BILL REQ. #:  H-0242.1 

Read first time 01/15/2003.   Referred to Committee on State Government.

     AN ACT Relating to expeditious payment for goods and services provided to the state of Washington; adding a new chapter to Title 39 RCW; providing an effective date; and declaring an emergency.

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

NEW SECTION.  Sec. 1   (1) The legislature finds that:
     (a) Firms and organizations that do business with the state expect and deserve to be paid in an expeditious and timely manner; and
     (b) Unjustified delays in paying vendors, construction contractors, and providers of service may discourage these firms and organizations, in particular small and medium-sized firms and women and minority-owned business enterprises, from doing business with the state, and may ultimately increase the costs to the state government of: (i) Purchasing materials, equipment, and supplies; (ii) undertaking construction and reconstruction projects; and (iii) obtaining a wide variety of professional and other specialized services including those that are provided to persons in need.
     (2) It is the purpose of this chapter to set standards for the payment of bills incurred by state agencies within specified periods of time and to require interest payments in situations where contract payments do not conform to these standards. It is also the intent of this chapter, consistent with accepted business practices and with sound principles of fiscal management: (a) To encourage state agencies in all branches of state government to make payments at least as expeditiously as they currently do; (b) to reduce existing payment processing times whenever feasible, while at the same time permitting the state agencies to perform proper and reasonable financial oversight activities designed to ensure that the state government receives the quality of goods and services to which it is entitled; and (c) to ensure that public funds are spent in a prudent and responsible manner.

NEW SECTION.  Sec. 2   The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.
     (1) "Contract" means an enforceable agreement entered into by a contractor and a state agency.
     (2) "Contractor" means any person, partnership, firm, corporation, or association:
     (a) Selling materials, equipment, or supplies or leasing property or equipment to a state agency;
     (b) Constructing, reconstructing, rehabilitating, or repairing buildings or highways for, or on behalf of, a state agency; or
     (c) Rendering or providing services pursuant to a contract with a state agency.
     (3) "Designated payment office" means the office designated by the state agency to which a proper invoice is to be submitted by a contractor.
     (4) "Payment date" means the date on which a check for payment according to a contract is dated.
     (5) "Proper invoice" means a written request for a contract payment that is submitted by a contractor setting forth the description, price, and quantity of goods, property, or services delivered or rendered, in a form and supported by other substantiating documentation as the individual state agency may reasonably require.
     (6) "Receipt of an invoice" means the date on which a proper invoice is actually received in the designated payment office; or the date on which the state agency receives the purchased goods, property, or services covered by the proper invoice, whichever is later; or in regard to final payments on highway construction contracts, the date determined in accordance with the provisions of the contract.
     (7) "Required payment date" means the date a contract payment must be made in order for the state agency not to become liable for interest payments, pursuant to section 3 (2) and (5) of this act.
     (8) "Set-off" means the reduction by the state treasurer of a payment due to a contractor by an amount equal to the amount of an unpaid legally enforceable debt owed by the contractor to the state.
     (9) "State agency" means any department, board, commission, office, council, institution, or committee in the executive, legislative, or judicial branches of state government. The term "state agency" also includes that state's institutions of higher education and the vocational and technical colleges.
     (10) "State funds" means funds held in custody by the state treasurer.

