HB2567

SECTION 1. The legislature finds that contractors may encounter subsurface conditions that differ from the information contained in a geotechnical report, or other conditions in the field that differ from what was expected or shown on the plans or in solicitation documents, in ways that are sometimes minor or significant. In most instances, when the conditions do materially differ and cause an increase or decrease in the contractor's cost of, or the time required for, performing any part of the work under the contract, an equitable adjustment is made and the contract is modified in writing accordingly. However, the legislature finds that certain agencies are requiring that the contractor bear the entire risk and costs of these differing site conditions even if there is no way the contractor could have planned or budgeted for such an occurrence. Consequently, for projects that place the entire risk on the contractor, a prospective bidder must inflate risk contingencies in its bid to perform the work and the public is obligated to pay for the inflated risk contingencies costs regardless of whether the differing site conditions arise.

The purpose of this Act is to align state law to the Federal Acquisition Regulation and more appropriately apportion costs arising from differing site conditions and ensure that bids are not unjustly inflated.

SECTION 2. Section 103D-501, Hawaii Revised Statutes, is amended to read as follows:

"§103D-501 Contract clauses and their administration. (a) The policy board shall adopt rules requiring the inclusion of contract clauses providing for adjustments in prices, time of performance, or other contract provisions, as appropriate, and covering the following subjects:

(1) The unilateral right of the governmental body to order in writing:

(A) Changes in the work within the scope of the contract; and

(B) Changes in the time of performance of the contract that do not alter the scope of the contract work;

(2) Variations occurring between estimated quantities of work in a contract and actual quantities; and

(3) Suspension of work ordered by the governmental body[~~; and~~

~~(4)~~ ~~Site conditions differing from those indicated in the contract, or ordinarily encountered, except that differing site conditions clauses established by these rules need not be included in a contract:~~

~~(A)~~ ~~When the contract is negotiated;~~

~~(B)~~ ~~When the contractor provides the site or design; or~~

~~(C)~~ ~~When the parties have otherwise agreed with respect to the risk of differing site conditions~~].

(b) Adjustments in price permitted by rules adopted under subsection (a) shall be computed in one or more of the following ways:

(1) By agreement on a fixed price adjustment before commencement of the pertinent performance;

(2) By unit prices specified in the contract or subsequently agreed upon before commencement of the pertinent performance;

(3) By the costs attributable to the events or situations under such clauses with adjustment of profit or fee, all as specified in the contract or subsequently agreed upon before commencement of the pertinent performance;

(4) In any other manner as the contracting parties may mutually agree upon before commencement of the pertinent performance; or

(5) In the absence of agreement by the parties:

(A) For change orders with value not exceeding $50,000 by documented actual costs of the work, allowing for twenty per cent of the actual costs for overhead and profit on work done directly by the contractor and ten per cent on any subcontractor's billing to the contractor for the contractor's overhead and profit. There shall be no cap on the total cost of the work if this method is used. A change order shall be issued within fifteen days of submission by the contractor of proper documentation of completed force account work, whether periodic (conforming to the applicable billing cycle) or final. The procurement officer shall return any documentation that is defective to the contractor within fifteen days after receipt, with a statement identifying the defect; or

(B) For change orders with value exceeding $50,000 by a unilateral determination by the governmental body of the costs attributable to the events or situations under clauses with adjustment of profit or fee, all as computed by the governmental body in accordance with applicable sections of the rules adopted under section 103D-601 and subject to the provisions of part VII. When a unilateral determination has been made, a unilateral change order shall be issued within ten days. Costs included in the unilateral change order shall allow for twenty per cent of the actual costs for overhead and profit on work done directly by the contractor and ten per cent on any subcontractor's billing to the contractor for the contractor's overhead and profit. Upon receipt of the unilateral change order, if the contractor does not agree with any of the terms or conditions, or the adjustment or nonadjustment of the contract time or contract price, the contractor shall file a notice of intent to claim within thirty days after the receipt of the written unilateral change order. Failure to file a protest within the time specified shall constitute agreement on the part of the contractor with the terms, conditions, amounts, and adjustment or nonadjustment of the contract time or the contract price set forth in the unilateral change order.

A contractor shall be required to submit cost or pricing data if any adjustment in contract price is subject to the provisions of section 103D-312. A fully executed change order or other document permitting billing for the adjustment in price under any method listed in paragraphs (1) through (4) shall be issued within ten days after agreement on the method of adjustment.

(c) The policy board shall adopt rules requiring the inclusion in contracts of clauses providing for appropriate remedies and covering the following subjects:

(1) Liquidated damages as appropriate;

(2) Specified excuses for delay or nonperformance;

(3) Termination of the contract for default; and

(4) Termination of the contract in whole or in part for the convenience of the governmental body.

(d) The chief procurement officer or the head of a purchasing agency may vary the clauses that may be required to be included in contracts under the rules adopted under subsections (a) and (c); provided that:

(1) Any variations are supported by a written determination that states the circumstances justifying [~~such~~] the variations; and

(2) Notice of any [~~such~~] material variation [be] is stated in the invitation for bids or request for proposals when the contract is awarded under section 103D-302 or 103D-303.

(e) Every construction contract shall include the following clause regarding differing site conditions:

"The procurement officer shall investigate the site conditions promptly after receiving notice of differing site conditions. If the conditions do materially differ and cause an increase or decrease in the contractor's cost of, or the time required for, performing any part of the work under this contract, whether or not changed as a result of the conditions, an equitable adjustment shall be made under this clause and the contract modified in writing accordingly.""

SECTION 3. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 4. This Act shall take effect upon its approval.

INTRODUCED BY:	_____________________________

HOUSE OF REPRESENTATIVES	H.B. NO.	2567
THIRTY-SECOND LEGISLATURE, 2024
STATE OF HAWAII