CHAPTER 7. BONDING, ESCROW, AND RETAINAGES
IC 4-13.6-7
Chapter 7. Bonding, Escrow, and Retainages
IC 4-13.6-7-1
Application of chapter
Sec. 1. The director may apply the retainage provisions of thischapter to public works projects with an estimated cost less than theamount specified in section 2 of this chapter.
As added by P.L.24-1985, SEC.7. Amended by P.L.133-2007, SEC.2.
IC 4-13.6-7-2
Contract provisions for retainage of payments; escrow accountsand agreements
Sec. 2. (a) If the estimated cost of a public works project is onehundred fifty thousand dollars ($150,000) or more, the division shallinclude as part of the public works contract provisions for theretainage of portions of payments by the division to the contractor,by the contractor to subcontractors, and for the payment ofsubcontractors and suppliers by the contractor. The contract mustprovide that the division may withhold from the contractor sufficientfunds from the contract price to pay subcontractors and suppliers asprovided in section 4 of this chapter.
(b) A public works contract and contracts between contractors andsubcontractors, if portions of the public works contract aresubcontracted, may include a provision that at the time any retainageis withheld, the division or the contractor, as the case may be, mayplace the retainage in an escrow account, as mutually agreed, with:
(1) a bank;
(2) a savings and loan institution;
(3) the state of Indiana; or
(4) an instrumentality of the state of Indiana;
as escrow agent. The parties to the contract shall select the escrowagent by mutual agreement. The parties to the agreement shall enterinto a written agreement with the escrow agent.
(c) The escrow agreement must provide the following:
(1) The escrow agent shall promptly invest all escrowedprincipal in the obligations that the escrow agent selects, in itsdiscretion.
(2) The escrow agent shall hold the escrowed principal andincome until it receives notice from both of the other parties tothe escrow agreement specifying the percentage of the escrowedprincipal to be released from the escrow and the persons towhom this percentage is to be released. When it receives thisnotice, the escrow agent shall promptly pay the designatedpercentage of escrowed principal and the same percentage ofthe accumulated escrowed income to the persons designated inthe notice.
(3) The escrow agent shall be compensated for its services asthe parties may agree. The compensation shall be acommercially reasonable fee commensurate with fees being
charged at the time the escrow fund is established for thehandling of escrow accounts of like size and duration. The feemust be paid from the escrowed income of the escrow account.
(d) The escrow agreement may include other terms and conditionsthat are not inconsistent with subsection (c). Additional provisionsmay include provisions authorizing the escrow agent to comminglethe escrowed funds held under other escrow agreements andprovisions limiting the liability of the escrow agent.
As added by P.L.24-1985, SEC.7. Amended by P.L.22-1997, SEC.3;P.L.160-2006, SEC.4.
IC 4-13.6-7-3
Amount of retainage withheld
Sec. 3. (a) To determine the amount of retainage to be withheld,the division shall elect one (1) of the following options:
(1) To withhold no more than six percent (6%) of the dollarvalue of all work satisfactorily completed until the public workis fifty percent (50%) complete, and nothing further after that.
(2) To withhold no more than three percent (3%) of the dollarvalue of all work satisfactorily completed until the public workis substantially complete.
(b) If upon substantial completion of the work there are anyremaining uncompleted minor items, the division shall withhold,until those items are completed, an amount equal to four hundredpercent (400%) of the value of each item as determined by thearchitect-engineer.
As added by P.L.24-1985, SEC.7.
IC 4-13.6-7-4
Payment of subcontractors and suppliers; certification of previouspayments; incorrect certification
Sec. 4. (a) Within ten (10) days of receipt of any payment by thestate or the escrow agent, the contractor or escrow agent shall payeach subcontractor and each supplier the appropriate share of thepayment the contractor received based upon the service performedby the subcontractor or the materials received from the supplier.
(b) The contractor shall furnish to the division a sworn statementor certification at the time of payment to it that all subcontractors andsuppliers have received their share of the previous payment to thecontractor.
(c) If a contractor makes an incorrect certification, the departmentmay do any of the following:
(1) Consider the incorrect certification a breach of contract anddo any of the following:
(A) Cancel the contract.
(B) Collect from the contractor all funds paid to thecontractor under the contract.
