PRINTER'S NO. 2205
No. 1513 Session of 2002
INTRODUCED BY MOWERY, LEMMOND, M. WHITE AND A. WILLIAMS, AUGUST 30, 2002
REFERRED TO STATE GOVERNMENT, AUGUST 30, 2002
AN ACT 1 Amending Title 62 (Procurement) of the Pennsylvania Consolidated 2 Statutes, further providing for time for awarding contract; 3 providing for claims for concealed or unknown conditions; 4 further providing for retainage, for government agency's 5 progress payment obligations, for penalty and attorney fees, 6 for applicability and for substantial/final payment under 7 contract; providing for mediation; further providing for 8 arbitration; and providing for role of architect or engineer. 9 The General Assembly of the Commonwealth of Pennsylvania 10 hereby enacts as follows: 11 Section 1. Section 3911 of Title 62 of the Pennsylvania 12 Consolidated Statutes is amended by adding a subsection to read: 13 § 3911. Time for awarding contract. 14 * * * 15 (e) Delays beyond contractor's control.--If a contractor is 16 prevented from completing any part of the work within the 17 mandated times or milestones of the construction contract or 18 construction schedule due to delay beyond the control of the 19 contractor, the contract times or milestones will be extended in 20 an amount equal to the time lost due to the delay if a request
1 for extension is made in writing. Delays beyond the control of 2 the contractor shall include, but not be limited to, acts or 3 neglect by the government agency and the engineer or architect, 4 acts or neglect of utility owners or other contractors 5 performing other work on separate contracts, fires, floods, 6 strikes, unforeseen material shortages, epidemics, abnormal 7 weather conditions or acts of God. 8 Section 2. Title 62 is amended by adding a section to read: 9 § 3914. Claims for concealed or unknown conditions. 10 (a) General rule.--If conditions are encountered at the site 11 which are: 12 (1) subsurface or otherwise concealed physical 13 conditions which differ materially from those indicated in 14 the construction contract or construction drawings or plans 15 accompanying the contract; or 16 (2) unknown physical conditions of an unusual nature 17 which differ materially from those ordinarily found to exist 18 and generally recognized as inherent in construction 19 activities of the character provided for in the construction 20 contract or construction drawings or plans accompanying the 21 contract. 22 Notice by the observing party shall be given to the other party 23 promptly before conditions are disturbed and in no event later 24 than 21 days after the first observance of the conditions. The 25 architect or engineer will promptly investigate the conditions 26 and, if they differ materially and cause an increase or decrease 27 in the contractor's cost of or time required for performance of 28 any part of the work, shall recommend an equitable adjustment in 29 the contract sum, contract time, or both. 30 (b) Nonserious conditions.--If the architect or engineer 20020S1513B2205 - 2 -
1 determines that the conditions at the site are not materially 2 different from those indicated in the construction contract or 3 construction drawings or plans accompanying the contract and 4 that no change in the terms of the contract is justified, the 5 architect or engineer shall so notify the owner and contractor 6 in writing, stating the reasons. 7 (c) Objections.--Claims by either party in opposition to a 8 determination under subsection (a) or (b) must be made within 21 9 days after the architect or engineer has given notice of the 10 decision. 11 (d) Materially different conditions.--If the conditions 12 encountered are materially different, the contract sum and 13 contract time shall be equitably adjusted, but if the owner and 14 contractor cannot agree on an adjustment in the contract sum or 15 contract time, the adjustment shall be subject to arbitration 16 under section 3942 (relating to arbitration). 17 Section 3. Sections 3921(a), 3932(c), 3935, 3938, 3941(a) 18 and 3942 of Title 62 are amended to read: 19 § 3921. Retainage. 20 (a) Contract provision.--A contract may include a provision 21 for the retainage of a portion of the amount due the contractor 22 to insure the proper performance of the contract except that the 23 sum withheld by the government agency from the contractor shall 24 not exceed [10%] 6% of the amount due the contractor until 50% 25 of the contract is completed. When the contract is 50% 26 completed, one-half of the amount retained by the government 27 agency shall be returned to the contractor. However, the 28 architect or engineer must approve the application for payment, 29 which approval shall not be unreasonably withheld. The 30 contractor must be making satisfactory progress, and there must 20020S1513B2205 - 3 -