NEW SECTION.  Sec. 3   (1) Each state agency which is required to make a payment from state funds according to a contract and which does not make the contract payment by the required payment date shall make an interest payment to the contractor in accordance with this chapter on the amount of the contract payment which is due, unless failure to make the contract payment is the result of a lien, attachment, or other legal process against the money due to the contractor, or unless the amount of the interest payment, as computed in accordance with the provisions of section 4 of this act, is less than one hundred dollars.
     (2) The required payment date is thirty calendar days, excluding legal holidays, or ninety calendar days in the case of final payments on highway construction contracts, excluding legal holidays, after receipt of an invoice for the amount of the contract payment due, except when:
     (a) The designated payment office in the course of its audit determines that there is reasonable cause to believe that payment may not be properly due, in whole or in part;
     (b) In accordance with specific statutory or contractual provisions, payment must be preceded by an inspection period or by an audit to determine the resources applied or used by a contractor in fulfilling the terms of the contract;
     (c) The necessary state government appropriation required to authorize payment has not been enacted;
     (d) The cash balance of the fund or subfund from which the payment is to be made is insufficient to finance the payment;
     (e) A proper invoice must be examined by the federal government prior to payment;
     (f) The goods or property have not been delivered or the services have not been rendered by the contractor in compliance with the terms or conditions of the contract;
     (g) The required payment date is modified in accordance with (c) of this subsection; or
     (h) In the case of final payments on highway construction contracts, the secretary of transportation determines that the contractor has failed to properly submit the necessary documents and other submissions required by the contract and other applicable state and federal laws which enable the department of transportation to process the final payment properly and expeditiously.
     Any time taken to satisfy or rectify any of the types of conditions described in this subsection shall extend the required payment date by an equal period of time.
     (3) Each state agency has fifteen calendar days after receipt of an invoice by the state agency at its designated payment office to notify the contractor of defects in the delivered goods, property, or services; defects in the invoice; or suspected improprieties of any kind. The existence of any defects or improprieties shall prevent the commencement of the time period specified in subsection (2) of this section. When a state agency fails to notify a contractor of defects or suspected improprieties within fifteen calendar days of receiving the invoice, the number of days allowed for payment of the corrected proper invoice will be reduced by the number of days between the fifteenth day and the day that notification was transmitted to the contractor. If the state agency, in these situations, fails to provide reasonable grounds for its contention that a defect or impropriety exists, the required payment date shall be calculated from the date of receipt of an invoice.
     (4) Notwithstanding any provision of the public service law or any tariffs promulgated in accordance with the law to the contrary, the provisions of this chapter provide the sole basis for determining and making interest payments on invoices submitted by public utilities to state agencies.
     (5) A proper invoice submitted by the contractor is required to initiate any payment, except where the contract provides that the contractor will be paid at predetermined intervals without having to submit an invoice for each scheduled payment, in which case the state agency responsible for making the purchase shall submit an approvable voucher to the state treasurer for the payment that is due and, for the purposes of determining eligibility for payment of interest and subject to the exception of time-to-rectify provisions of subsection (2) of this section, the required payment date is the payment due date specified in accordance with the contract.

NEW SECTION.  Sec. 4   Interest payments on amounts due to a contractor according to this chapter shall be paid to the contractor for the period beginning on the day after the required payment date, and ending on the payment date, for those payments required according to this chapter and shall be paid at the rate of interest in effect on the date when the interest payment is made. Notwithstanding any other provision of law to the contrary, the interest rate equals one percent per month.

NEW SECTION.  Sec. 5   (1) Except where federal law or the provisions of section 12 of this act require otherwise, an interest payment required by this chapter shall be paid from the same appropriation from which the related proper invoice is paid.
     (2) The interest payment shall not reduce the amount of money that otherwise will be payable to the contractor under the terms of the contract, and if the obligation to make an interest payment is incurred in whole or in part because it takes the state treasurer more than twelve calendar days from the date it receives an approvable voucher from another state agency, excluding legal holidays, to process a contract payment, then the portion of the total interest payment that is attributable to delays by the state treasurer shall be paid from funds made available to the state treasurer.
     (3) Notwithstanding any other provision of law to the contrary, if the amount of money available from any appropriation to the state agency which received the proper invoice is insufficient to pay the interest, and if for any reason it is not feasible for the director of financial management to exercise the transfer or interchange authority, the director of financial management may issue a certificate or certificates transferring or interchanging within a fund the amount needed to pay the interest on the appropriation within the fund from the unspent balance of any appropriation that is available to the same state agency.
     (4) In exercising the latter transfer or interchange authority, the director of financial management shall transfer or interchange amounts that are not needed to accomplish the purposes for which the appropriation was made, however, the director of financial management may, to the extent deemed practicable, transfer or interchange amounts from appropriations that otherwise would be available for the administration and operations of the state agency which incurred the interest payment.
     (5) Any certificate or certificates issued by the director of financial management shall be sent to the state treasurer.

NEW SECTION.  Sec. 6   Any interest paid to a contractor under the provisions of this chapter shall not be included as revenue for the purposes of determining any reimbursement rates applicable to a contractor.

NEW SECTION.  Sec. 7   (1) Except as provided in subsection (2) of this section, in the event that an interest payment is made by a contractor in the course of transacting business with any entity other than a state agency, the interest shall not be an obligation of the state, and the state shall not reimburse the contractor for the interest, nor shall any moneys expended for interest payments be counted toward any matching requirement applicable to grants or payments of state funds unless expressly permitted by state law.
     (2) If a contractor incurs an interest obligation or charge as a direct result of the state agency's failure to make a payment in accordance with the provisions of this chapter, then the state agency must reimburse the contractor for the amount of the interest obligation or charge.

NEW SECTION.  Sec. 8   The acceptance of payment, in whole or in part, by a contractor does not constitute a waiver of interest otherwise due under the provisions of this chapter.

