With new legislation popping up all over the map, it feels like construction payment laws are changing every other day. Considering the issues the industry has with payment, this is a good thing! States have been making progress toward a more transparent, efficient payment system. Recent revisions to the Connecticut Little Miller Act and retainage laws are a step in the right direction. However, the amendments apply only to public projects. Here’s the full text of the new laws, as well as a summary. These laws went into effect July 1, 2016.
Revisions to Connecticut Little Miller Act
The changes to the Connecticut Little Miller Act may seem small, but they should have a serious impact. Little Miller Acts mirror the Miller Act on a state level. In Connecticut, as with the federal act, public projects exceeding $100,000 require that the prime contractor secure payment bonds on the project. Because public property cannot be liened, this gives security to unpaid subcontractors and suppliers. According to the Act, a surety must respond to claims made on the bond within 90 days.
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Under the new revisions, the 90 day deadline has been given teeth. Previously, there was no real penalty for exceeding the 90 day period. A judge could punish the surety by assessing them the claimant’s costs and attorneys’ fees, but that remained at the court’s discretion. With the recent changes, a surety must pay or deny a claim within 90 days. Should the surety fail to respond to the claim within 90 days and eventually lose a dispute, the surety will be liable for reasonable costs and attorneys’ fees of the prevailing party. While this may not seem like a huge change, it should serve to speed up payment for subcontractors and suppliers. At the very least, it will cause sureties to inform subs and suppliers of payment disputes more quickly.
Revisions to Connecticut Retainage Laws
The revisions to Connecticut’s retainage laws are a little more complex.
Retainage laws are infamous for clouding an already complex payment system. While the changes may not make the law any more simple, they do benefit Connecticut contractors, subs, and suppliers. These revisions also bring public projects closer to being in line with private projects, which should encourage more competition for contracts with the state.
Previously under Connecticut retainage laws, an awarding entity could withhold up to 10% of payment to a prime contractor on a public project. By withholding this amount, the goal was to encourage the completion of the project while also protecting against payment disputes. But construction projects can be huge, costly, and time consuming beasts. By allowing an entity to withhold so much of a project until the very end, Connecticut contractors, subs, and suppliers were left hanging on the home stretch of a project. Changes to the retainage laws help ease this pain.
Under the new legislation, the maximum amount an awarding authority can withhold from a prime contractor is 7.5%. This number decreases to 5% once a project is half completed. The payment to reduce the amount of retainage from as much as 7.5% down to 5% must be made within 90 days of an application for payment. The application for payment may be made when a project is more than half way completed and should be sent by a contractor or subcontractor to the awarding authority.
The revisions also contain provisions limiting retainage between a prime contractor and a subcontractor or supplier. A prime contractor may only withhold the lesser of 7.5% (5% after completing more than half of the project) and the amount the awarding authority withheld from the prime.
There are exceptions to the new retainage number, however. For municipalities, retainage may not exceed 5%. For contracts with the Department of Transportation and Development, retainage is limited to 2.5%. These figures apply both between the awarding authorities and prime contractors as well as between prime contractors and subcontractors or suppliers. Agreements with neither municipalities nor the Department of Transportation and Development have timing provisions which drop the allowed rate of retainage.
Effects of the New Legislation
Both the revisions to the Little Miller Act and the changes to retainage on public projects bode well for Connecticut contractors, subs and suppliers. The new legislation should result in payment reaching the bottom of the chain more quickly. However, some of the revisions may initially require getting used to.
For the retainage provisions, Connecticut contractors and subs can expect payment to speed up on public projects. By dropping initial retainage amounts then cutting them again after half of the project is completed, the new laws will free up money for contractors. With more money available immediately, prime contractors can send payments down the chain more quickly which all subs and suppliers can appreciate. For that matter, these payments will also have less holdback. The lowered retainage amounts could also have the effect of enticing more contractors to bid on public projects. Without an intimidating 10% retainage looming over a project, contractors who might normally consider private projects should be more interested bidding on public projects.
The benefits of the Little Miller Act’s alterations are more concise. Now that the 90 day deadline to respond to a claim has an enforcement mechanism, sureties have no choice but to timely respond to claims. Real consequences now arise out of failure to do so, and the possibility of paying attorneys’ fees should really motivate sureties to quickly pay or deny claims.
Previously, we have provided many other considerations in Connecticut lien law. Additional information regarding Connecticut Lien Laws and Notice Requirements can be found in Levelset’s resources, here: Connecticut Lien and Notice FAQs.