invoice.
(b) The party disputing the invoice must in the notice
specifically describe in detail as to those items within the
invoice that are disputed.
(c) If notice of dispute is not given within the time required
by this section, then the invoice is considered to be accepted as
submitted.
(d) If notice of dispute is not given within the time required
by this section, the lack of notice does not constitute acceptance
of the work performed.
Sec. 10. (1) If arbitration or litigation is commenced to
recover payment due under sections 3, 4, or 5 and it is determined
that the owner, contractor, or subcontractor has failed to comply
with the payment terms of section 3 or 4, the court or arbitrator
shall award damages due equal to the amount that is determined by
the court or arbitrator to have been wrongfully withheld. An amount
shall not be considered to have been wrongfully withheld to the
extent that it bears a reasonable relationship to the value of any
disputed amount or claim held in good faith by the owner,
contractor, or subcontractor against whom the contractor or
subcontractor is seeking to recover payment.
(2) Absent any agreements to the contrary between the parties,
the court or arbitrator in any arbitration proceeding arising under
this act shall award to the substantially prevailing party its
reasonable attorney fees, arbitration costs, and expenses for
expert witnesses.
