The Missouri legislature has passed a bill, S.B.529, to modify the Public Prompt Pay Act, which will become law effective August 28, 2014 (unless vetoed by Governor Nixon prior to July 14, 2014).
One of the law's main features is to include architects, engineers and other professionals in the scope of those entitled to be paid promptly – which was not very controversial. However, the law also included some provisions that may take people by surprise:
- Retainage is limited to 5 percent, except for unbonded projects or where the owner shows justification for needing more retainage, in which cases the owner can keep up to 10 percent.
- If the public owner waives the surety bond requirement (now raised to contracts of more than $50,000) – or anytime "where the surety fails to execute its duties," the public owner may be required to pay subcontractors and suppliers directly – even if it has already paid the general contractor.
- At substantial completion, the retainage must be reduced to no more than 2 percent of the amount retained, which means that if retainage was 5 percent, the public owner can only keep 1/10th of one percent retainage after substantial completion.
- If the public owner does not approve a payment application in full, or accept work as substantially complete, it must give a written explanation of its reasons within fourteen days, or it is compelled to reduce the retainage to 2 percent of the amount retained.
- The amount that the owner can hold back for punch-list work is reduced to 150 percent of the value of the item.
These new provisions should cause public owners, general contractors and sureties to give serious thought to making changes in the way they do business.