The following are just a few of the legislative issues that may be considered by FlaSEIA and the construction industry for the 2004 Legislative Session:
Retainage
Four years ago, lawmakers attempted to place a limitation on the
amount of retainage that could be withheld by the owner of construction projects
in order to increase cash flow. Initially, the proposal sought to address
retainage in both public and private contracts. Early on in the process, the
private contract provision was abandoned.
The issue of the Legislature limiting contractual flexibility was at the center of the debate between the construction industry and state and local governments. Even the construction industry was not united in the effort to bring equity to the construction payment system.
Ultimately, the Legislature decided to direct the Office of Program Policy Analysis and Governmental Accountability (OPPAGA) to conduct an independent study of various construction industry practices and determine whether Florida’s construction law should be revised.
The OPPAGA report released in January 2001 was critical of many of the proposals put forth by the construction industry, dimming any prospects for retainage reform during the 2001 Legislative Session.
There were positive aspects to the report. The prospect of earning interest on retainage was one area in which the OPPAGA report seemed to offer some hope for the construction industry. The report also suggested retainage could be released in conjunction with the completion of specific activities or division of work. OPPAGA also recommended the Department of Management Services (DMS) identify the best practices that could be employed to limit the barriers to final project completion and facilitate the equitable release of retainage.
Subcontractors are ready to put the failed attempts at retainage reform behind them and move forward with new legislation in 2004. Proponents are looking at some legislation recently enacted by other states, reforming the common construction practice of withholding a certain percentage of the contract until the project is completed satisfactorily.
Limiting Use of Owner Controlled Insurance Programs in
Public Construction
After coming so close in 2003, both sides hope to hold the line
on the compromise forged during the recent legislative regular session limiting
the use of Owner Controlled Insurance Programs (OCIPs) on public projects. OCIPs
are also known as "wrap-ups." The basic principle of OCIPs or Wrap-ups
is that the owner furnishes a single insurance program for all parties involved
in the project for the project term. With these programs, the contractors and
subcontractors have no choice except to use Workers’ Compensation and General
Liability coverage provided by the owner. On a recent FDOT project, contractors
were charged 150% of standard workers’ comp premiums, one and one half times
their modifier to cover workers’ comp and general liability insurance
premiums. This is substantially in excess of what the contractor would put in
his bid to purchase his own coverage.
Tax Exempt Purchase of Construction Materials (Public
Projects)
This is an issue that will have to wait for better economic
conditions in the state. State revenues will have to increase significantly
before proponents trot this issue out again. Even then, look for it to be phased
in over several years. This legislation would allow governmental entities, on a
project-by-project basis, to designate contractors and subcontractors who may
purchase construction materials for public projects tax exempt. This new
procedure is an alternative to the current system which requires governmental
entities to purchase, take possession of, and pay for materials direct in order
to purchase them tax exempt. It is anticipated that this alternative method will
eliminate the substantial audit risks and penalties that currently exist for
contractors, subcontractors and suppliers who may not understand and strictly
comply with the current direct purchase requirements of the Florida Department
of Revenue. It would also eliminate the delays that can occur when a
governmental entity makes direct purchase of materials.