Chapter 4 - § 4.17 • SUBCONTRACTORS

• Jurisdiction: Colorado

§ 4.17 • SUBCONTRACTORS

§ 4.17.1-Subcontractor Listing Requirements

There are no statutory or administrative requirements for subcontractor listing.

§ 4.17.2-Designation of Subcontractors or Suppliers

No public servant²⁵⁸ may require or direct a bidder or contractor to contract with a particular subcontractor or supplier in the submission of bids or fulfillment of contracts with the government.²⁵⁹ Any such provision is void as against public policy.²⁶⁰ The state and its agencies have an affirmative defense that they rejected a subcontractor or supplier based upon the subcontractor's or supplier's failure to meet bona fide specifications or requirements relating to quality, availability, form, experience, or financial responsibility.²⁶¹ In Heritage Pools, Inc. v. Foothills Metropolitan Recreation & Park District,²⁶² a Colorado court found that the government did not violate the prohibition on designating subcontractors when it asked bidders whether they would be willing to work with a subcontractor other than the subcontractor initially selected.²⁶³ The court found that the government acted permissibly because it rejected the subcontractor based upon its lack of experience and did not require the bidders to accept another particular subcontractor.²⁶⁴

§ 4.17.3-Prompt Payment

Colorado statutes provide subcontractors with certain rights to prompt payment and remedies for violation of those rights. Contractors on public construction projects exceeding $150,000 generally are entitled to prompt partial payments.²⁶⁵ Within seven calendar days of receipt of payment from a public entity, a contractor must make payment to each of its subcontractors of any amounts requested and received on account of such subcontracts.²⁶⁶ Thereafter, each subcontractor has a similar responsibility to pay all suppliers; sub-subcontractors; laborers; and other persons who have provided goods, materials, labor, or equipment to the subcontractor.²⁶⁷ Interest accrues on late payments at the rate specified in the contract or at a statutory rate of 15 percent, whichever is higher.²⁶⁸ Statutory retention or retention provided for by contract may be withheld, without penalty, from progress payments.²⁶⁹

Additional coverage of this subject is found in Chapter 11, "Subcontractors and Materialmen."

§ 4.17.4-Liens

Colorado's general mechanics' lien statutes provide a subcontractor, laborer, and material supplier with statutorily created rights to file liens against property to which labor and materials have been supplied.²⁷⁰ However, a subcontractor, laborer, or material supplier may not file a mechanics' lien against public property.²⁷¹ Instead, the subcontractor, laborer, or material supplier who has not received payment on state construction projects must seek relief under Colorado's Public Works Act.

As noted above, for construction projects exceeding $150,000 with the state and its agencies, a contractor must obtain separate performance and payment bonds.²⁷² If a contractor does not make payment to a subcontractor, laborer, or material supplier on a state construction project, the subcontractor, laborer, or material supplier may bring an action against the payment bond surety.²⁷³ Coverage of this subject is found in § 12.3, "Payment Bonds," of this handbook.

Additionally, under C.R.S. § 38-26-107 of the Public Works Act, the subcontractor, laborer, or material supplier may assert a lien on contract funds retained by the public entity.²⁷⁴ More specifically, anyone supplying labor, materials, sustenance, rental machinery, tools, or equipment to contractors may file with the public entity a verified statement of the amount due if he or she has not been paid, up to the date of final settlement.²⁷⁵ Final settlement is the date selected by the public entity at which time all business should be completed.²⁷⁶ A public entity must publish notice of final settlement at least 10 days prior to final settlement in a public newspaper of general circulation published in the counties where the construction work was contracted for or performed.²⁷⁷ The public entity also may publish notice of final settlement in an approved electronic medium.²⁷⁸

C.R.S. § 38-26-107 applies to "[a]ny individual, corporation, government or governmental subdivision or agency, business trust, estate, trust, limited liability company, partnership, association, or other legal entity" who supplies labor, materials, sustenance, rental machinery, tools, or equipment that is used by a "contractor or his or her subcontractor."²⁷⁹ However, C.R.S. § 38-26-107 does not apply to a supplier of a supplier or a sub-materialman.²⁸⁰ This limitation serves the purpose of protecting a contractor "from the risk of potentially unlimited liability under the payment bond to remote submaterialmen."²⁸¹ In addition, C.R.S. § 38-26-107 also does not apply unless a subcontractor, laborer, or material supplier shows that it furnished labor or supplies for the construction project and that it did not receive payment for the labor or supplies.²⁸²

C.R.S. § 38-26-106 requires payment and performance bonds for state construction projects exceeding $150,000.²⁸³ In contrast, C.R.S. § 38-26-107 does not provide any threshold before a public entity may withhold money. Based upon the plain language of the statute, the authors believe that C.R.S. § 38-26-107 should apply regardless of the amount of the state construction project.

When a verified statement has been filed, the public entity must withhold payments to the contractor sufficient to insure payment of the subcontractor's, laborer's, or material supplier's claim.²⁸⁴ The public entity withholds such payments until the claim has been paid or withdrawn.²⁸⁵ However, withheld payments must be returned to the contractor after 90 days following final settlement, unless the subcontractor, laborer, or material supplier files an action to enforce the unpaid claim and also files a notice of lis pendens with the public entity.²⁸⁶ If a subcontractor, laborer, or material supplier files a timely action to enforce an unpaid claim, the public entity must retain sufficient funds to insure payment of any...