34-221. Contract with successful bidder; payments to contractor and design professional; security; recovery of damages for delay; progress payments; changed or additional work; attorney fees; definitions

A. The agent shall enter into a contract with the lowest responsible bidder whose proposal is satisfactory, except that in determining the lowest responsible bidder under this section, the board of supervisors may consider, for not more than five projects, the time of completion proposed by the bidder, the value over time of completed services and facilities and the value over time of interrupted services if the board determines that this procedure will serve the public interest by providing a substantial fiscal benefit or that the use of the traditional awarding of contracts is not practicable for meeting desired construction standards or delivery schedules and if the formula for considering the time of completion is specifically stated in the bidding information.

B. In determining the lowest responsible bidder for a horizontal construction project using the design-bid-build project delivery method, an agent may consider the time of completion proposed by the bidder if the agent determines that this procedure will serve the public interest by providing a substantial fiscal benefit or that the use of the traditional awarding of contracts is not practicable for meeting desired construction standards or delivery schedules and if the formula for considering the time of completion is specifically stated in the bidding information.

C. The terms of a contract entered into pursuant to subsection A of this section shall include the following items:

1. A surety company bond or bonds as required under this article.

2. The owner 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. Payment to the contractor on the basis of a duly certified and approved estimate of the work performed during the preceding calendar month under such contract may include payment for material and equipment, but to ensure the proper performance of such contract, the owner shall retain ten percent of the amount of each estimate until final completion and acceptance of all material, equipment and work covered by the contract.  An estimate of the work submitted shall be deemed approved and certified for payment seven days after the date of submission unless before that time the owner or owner's agent prepares and issues a specific written finding setting forth those items in detail in the estimate of the work that are not approved for payment under the contract. The owner may withhold an amount from the progress payment sufficient to pay the expenses the owner reasonably expects to incur in correcting the deficiency set forth in the written finding. The progress payments shall be paid on or before fourteen days after the estimate of the work is certified and approved. The estimate of the work shall be deemed received by the owner on submission to any person designated by the owner for the submission, review or approval of the estimate of the work.

3. When the contract is fifty percent completed, one-half of the amount retained, including any securities substituted under paragraph 5 of this subsection, shall be paid to the contractor on the contractor's request if the contractor is making satisfactory progress on the contract and there is no specific cause or claim requiring a greater amount to be retained. After the contract is fifty percent completed, not more than five percent of the amount of any subsequent progress payments made under the contract may be retained if the contractor is making satisfactory progress on the project, except that if at any time the owner determines satisfactory progress is not being made, ten percent retention shall be reinstated for all progress payments made under the contract subsequent to the determination.

4. On completion and acceptance of each separate building, public work or other division of the contract on which the price is stated separately in the contract, except as qualified in paragraph 5 of this subsection, payment may be made in full, including retained percentages thereon, minus authorized deductions. In preparing estimates, the material and equipment delivered on the site to be incorporated in the job shall be taken into consideration in determining the estimated value by the architect or engineer.

5. Ten percent of all estimates shall be retained by the agent as a guarantee for complete performance of the contract, to be paid to the contractor within sixty days after completion or filing notice of completion of the contract. Retention of payments by a purchasing agency longer than sixty days after final completion and acceptance requires a specific written finding by the purchasing agency of the reasons justifying the delay in payment. A purchasing agency may not retain any monies after sixty days that are in excess of the amount necessary to pay the expenses the purchasing agency reasonably expects to incur in order to pay or discharge the expenses determined by the purchasing agency in the finding justifying the retention of monies. In lieu of the retention provided in this section, the agent, at the option of the contractor, shall accept as a substitute an assignment of money market accounts, demand deposit accounts, time certificates of deposit of banks licensed by this state, securities of or guaranteed by the United States of America, securities of this state, securities of counties, municipalities and school districts within this state or shares of savings and loan associations authorized to transact business in this state, in an amount equal to ten percent of all estimates, which shall be retained by the agent as a guarantee for complete performance of the contract. If the contractor opts for substitute security as described in this paragraph for the ten percent retention, the contractor is entitled to receive all interest or income earned by such security as it accrues, and all such security in lieu of retention shall be returned to the contractor by the agent within sixty days after final completion and acceptance of all material, equipment and work covered by the contract if the contractor has furnished the agent satisfactory receipts for all labor and material billed and waivers of liens from any and all persons holding claims against the work. The agent may not accept a money market account, a demand deposit account, a time certificate of deposit of a bank or shares of a savings and loan association in lieu of the retention specified unless accompanied by a signed and acknowledged waiver of the bank or savings and loan association of any right or power to setoff against either the agent or the contractor in relationship to the certificates or shares assigned. The amount deposited in a money market account or demand deposit account in lieu of the retention provided in this section shall not be released by the financial institution to the contractor except on written authorization of the agent.

6. If the agent has accepted substitute security as provided in paragraph 5 of this subsection, any subcontractor undertaking to perform any part of such public work is entitled to provide substitute security to the contractor on terms and conditions similar to those described in paragraph 5 of this subsection, and such security is in lieu of any retention under the subcontract.

D. A contract for construction or design professional services may not materially alter the rights of any contractor, subcontractor, design professional or material supplier to receive prompt and timely payment required to be included in the contract under subsection C of this section.

E. The contract shall be signed by the agent and the contractor.

F. A contract for the procurement of construction shall include a provision that provides for negotiations between the agent and the contractor for the recovery of damages related to expenses incurred by the contractor for a delay for which the agent is responsible, which is unreasonable under the circumstances and which was not within the contemplation of the parties to the contract. This section does not void any provision in the contract that requires notice of delays or provides for arbitration or other procedure for settlement or provides for liquidated damages.