(C) Exercise all of the state's rights set out in the contract.
(2) Pursue remedies against the contractor for falsifying anaffidavit. (3) Revoke the contractor's qualification underIC 4-13.6-4-13(b).
(4) Use the incorrect certification as a basis for finding thecontractor not responsible when awarding other contracts.
As added by P.L.24-1985, SEC.7. Amended by P.L.5-1993, SEC.12.
IC 4-13.6-7-5
Bid bonds
Sec. 5. (a) The director:
(1) may require each contractor of a public works project withan estimated cost of not more than two hundred thousanddollars ($200,000); and
(2) shall require each contractor of a public works project withan estimated cost of more than two hundred thousand dollars($200,000);
to submit a good and sufficient bid bond with the bid. The bid bondmay equal any percentage of the estimated cost of the public worksproject that the director requires.
(b) The division may accept bonds provided on forms specified bythe department or on forms given by surety companies.
As added by P.L.24-1985, SEC.7. Amended by P.L.133-2007, SEC.3.
IC 4-13.6-7-6
Payment bonds
Sec. 6. (a) If the estimated cost of the public works project is morethan two hundred thousand dollars ($200,000), the division shallrequire the contractor to execute a good and sufficient payment bondto the department for the state in an amount equal to one hundredpercent (100%) of the total contract price. The bond shall include atleast the following provisions:
(1) The contractor, its successors and assigns, whether byoperation of law or otherwise, and all subcontractors, theirsuccessors and assigns, whether by operation of law orotherwise, shall pay all indebtedness that may accrue to anyperson on account of any labor or service performed ormaterials furnished in relation to the public work.
(2) The bond shall directly inure to the benefit ofsubcontractors, laborers, suppliers, and those performingservice or who may have furnished or supplied labor, material,or service in relation to the public work.
(3) No change, modification, omission, or addition in or to theterms or conditions of the contract, plans, specifications,drawings, or profile or any irregularity or defect in the contractor in the procedures preliminary to the letting and awarding ofthe contract shall affect or operate to release or discharge thesurety in any way.
(4) The provisions and conditions of this chapter shall be a partof the terms of the contract and bond.
(b) The division may permit the bond given by the contractor toprovide for incremental bonding in the form of multiple or
chronological bonds that, if taken as a whole, equal the total contractprice.
(c) The division may accept bonds provided on forms specified bythe division or on forms given by surety companies.
(d) The division shall hold the bond of a contractor for the use andbenefit of any claimant having an interest in it and entitled to itsbenefits.
(e) The division shall not release sureties of a contractor until theexpiration of one (1) year after the final settlement with thecontractor.
(f) If the estimated cost of the public works project is less than orequal to two hundred thousand dollars ($200,000), the director mayrequire one (1) of the following:
(1) The contractor must execute a good and sufficient paymentbond. The director may determine the amount of the bond to beany percentage, but no more than one hundred percent (100%),of the cost of the project.
(2) The division will withhold retainage under this chapter in anamount of ten percent (10%) of the dollar value of all paymentsmade to the contractor until the public work is substantiallycompleted.
As added by P.L.24-1985, SEC.7. Amended by P.L.14-1986, SEC.9;P.L.26-1989, SEC.13; P.L.22-1997, SEC.4; P.L.133-2007, SEC.4.
IC 4-13.6-7-7
Performance bonds
Sec. 7. (a) If the estimated cost of the public works project is:
(1) at least two hundred thousand dollars ($200,000), thedivision shall; or
(2) less than two hundred thousand dollars ($200,000), thedivision may;
require the contractor to execute a good and sufficient performancebond to the department for the state in an amount equal to onehundred percent (100%) of the total contract price.
(b) The bond required under subsection (a) shall include at leastthe following provisions:
(1) The contractor shall well and faithfully perform the contract.
(2) No change, modification, omission, or addition in or to theterms or conditions of the contract, plans, specifications,drawings, or profile or any irregularity or defect in the contractor in the procedures preliminary to the letting and awarding ofthe contract shall affect or operate to release or discharge thesurety in any way.
(3) The provisions and conditions of this chapter shall be a partof the terms of the contract and bond.
(c) The division may permit the bond given by the contractor toprovide for incremental bonding in the form of multiple orchronological bonds that, if taken as a whole, equal the total contractprice.
