H-1321

AN ACT Relating to payment for work of improvement on real property; adding a new chapter to Title 60 RCW; prescribing penalties; and providing an effective date.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. DEFINITIONS. (1) "Professional services" means surveying, establishing or marking the boundaries of, preparing maps, plans, or specifications for, or inspecting, testing, or otherwise performing any other architectural or engineering services for the improvement of real property.

(2) "Retainage" means funds which are due a retainee but are being withheld or retained by an owner, contractor, or subcontractor as security for, until, or conditioned upon completion of the work of improvement. The retainage is considered conditionally earned by and owed to the retainee and is held in trust by the retainor.

(3) "Retainee" means a contractor, subcontractor, material supplier, equipment, or professional services provider who has performed all or part of a work of improvement and who has had some portion of sums due under a contract withheld by the retainor.

(4) "Retainor" means any person or entity, excluding those persons loaning or advancing funds pursuant to interim or construction financing as defined in RCW 60.04.200, that withholds retainage.

(5)(a) "Substantial completion" means the date upon which the work of improvement has been completed as specified under the contract, the date upon which the improvement becomes usable or fit for the purposes for which it was intended, the date of issuance of a certificate of occupancy, or the date of occupation or use of the improvement by the owner or an agent of the owner.

(b) "Substantial completion" occurs on the earliest occurrence of any of the events under (a) of this subsection.

(6) "Work of improvement" means work performed or provided, including labor, materials, equipment, and professional services, which has led to the improvement of real property. Work of improvement includes incremental improvements which are in themselves complete but do not necessarily bring a property improvement to a state of substantial completion.

NEW SECTION. Sec. 2. MONEYS TO BE HELD IN TRUST--COMMINGLING. (1) Any moneys released to or obtained by an owner, developer, prime contractor, subcontractor, or person in charge of a construction project in connection with a work of improvement, shall be regarded and held in trust for the benefit of those persons making the payment and those who provided the labor or furnished materials, equipment, or professional services in connection with the work of improvement giving rise to the receipt of the moneys.

(2) Nothing contained in this section shall be construed as requiring moneys held in trust by an owner, contractor, or subcontractor under subsection (1) of this section to be placed in a separate account. If an owner, contractor, or subcontractor commingles moneys held in trust under this section with other moneys, the mere commingling of the moneys does not constitute a violation of this chapter.

(3)(a) The use of trust moneys for any other purpose than to first pay when due those persons for whom the funds are held in trust, shall be prima facie evidence of a trust violation and an intent to defraud in a civil action.

(b) The mishandling of work of improvement trust moneys is a matter affecting the public interest for the purpose of applying chapter 19.86 RCW. The failure to use the money as intended is not reasonable in relation to the development and preservation of business. A violation of this section constitutes an unfair or deceptive act or practice in trade or commerce for the purpose of applying chapter 19.86 RCW.

NEW SECTION. Sec. 3. PROMPT PAY. (1) The owner shall pay amounts due the prime contractor, and the prime contractor shall pay the amounts due subcontractors and suppliers, and the subcontractors shall pay amounts due other contractors and suppliers, no later than ten days after receipt of draws, loan disbursements, progress payments, final payments, or receipt, possession, or availability, regardless of its source, of construction funds, based on a work of improvement.

(2) In the event that there is a good faith dispute over all or any portion of the amount due from the owner to the prime contractor, prime contractor to a subcontractor, subcontractor to a subcontractor, or contractor to a supplier, then the owner, prime contractor, or subcontractor may withhold no more than one hundred fifty percent of the disputed amount.

NEW SECTION. Sec. 4. PORTION OF CONTRACT PRICE RETAINED. (1) Except for improvements made on an existing owner-occupied single family residential property, retainage shall be regarded as held in trust by the retainor and shall be treated as the property of the retainee.

(2) Except as permitted in subsection (3) of this section, retainage shall be released no later than ninety days from the date of substantial completion of the work of improvement.

(3) In the event there is a good faith dispute over the release of all or any portion of the retainage, the retainor may not withhold an amount in excess of one hundred fifty percent of the estimated value of the issue in dispute. Others not party to a dispute are entitled to full and prompt payment of their portion of the retained amount.

NEW SECTION. Sec. 5. REMEDIES. In addition to all other remedies either civil, administrative, or criminal, any person from whom funds have been withheld in violation of this chapter shall be entitled to receive from the person wrongfully withholding the funds, for every month and portion thereof that payment including retainage is not made, interest of twelve percent per annum or as established under RCW 19.52.025, whichever is greater, plus an additional charge of one and one-half percent per month. In any action for the collection of funds withheld, the prevailing party shall be entitled to costs of suit and his or her reasonable attorneys' fees.

NEW SECTION. Sec. 6. APPLICATION--CONSTRUCTION. (1) It is against public policy for any party to require any other party to waive any provision of this chapter.

(2) It is against public policy to enforce a contract provision which requires the receipt of construction funds by the owner, prime contractor, or subcontractor, as a condition that must be fulfilled before the owner, prime contractor, or subcontractor has any financial obligation to those who provided improvements to real property.

(3) This chapter is to be liberally construed to provide security for all parties intended to be protected by its provisions.

NEW SECTION. Sec. 7. EFFECTIVE DATE. This act shall take effect September 1, 1991, and is applicable to all contracts entered into on or after September 1, 1991, relating to the construction of any private work of improvement.

NEW SECTION. Sec. 8. SHORT TITLE. This chapter may be known and cited as the fair pay act.

NEW SECTION. Sec. 9. CAPTIONS NOT LAW. Section headings as used in this chapter do not constitute any part of the law.

NEW SECTION. Sec. 10. Sections 1 through 9 of this act shall constitute a new chapter in Title 60 RCW.