Senate File 431 - Introduced SENATE FILE 431 BY BOUSSELOT A BILL FOR An Act relating to retention of fees for public improvement 1 contracts. 2 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 3 TLSB 1936XS (2) 91 sc/js
S.F. 431 Section 1. Section 573.7, Code 2025, is amended by adding 1 the following new subsections: 2 NEW SUBSECTION . 3. After a claim has been filed, upon the 3 general contractor filing with the public corporation or person 4 withholding the funds a surety bond in double the amount of the 5 claim in controversy, conditioned to pay any final judgment 6 rendered for the claim so filed, the public corporation or 7 person withholding the funds shall pay to the contractor the 8 full amount of retention held for the project or double the 9 amount of the claim, whichever is less. Payment shall be made 10 to the contractor within twenty days of receipt by the public 11 corporation of the surety bond. Failure to make payment by 12 that date shall cause interest to accrue on the unpaid amount 13 during the period commencing on the twenty-first day after the 14 public corporations receipt of the surety bond and ending on 15 the date of payment. The rate of interest shall be determined 16 pursuant to section 573.14, subsection 2. This subsection is 17 not subject to or limited by section 573.14, subsection 1, or 18 section 573.16 or 573.28. 19 NEW SUBSECTION . 4. Upon written demand of the contractor 20 served, in the manner prescribed for original notices, on the 21 person filing a claim, requiring the claimant to commence 22 action in court to enforce the claim, an action shall be 23 commenced within thirty days. The claim is barred if an action 24 is not commenced within thirty days. Upon the claim being 25 barred, the public corporation or person withholding the funds 26 shall pay to the contractor the full amount of retention held 27 for the project or double the amount of the claim, whichever is 28 less. Payment shall be made to the contractor within twenty 29 days of receipt by the public corporation of a payment demand 30 by the contractor accompanied by copies of the written demand 31 and proof of service upon the person filing the claim. Failure 32 to make payment within twenty days shall cause interest to 33 accrue on the unpaid amount, commencing on the twenty-first 34 day after the date of the public corporations receipt of 35 -1- LSB 1936XS (2) 91 sc/js 1/ 5
S.F. 431 the payment demand by the contractor with the accompanying 1 documents and ending on the date of the payment. The rate 2 of interest shall be determined pursuant to section 573.14, 3 subsection 2. This subsection is not subject to or limited by 4 section 573.14, subsection 1, or section 573.16 or 573.28. 5 Sec. 2. Section 573.12, subsection 1, Code 2025, is amended 6 by adding the following new paragraph: 7 NEW PARAGRAPH . c. At any time, a principal contractor may 8 post with the public corporation a retention bond, with surety, 9 in the amount of five percent of the original contract price 10 to serve as a substitute for the retention funds. Upon the 11 public corporations receipt of the retention bond, the public 12 corporation shall pay to the contractor all retention funds 13 being held, if any, and shall not hold any further retention 14 funds on the project. Payment shall be made to the contractor 15 within twenty days of receipt by the public corporation of the 16 retention bond. Failure to make payment within twenty days 17 shall cause interest to accrue on the unpaid amount beginning 18 on the twenty-first day after the public corporations receipt 19 of the retention bond and ending on the date of the payment. 20 The rate of interest shall be determined pursuant to section 21 573.14, subsection 2. This paragraph is not subject to or 22 limited by section 573.14, subsection 1, or section 573.16 or 23 573.28. 24 Sec. 3. Section 573.14, Code 2025, is amended to read as 25 follows: 26 573.14 Retention of unpaid funds. 27 1. The Except as otherwise provided in this chapter, the 28 fund provided for in section 573.13 shall be retained by the 29 public corporation for a period of thirty days after the 30 completion and final acceptance of the improvement. If at the 31 end of the thirty-day period claims are on file, the public 32 corporation shall continue to retain from the unpaid funds a 33 sum equal to double the total amount of all claims on file. The 34 remaining balance of the unpaid fund, or if no claims are on 35 -2- LSB 1936XS (2) 91 sc/js 2/ 5
