HBA-MPM C.S.H.B. 2850 77(R) BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 2850 By: Brimer Business & Industry 4/17/2001 Committee Report (Substituted) BACKGROUND AND PURPOSE Currently, contractors and subcontractors may not be adequately protected from a decision by an owner who contracts for repair or improvements to withhold or delay retainage payments. Retainage is the amount of a contract payment that is not required to be paid to a contractor or subcontractor who performs labor, furnishes material, or delivers specially fabricated material within a specified time period. C.S.H.B. 2850 sets deadlines for interest payments for the amount of interest charged on overdue payments. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. ANALYSIS C.S.H.B. 2850 amends the Government Code to require a governmental entity to deposit the retainage of a public works contract in an account that bears interest at a rate not less than the pool rate rather than more that five percent. The pool rate: _for a state agency is the interest rate established for the investment pool managed by the comptroller known as the state treasury pool; and _for all other governmental entities is the interest rate yield as determined by the comptroller of the investment pool managed by the comptroller known as TexPool. The bill requires a prime contractor to pay to a subcontractor from whom retainage is withheld the percentage of interest received from a governmental entity that is attributable to the subcontractor's work. A subcontractor is required to pay to its subcontractor from whom retainage is withheld the percentage of the interest received from the prime contractor that is attributable to its subcontractor's work. The bill requires the person paying the interest to do so within the period prescribed for payment by law. The bill provides that if a governmental entity is obligated to pay interest and does not make the interest payments within the specified period, interest accrues at a rate of one percent each month, less interest at the pool rate. If a prime contractor or subcontractor is obligated to pay interest and does not make the interest payments within the specified period, interest accrues at the rate of one percent each month. The bill specifies that a provision of this bill may not be waived by contract or otherwise. EFFECTIVE DATE September 1, 2001. COMPARISON OF ORIGINAL TO SUBSTITUTE C.S.H.B. 2850 differs from the original bill by amending the Government Code rather than the Business & Commerce Code. The substitute requires a governmental entity to deposit the retainage of a public works contract in an account that bears interest at a rate not less than the pool rate, and specifies the amount of interest a prime contractor is required to pay to its subcontractor and that a subcontractor is required to pay its subcontractor from whom retainage is withheld. The substitute sets forth a deadline for the payment of interest and provides for interest on overdue interest payments from a governmental entity, prime contractor, or subcontractor. The original bill provided that retainage withheld under a construction contract principally for the construction or repair of improvements to real property accrues interest at the prime rate, with the exception that any retainage withheld after the 45th day after the work is completed accrues interest at 11/2 percent each month. The original bill provided that interest on retainage begins accruing on the date payment is due for the labor performed, material furnished, or specially fabricated material delivered and specified the time periods when interest stops accruing on retainage owed by the owner of real property or another person.