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
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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
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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
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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
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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
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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
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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
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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
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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.
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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.
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