S.F. 431 file, the entire unpaid fund, shall be released and paid to the 1 contractor. 2 2. The public corporation shall order payment of any 3 amount due the contractor to be made in accordance with the 4 terms of the contract. Except as provided in section 573.12 5 for progress payments, failure to make payment pursuant to 6 this section , of any amount due the contractor, within forty 7 days, unless a greater time period not to exceed fifty days 8 is specified in the contract documents, after the work under 9 the contract has been completed and if the work has been 10 accepted and all required materials, certifications, and other 11 documentations required to be submitted by the contractor and 12 specified by the contract have been furnished the awarding 13 public corporation by the contractor, shall cause interest 14 to accrue on the amount unpaid to the benefit of the unpaid 15 party. Interest shall accrue during the period commencing 16 the thirty-first day following the completion of work and 17 satisfaction of the other requirements of this subsection and 18 ending on the date of payment. The rate of interest shall be 19 determined by the period of time during which interest accrues, 20 and shall be the same as the rate of interest that is in effect 21 under section 12C.6 , as of the day interest begins to accrue, 22 for a deposit of public funds for a comparable period of time. 23 However, for institutions governed pursuant to chapter 262 , 24 the rate of interest shall be determined by the period of time 25 during which interest accrues, and shall be calculated as the 26 prime rate plus one percent per year as of the day interest 27 begins to accrue. This subsection does not abridge any of the 28 rights set forth in section 573.16 elsewhere in this chapter . 29 Except as provided in sections 573.7, 573.12 , and 573.16 30 573.28 , interest shall not accrue on funds retained by the 31 public corporation to satisfy the provisions of this section 32 regarding claims on file. This chapter does not apply if the 33 public corporation has entered into a contract with the federal 34 government or accepted a federal grant which that is governed 35 -3- LSB 1936XS (2) 91 sc/js 3/ 5
S.F. 431 by federal law or rules that are contrary to the provisions of 1 this chapter . For purposes of this subsection , prime rate 2 means the prime rate charged by banks on short-term business 3 loans, as determined by the board of governors of the federal 4 reserve system and published in the federal reserve bulletin. 5 Sec. 4. Section 573.16, subsection 2, Code 2025, is amended 6 by striking the subsection. 7 Sec. 5. Section 573.21, Code 2025, is amended to read as 8 follows: 9 573.21 Attorney fees. 10 The court may shall tax, as costs, a reasonable attorney 11 fee in favor of any claimant under section 573.7 for labor or 12 materials who has, in whole or in part, established prevails on 13 a claim. The court shall tax, as costs, a reasonable attorney 14 fee in favor of any principal contractor who prevails, in whole 15 or in part, in any dispute with the public corporation related 16 to or arising out of the contract, retention funds, or the 17 public improvement. 18 EXPLANATION 19 The inclusion of this explanation does not constitute agreement with 20 the explanations substance by the members of the general assembly. 21 This bill relates to retention fees and bonds for public 22 improvement contracts. 23 The bill provides that after a claim has been filed for costs 24 incurred in the construction of a public improvement and the 25 general contractor has filed a surety bond in double the amount 26 of the claim in controversy with a public corporation or person 27 withholding funds, the public corporation or person must pay to 28 the contractor the full amount of retention funds held for the 29 project or double the amount of the claim, whichever is less. 30 Interest will accrue on the unpaid amount beginning on the 21st 31 day after the public corporations receipt of the surety bond. 32 The bill requires that after the contractor serves a 33 written demand on the person filing a claim, an action must 34 be commenced within 30 days, or the claim will be barred and 35 -4- LSB 1936XS (2) 91 sc/js 4/ 5
S.F. 431 the public corporation or person withholding the funds must 1 pay the contractor the full amount of retention funds held for 2 the project or double the amount of the claim, whichever is 3 less. Beginning on the 21st day after the public corporations 4 receipt of a payment demand by the contractor with the 5 accompanying documents, interest shall accrue on the unpaid 6 amount. 7 The bill allows a principal contractor to post with the 8 public corporation a retention bond, with surety, in the amount 9 of 5 percent of the original contract price as a substitute for 10 the retention funds that are retained by a public corporation 11 from each monthly payment for labor and material on a public 12 improvement contract. The public corporation must pay all 13 retention funds being held to the contractor within 20 days 14 and hold no further retention funds on the project. Beginning 15 on the 21st day after the public corporations receipt of the 16 retention bond, interest shall accrue on the unpaid amount of 17 the retention funds. 18 The bill strikes the requirement that the retained and 19 unpaid funds owed to the contractor be released if an action 20 is not commenced within 30 days of the contractor serving 21 written demand on the person filing a claim and that the public 22 corporation or person pay the contractor the withheld funds 23 after an action is commenced and the general contractor has 24 filed a surety bond. 25 Under current law, a court may grant a reasonable attorney 26 fee to a claimant who has established a claim. The bill 27 changes this to require a court to grant a reasonable attorney 28 fee to a claimant who prevails and to a principal contractor 29 who prevails in a dispute with a public corporation related to 30 the contract, retention funds, or the public improvement. 31 -5- LSB 1936XS (2) 91 sc/js 5/ 5