1 be no specific cause for greater withholding. If the engineer or 2 architect determines that there is a specific cause for greater 3 withholding, the reason or reasons must be specified in detail 4 to the contractor. The decision can be challenged by the 5 contractor on the basis of reasonableness in the arbitration 6 procedure provided for in section 3942 (relating to 7 arbitration). The sum withheld by the government agency from the 8 contractor after the contract is 50% completed shall not exceed 9 [5%] 3% of the value of completed work based on monthly progress 10 payment requests. In the event a dispute arises between the 11 government agency and any prime contractor, which dispute is 12 based upon increased costs claimed by one prime contractor 13 occasioned by delays or other actions of another prime 14 contractor, additional retainage in the sum of one and one-half 15 times the amount of any possible liability may be withheld until 16 [such time as] a final resolution is agreed to by all parties 17 directly or indirectly involved or the justification and 18 reasonableness for the additional withholding is decided by 19 arbitration under section 3942, unless the contractor causing 20 the additional claim furnishes a bond satisfactory to the 21 government agency to indemnify the agency against the claim. All 22 money retained by the government agency may be withheld from the 23 contractor until substantial completion of the contract. 24 * * * 25 § 3932. Government agency's progress payment obligations. 26 * * * 27 (c) Interest on progress payments not timely made.--[Except 28 as otherwise agreed by the parties, if any progress payment] If 29 a progress payment, which shall include payment for change 30 orders or claims against the government agency which are either 20020S1513B2205 - 4 -
1 agreed to or later found to be proper and warranting payment, 2 less the applicable retainage amount [as] authorized [in] under 3 section 3921, is not made to a contractor or design professional 4 by the due date established in the contract or in subsection 5 (b), the government agency shall pay to the contractor or design 6 professional, in addition to the amount due, interest on the 7 amount due, and the interest shall be computed at the rate 8 determined by the Secretary of Revenue for interest payments on 9 overdue taxes or the refund of taxes as provided in sections 806 10 and 806.1 of the act of April 9, 1929 (P.L.343, No.176), known 11 as The Fiscal Code. 12 * * * 13 § 3935. Penalty and attorney fees. 14 (a) Penalty.--If arbitration or a claim with the Board of 15 Claims or a court of competent jurisdiction is commenced to 16 recover payment due under this subchapter and it is determined 17 that the government agency, contractor or subcontractor has 18 failed to comply with the payment terms of this subchapter[,] or 19 has improperly withheld payment to the contractor for reasons 20 including those set forth in subsection (b), the arbitrator, the 21 Board of Claims or the court [may] shall award, in addition to 22 all other damages due, a penalty equal to 1% per month of the 23 amount that was withheld.[in bad faith. An amount shall be 24 deemed to have been withheld in bad faith to the extent that the 25 withholding was arbitrary or vexatious. An amount shall not be 26 deemed to have been withheld in bad faith to the extent it was 27 withheld pursuant to section 3934 (relating to withholding of 28 payment for good faith claims).] 29 (b) Attorney fees.--Notwithstanding any agreement to the 30 contrary, the prevailing party in any proceeding to recover any 20020S1513B2205 - 5 -
1 payment under this subchapter [may] shall be awarded a 2 reasonable attorney fee in an amount to be determined by the 3 Board of Claims, court or arbitrator, together with expenses, if 4 it is determined that the government agency, contractor or 5 subcontractor [acted in bad faith. An amount shall be deemed to 6 have been withheld in bad faith to the extent that the 7 withholding was arbitrary or vexatious.] withheld payment 8 improperly. Failure on the part of the architect or engineer to 9 do any of the following shall constitute withholding payment 10 improperly by the government agency: 11 (1) make a final inspection; 12 (2) issue a certificate of completion when warranted 13 under section 3941 (relating to substantial/final payment 14 under contract); 15 (3) list in detail each uncompleted item and a 16 reasonable cost of completion as required under section 3941; 17 (4) arbitrarily withhold amounts due to the contractor, 18 including payment for approved change orders; 19 (5) improperly deduct or continue to withhold payment to 20 the contractor of retainage due. 21 § 3938. Applicability. 