(d) The division may accept bonds provided on forms specified by
the division or on forms given by surety companies.
(e) The division shall not release sureties of a contractor until theexpiration of one (1) year after the final settlement with thecontractor.
As added by P.L.24-1985, SEC.7. Amended by P.L.26-1989, SEC.15;P.L.22-1997, SEC.5; P.L.133-2007, SEC.5.
IC 4-13.6-7-8
Final settlement with contractor
Sec. 8. (a) Except for amounts withheld from the contractor undersection 3 of this chapter for uncompleted minor items, the divisionmay make a full, final, and complete settlement with a contractor,including providing for full payment of all escrowed principal andescrowed income, within sixty-one (61) days following the date ofsubstantial completion if:
(1) the contractor has materially fulfilled all of its obligationsunder the public works contract;
(2) the division has received no claims from subcontractors orsuppliers under this chapter; and
(3) the contractor has furnished satisfactory evidence showingfull payment of all subcontractors and suppliers in theperformance of the contract.
(b) After the division makes a final settlement with a contractor,all claims by subcontractors and suppliers to funds withheld fromthat contractor under section 2 of this chapter are barred.
As added by P.L.24-1985, SEC.7.
IC 4-13.6-7-9
Payment of subcontractors and suppliers by division; proration ofclaims; disputed claims
Sec. 9. (a) If a subcontractor or a supplier files a claim with thedivision under section 10 of this chapter, and the claim is undisputed,the division shall:
(1) pay the claimant from the amounts retained from thecontractor under section 2 of this chapter;
(2) take a receipt for each payment; and
(3) deduct the total amount paid to subcontractors and suppliersfrom the balance due the contractor.
(b) If there is not a sufficient amount owing to the contractor topay all subcontractors and suppliers making undisputed claims undersection 10 of this chapter, then the division shall prorate the amountwithheld from the contractor and shall pay the prorated amount toeach subcontractor and supplier entitled to a portion of the amount.
(c) If there is a dispute among the contractor, the subcontractors,and the suppliers to the funds withheld by the division, the divisionshall retain sufficient funds until the dispute is settled and the correctamount to be paid to each person is determined. When the dispute isresolved, the division shall make payments to persons making claimsas provided in this section.
As added by P.L.24-1985, SEC.7.
IC 4-13.6-7-10
Claims of subcontractors and suppliers; verification; notice tocontractors and sureties; actions upon bond
Sec. 10. (a) In order to receive payment under section 9 of thischapter or to proceed against the bond of the contractor requiredunder section 6 of this chapter, any subcontractor or supplier makinga claim for payment on account of having performed any labor orhaving furnished any material or service in relation to a public worksproject must file a verified claim with the division within sixty (60)days from the last labor performed, last material furnished, or lastservice rendered. The claim shall state the amount due and owing tothe person and shall give as much detail explaining the claim aspossible. The division shall notify the contractor of any filed claimsbefore taking action under section 9 of this chapter.
(b) In order to proceed against the bond of the contractor requiredunder section 6 of this chapter, the claimant must notify the surety ofthe contractor by sending a copy of the claim required by subsection(a) to the surety company. The claimant shall also inform thedivision that the surety has been notified. The division shall supplythe claimant with any information the claimant requires to notify thesurety.
(c) The claimant may not file suit against the contractor's suretyon the contractor's bond until the expiration of thirty (30) days afterfiling of the claim with the division. If the claim is not paid in full atthe expiration of the thirty (30) day period, the claimant may bringan action in a court of competent jurisdiction in the claimant's ownname upon the bond.
As added by P.L.24-1985, SEC.7.
IC 4-13.6-7-11
Limitation of actions against sureties
Sec. 11. Unless the bond provides a greater period of time, allsuits must be brought against a surety on a bond required by thischapter within one (1) year after final settlement with the contractorunder section 8 of this chapter. All suits against the surety after thistime are barred.
As added by P.L.24-1985, SEC.7.
IC 4-13.6-7-12
Construction of chapter with other laws
Sec. 12. This chapter is intended to supplement all other lawsprotecting labor, subcontractors, or suppliers and shall not beconstrued as conflicting with them.
As added by P.L.24-1985, SEC.7.