Monday, April 15, 2013

Washington State Changes Retainage Release Review Process

The Washington State Department of Labor and Industries has announced a change in their review of Notices of Completion submitted by public agencies. A Notice of Completion is issued by public agencies after they established the final acceptance date for a public works construction project.

Affidavits must be on file before Notice of Completion:  Effective April 1, 2013, L&I will return any Notice of Completion to a public agency for which an Affidavit of Wages Paid has not been filed for the contractor and all subcontractors.  

Historic practice and requirements:  Prior to this change by L&I, the practice of many agencies was to submit the Notice of Completion immediately after the establishment of the final acceptance date, and to then collect the remaining Affidavits of Wages Paid.  This historical practice has been supported by RCW 39.12.040 that states the following:
"Following the final acceptance of a public works project, it shall be the duty of the officer charged with the disbursement of public funds, to require the contractor and each and every subcontractor from the contractor or a subcontractor to submit to such officer an "Affidavit of Wages Paid" before the funds retained according to the provisions of RCW 60.28.011 are released to the contractor."
According to RCW 60.28.051, the Notice of Completion must be submitted to L&I and the other two state agencies immediately after final acceptance has been established.  The definition of "forthwith" as used in the state law as noted below means "immediately; without delay":
"Upon completion of a contract, the state, county, or other municipal officer charged with the duty of disbursing or authorizing disbursement or payment of such contracts shall forthwith notify the department of revenue, the employment security department, and the department of labor and industries of the completion of contracts over thirty-five thousand dollars."
Is L&I's new procedure consistent with RCW 60.28.051?  L&I's policy introduces a delay in the public agency notifying L&I of final acceptance by stating that the Notice of Completion may not be submitted without all Affidavits being filed.  But RCW 39.12.040 states that the Affidavits are to be obtained by the public agency after final acceptance.  Thus, the correct procedural chronology would be as follows: 1) final acceptance, 2) immediately notify state agencies with Notice of Completion, and 3) obtain Affidavits of Wages Paid.  L&I's new policy forces agencies to essentially violate RCW 60.28.051 regarding immediate submission of the Notice of Completion to L&I.

Why was the change made?  L&I made the change to speed up their review process.  The change places the responsibility on the public agency and the contractor to ensure that all Affidavits of Wages Paid are on file before the Notice of Completion is submitted.   Public agencies, of course, may not release retainage to the contractor until they have received a release from L&I, the Employment Security Department, and the Department of Revenue.  And, of course, an agency must also wait a minimum of 45 days following final acceptance before releasing retainage.  

L&I's statement:  The following is language that L&I is providing to public agencies by email:
Newly submitted Notices of Completion (NOC) will receive preliminary review within two business days, after which incomplete NOCs will be returned to the public entity. Detailed review of complete NOCs should take 4 to 6 weeks.  After March 31, 2013, we will no longer process any Notice of Completion we receive that does not have filed affidavits of Wages Paid for all contractors. Instead, we will return unprocessed NOCs to the public entity.  Incomplete requests will not be reviewed for release of final payment. This change to our process is intended to reduce delays for contractors who have properly filed these Affidavits.
Contractor response:  The Associated General Contractors (AGC) has issued a statement applauding L&I's recent change of practice.

L&I website:  Click here for L&I's Retainage Release FAQ.

Mike Purdy's Public Contracting Blog 
© 2013 by Michael E. Purdy Associates, LLC

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