22 (a) Not applicable in certain situations.--[This subchapter 23 shall not apply in the following situations: 24 (1) Section 3932 (relating to government agency's 25 progress payment obligations) shall not apply when the 26 Commonwealth agency's nonpayment on a particular project is 27 caused by the failure of the General Assembly to enact a 28 budget for the fiscal year of payment. 29 (2) Section 3932 shall not apply when a local government 30 unit's nonpayment on a particular project is caused by 20020S1513B2205 - 6 -
1 failure of the Federal or State Government to pay funds due 2 and payable to the local government unit. 3 (3) Section 3932 shall not apply when a government 4 agency's nonpayment on a particular project is caused by the 5 failure of the General Assembly to enact an operating budget 6 for the fiscal year of payment or a capital budget for the 7 capital project or by failure of the Federal, State or local 8 government to pay funds designated or to be designated for 9 the specific project. 10 (4)] Nothing in this subchapter shall be construed to 11 require payment of interest penalties by the Federal or State 12 Government if the local government unit is liable for the 13 interest. 14 (b) Not applicable to following entities.--This chapter 15 shall not apply to any of the following provided that all 16 bidders to contracts entered into are informed of the status of 17 the government agency and are advised that this chapter does not 18 apply to all contracts bid and awarded by the government agency: 19 (1) A municipality determined to be distressed under the 20 act of July 10, 1987 (P.L.246, No.47), known as the 21 Municipalities Financial Recovery Act. 22 (2) A school district which has been determined to be a 23 distressed school district under section 691 of the act of 24 March 10, 1949 (P.L.30, No.14), known as the Public School 25 Code of 1949. 26 (3) A city of the first class that has entered into an 27 intergovernmental cooperation agreement under the act of June 28 5, 1991 (P.L.9, No.6), known as the Pennsylvania 29 Intergovernmental Cooperation Authority Act for Cities of the 30 First Class, for so long as any deficit-reducing bonds issued 20020S1513B2205 - 7 -
1 by the authority pursuant to section 301(b)(1) of that act 2 are outstanding and payable. 3 (4) A corporate entity or school district as defined in 4 the Pennsylvania Intergovernmental Cooperation Authority Act 5 for Cities of the First Class. 6 (5) A transportation authority organized or operating 7 under 74 Pa.C.S. Ch. 17 (relating to metropolitan 8 transportation authorities). 9 § 3941. Substantial/final payment under contract. 10 (a) Contract containing provision for retainage.-- 11 (1) A contract containing a provision for retainage as 12 provided in section 3921 (relating to retainage) shall 13 contain a provision requiring the architect or engineer to 14 make final inspection within 30 days of receipt of the 15 request of the contractor for final inspection and 16 application for final payment. 17 (2) If the work is substantially completed, the 18 architect or engineer shall issue a certificate of completion 19 and a final certificate for payment, and the government 20 agency shall make payment in full within 45 days except as 21 provided in section 3921, less only one and one-half times 22 the amount required to complete any then-remaining 23 uncompleted minor items, which amount shall be certified by 24 the architect or engineer and, upon receipt by the government 25 agency of any guarantee bonds which may be required, in 26 accordance with the contract, to insure proper workmanship 27 for a designated period of time. 28 (3) If the architect or engineer unreasonably withholds 29 a determination of substantial completion or the issuance of 30 a certificate of completion and a final certificate for 20020S1513B2205 - 8 -