NEW SECTION.  Sec. 9   No contract entered into between a state agency and a contractor after July 1, 2003, shall contain any provision requiring the payment of interest in a manner inconsistent with this chapter, and any provision contained in a contract which waives the right to the payment of interest is hereby declared to be contrary to public policy and wholly void.

NEW SECTION.  Sec. 10   (1) The state treasurer shall:
     (a) Adopt rules necessary to carry out the state treasurer's responsibilities under this chapter;
     (b) Develop and implement a procedure for calculating the amount of interest, if any, due to any contractor under the provisions of this chapter. This procedure shall include provisions for calculating:
     (i) The amount of time, in calendar days, between the date of receipt of a proper invoice by the state agency and the date on which an approvable voucher was delivered to the state treasurer;
     (ii) The amount of time between the date on which an approvable voucher was delivered to the state treasurer and the payment date;
     (iii) The amount of interest, if any, chargeable to the state agency involved according to this chapter; and
     (iv) The amount of interest, if any, chargeable to the state treasurer according to this chapter;
     (c) Develop and implement a procedure for paying interest in not more than seven days from the payment date on those proper invoices for which interest is due and for which the director of financial management does not issue a certificate or certificates increasing, transferring, or interchanging funds so that an interest payment can be made according to this chapter. The state treasurer shall also develop and implement a procedure for paying interest in not more than fourteen days from the payment date on those proper invoices for which interest is due and for which the director of financial management does issue a certificate or certificates increasing, transferring, or interchanging funds so that an interest payment can be made according to this chapter;
     (d) Develop and implement a procedure by which the state treasurer notifies contractors expeditiously and directly whenever the state treasurer rejects a voucher and returns it to a state agency.
     (2) The state treasurer shall submit a report to the governor and the legislature which includes the number and amounts of interest payments made for each state agency, the number of interest chargeable days, the number of days taken to process contract payments, the extent to which delays occurred because a state agency took longer than allotted under the provisions of this chapter to process the affected invoices and the extent to which delays occurred because the state treasurer took longer than allotted by the provisions of this chapter to process the related vouchers, and a summary of the principal reasons causing late payments. The report shall be delivered to the governor and legislature within sixty calendar days after the conclusion of each fiscal year.

NEW SECTION.  Sec. 11   Any determination made by a state agency according to section 3(3) of this act is subject to judicial review. The proceedings shall only be commenced in the absence, or upon completion, of other review procedures specified in the applicable contract or by applicable regulations.

NEW SECTION.  Sec. 12   (1) Notwithstanding any other provision of law to the contrary, the liability of the state treasurer, insofar as incurring an obligation to make an interest payment to a contractor under the terms of this chapter is concerned, shall not extend beyond the date of a notice of intention to file a claim, the date of a notice of a claim, or the date commencing a legal action for the payment of interest, whichever occurs first. Any interest payment owed by the state agency in accordance with the provisions of this chapter as of this date shall be paid as directed by the court, and to the extent that the interest payment is attributable to processing delays caused by the state agency which received the proper invoice or by processing delays caused by the state treasurer, the interest payment shall be made from funds available to the state agency or to the state treasurer at the time of final judgment.
     (2) With respect to the court actions or other legal processes referred to in this section, any interest obligation incurred by the state agency after the date specified in this chapter, or in accordance with any other provision of law, shall be determined as prescribed by any separate provision of law, shall be paid as directed by the court, and shall be paid from any appropriation available for that purpose.

NEW SECTION.  Sec. 13   The provisions of this chapter shall not apply to payments due and owing by the state:
     (1) Under the eminent domain procedure law, chapter 8.04 RCW;
     (2) As interest allowed on judgments rendered by a court according to any provision of law other than those provisions contained in this chapter;
     (3) To the federal government, to any state agency or its related instrumentalities, to any duly constituted unit of local government including, but not limited to, counties, cities, towns, school districts, special districts, or any of their related instrumentalities, to any public authority or public benefit corporation, or to employees of state agencies when acting in, or incidental to, their public employment capacity;
     (4) To entities which receive state funds through any intermediary organization other than a state agency; or
     (5) In situations where the state agency exercises a legally authorized setoff against all or part of the payment due the contractor.

NEW SECTION.  Sec. 14   For the purpose of making a final payment on a highway construction contract, the date to be used for determining the receipt of an invoice in section 3(2) of this act is the date the contract work has been accepted as completed by the secretary of transportation.

NEW SECTION.  Sec. 15   If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.

NEW SECTION.  Sec. 16   This act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and takes effect July 1, 2003.

NEW SECTION.  Sec. 17   This act may be known and cited as the expeditious payment act.

NEW SECTION.  Sec. 18   Sections 1 through 17 of this act constitute a new chapter in Title 39 RCW.