G. The contractor shall pay to the contractor's subcontractors, design professionals or material suppliers and each subcontractor shall pay to the subcontractor's subcontractor, design professional or material supplier, within seven days after receipt of each progress payment, unless otherwise agreed in writing by the parties, the respective amounts allowed the contractor, subcontractor or design professional on account of the work performed by subordinate subcontractors or design professionals, to the extent of each such subcontractor's or design professional's interest therein, except that a contract for construction may not materially alter the rights of any contractor, subcontractor, design professional or material supplier to receive prompt and timely payment as provided under this section. Such payments to subcontractors, design professionals or material suppliers shall be based on payments received pursuant to this section. Any diversion by the contractor or subcontractor of payments received for work performed on a contract, or failure to reasonably account for the application or use of such payments, constitutes grounds for disciplinary action by the registrar of contractors. The subcontractor or material supplier shall notify the registrar of contractors and the purchasing agency in writing of any payment that is less than the amount or percentage approved for the class or item of work as set forth in this section.

H. A subcontractor or design professional may notify the purchasing agency in writing requesting that the subcontractor or design professional be notified by the purchasing agency in writing within five days after payment of each progress payment that is made to the contractor. The subcontractor's or design professional's request remains in effect for the duration of the subcontractor's or design professional's work on the project.

I. This chapter does not prevent the contractor or subcontractor, at the time of application and certification to the owner or contractor, from withholding such application and certification to the owner or contractor for payment to the subcontractor, design professional or material supplier for unsatisfactory job progress, defective design professional services or construction work or materials not remedied, disputed design professional services, work or materials, third-party claims filed or reasonable evidence that a claim will be filed, failure of a subcontractor or design professional to make timely payments for design professional services, labor, equipment and materials, damage to the contractor or another subcontractor or design professional, reasonable evidence that the subcontract or design professional service contract cannot be completed for the unpaid balance of the subcontract or design professional service contract sum or a reasonable amount for retention that does not exceed the actual percentage retained by the owner.

J. If any payment to a contractor is delayed after the date due, interest shall be paid at the rate of one percent per month or fraction of a month on such unpaid balance as may be due.

K. If any periodic or final payment to a subcontractor or design professional is delayed by more than seven days after receipt of the periodic or final payment by the contractor or subcontractor, the contractor or subcontractor shall pay a subordinate subcontractor, design professional or material supplier interest, beginning on the eighth day, at the rate of one percent per month or a fraction of a month on such unpaid balance as may be due.

L. If the owner directs the contractor in writing to perform changed or additional work in accordance with the construction contract and the contractor submits to the owner a reasonable cost estimate of the changed or additional work as may be required under the construction contract, pending a final determination of the total amount to be paid for the changed or additional work, the contractor may request payment for changed or additional work that the contractor completed during the preceding calendar month in monthly pay estimates based on the costs the contractor incurred to perform that work.  The person designated in the construction contract to certify and approve the monthly payment estimate shall make an interim determination for purposes of approval for payment of those costs and certify for payment the amount that person determines to be reasonably justified.  Either party may disagree with the interim determination and may assert a claim in accordance with the terms of the construction contract.

M. If the owner directs the contractor in writing to perform changed or additional work in accordance with the construction contract and the contractor submits to the owner a reasonable cost estimate of the changed or additional work as may be required under the construction contract and if the contractor directs the subcontractor to perform the changed or additional work in accordance with the terms of the agreement between the contractor and subcontractor and the subcontractor submits to the contractor a reasonable cost estimate of the changed or additional work as may be required under the construction contract, pending a final determination of the total amount to be paid for the changed or additional work, the subcontractor may request payment from the contractor for the changed or additional work that the subcontractor completed during the preceding calendar month in monthly pay estimates based on the costs the subcontractor incurred to perform that work.  Either party may disagree with the interim determination and may assert a claim in accordance with the terms of the agreement between the contractor and subcontractor.

N. In any action or arbitration brought pursuant to this section, the successful party shall be awarded reasonable attorney fees and costs.

O. For the purposes of this section:

1. Contractor does not include an agricultural improvement district formed pursuant to title 48, chapter 17, an electric cooperative formed pursuant to title 10, chapter 19, article 2 or 4 or a domestic water improvement district or a domestic wastewater improvement district formed pursuant to title 48, chapter 6, article 4.

2. "Costs" means the aggregate cost of all labor, materials, equipment and services.

3. "Design professional service contract" means a written agreement relating to the planning, design, construction administration, study, evaluation, consulting, inspection, surveying, mapping, material sampling, testing or other professional, scientific or technical services furnished in connection with any actual or proposed study, planning, survey, environmental remediation, construction, improvement, alteration, repair, maintenance, relocation, moving, demolition or excavation of a structure, street or roadway, appurtenance, facility, development or other improvement to land.

4. "Design professional services" means architect services, engineer services, land surveying services, geologist services or landscape architect services or any combination of those services performed by or under the supervision of a design professional or an employee or subconsultant of the design professional.

5. "Subconsultant" means any person, firm, partnership, corporation, association or other organization, or a combination of any of them, that has a direct contract with a design professional or another subconsultant to perform a portion of the work under a design professional service contract.

6. Subcontractor does not include an agricultural improvement district formed pursuant to title 48, chapter 17, an electric cooperative formed pursuant to title 10, chapter 19, article 2 or 4 or a domestic water improvement district or a domestic wastewater improvement district formed pursuant to title 48, chapter 6, article 4.

7. "Work" means the labor, materials, equipment and services to be provided by a contractor or subcontractor under a construction contract.