1 payment, such action shall constitute failure to comply with 2 the payment terms under section 3935(a) (relating to penalty 3 and attorney fees) and withholding payment improperly under 4 section 3935(b) on the part of the government agency. 5 (4) The certificate given by the architect or engineer 6 shall list in detail each uncompleted item and a reasonable 7 cost of completion. If the architect or engineer fails to 8 provide a list in detail, together with the reasonable cost 9 of completion, within 30 days after receipt of the request of 10 the contractor for final inspection and application for final 11 payment and substantial completion has been attained, it will 12 be presumed that there are no uncompleted items and final 13 payment, including release of retainage, shall be made to the 14 contractor within 45 days of the final payment application. 15 (5) If a claim is filed by a contractor under this 16 section and it is disputed by the government agency, the 17 contractor may request that it be decided by the use of the 18 expedited arbitration procedure of the Construction Industry 19 Rules of the American Arbitration Association. 20 (6) Final payment of any amount withheld for the 21 completion of [the] minor items shall be paid upon completion 22 of [the items] each such item in the certificate of the 23 engineer or architect. 24 * * * 25 § 3942. Arbitration. 26 If a dispute should arise between the contractor and the 27 government agency over the payment of retainages and final 28 payment or under or arising from the terms or performance of the 29 construction contract, which dispute is not submitted to or 30 resolved by mediation, then the dispute shall be arbitrated 20020S1513B2205 - 9 -
1 under the applicable terms of the contract. If the contract 2 contains no provision for arbitration, [then both parties may 3 mutually agree to arbitrate] the dispute shall be arbitrated 4 under the rules of the American Arbitration Association or in 5 accordance with 42 Pa.C.S. Ch. 73 (relating to arbitration) at 6 the choice of the claimant. In any event, either party shall 7 have the right of appeal from any decision and award as provided 8 by law. 9 Section 4. Title 62 is amended by adding a section to read: 10 § 3942.1. Mediation. 11 (a) General rule.--A claim arising under the terms of the 12 construction contract or the performance of the contract shall, 13 after initial decision by the architect or engineer, be subject 14 to mediation at the request of either party. 15 (b) Procedure.-- 16 (1) The parties shall endeavor to resolve their claims 17 by mediation which, unless the parties mutually agree 18 otherwise, shall be in accordance with the Construction 19 Industry Mediation Rules of the American Arbitration 20 Association currently in effect. A request for mediation 21 shall be filed in writing with the other party to the 22 contract and with the American Arbitration Association. 23 (2) The request may be made concurrently with the filing 24 of a demand for arbitration, in which case mediation shall 25 proceed in advance of arbitration or legal or equitable 26 proceedings which shall be stayed pending mediation for a 27 period of 30 days from the date of filing unless stayed for a 28 longer period by agreement of the parties. 29 (3) The parties shall share the mediator's fee and any 30 filing fees equally. 20020S1513B2205 - 10 -
1 (4) The mediation shall be held in the area where the 2 project is located unless another location is mutually agreed 3 upon. 4 (5) Agreements reached in mediation shall be enforceable 5 as settlement agreements in a court having jurisdiction. 6 Section 6. Chapter 39 of Title 62 is amended by adding a 7 subchapter to read: 8 SUBCHAPTER F 9 ROLE OF ARCHITECT OR ENGINEER 10 Sec. 11 3951. General rules. 12 § 3951. General rules. 13 (a) Government agency's representative and agent.-- 14 Construction contracts awarded by a government agency shall 15 provide that the architect or engineer will be the government 16 agency's representative and agent during the construction 17 period. 18 (b) Contract provisions.--Construction contracts shall also 19 provide that the architect and engineer are bound to the 20 provisions of the contract in carrying out their duties and 21 responsibilities in a professional and competent manner, and no 22 indemnification or waiver clause in a construction contract 23 shall vary or lessen their duties and responsibilities. 24 (c) Impartiality.--While functioning as architect or 25 engineer under any construction contract awarded by a government 26 agency, the architect or engineer must not show partiality in 27 interpretations and decisions of provisions of the contract, but 28 must serve in an impartial manner. 29 Section 7. This act shall take effect in 60 days. F19L62MRD/20020S1513B2205 - 11 -