HARRY HUGHES, Governor                                      4099

Because of a significant interpretive problem contained in
House Bill 1690, I am unable to approve the bill in its present
form. However, since this bill includes a delayed effective date
of July 1, 1986, corrective legislation may be enacted at the
1986 session of the General Assembly without interrupting the
proposed implementation of this program.

The subject matter of this bill apparently arises from a
concern that in some instances payment of retained earnings may
have been unreasonably delayed well beyond completion of a
project in the past. While this may be an occasional problem, it
is addressed for all State agencies by the passage of House Bill
1117 during the 1985 Session, which I have signed today. House
Bill 1117 provides for the payment interest accrued on all
retained funds from the time of payment of the semifinal estimate
on a procurement contract. Significantly, House Bill 1117
further specifies that final payment shall be for that amount
"due to the contractor" which allows the agency to make any
necessary adjustment in the event of an offsetting claim against
the contractor. In contrast, House Bill 1690, as finally passed
requires the Department of Transportation "to settle the escrow
account by paying the funds therein to the contractor." By
requiring the Department to pay to the contractor the "funds
therein" -- retainage plus accrued interest -- this language may
not permit the adjustments allowed under House Bill 1117 in order
to permit the Department to receive funds from the escrow account
as a result of an offsetting claim. This interpretive problem is
magnified by deletion of a provision contained in House Bill 1690
as originally introduced that clearly would have authorized
adjustments to the returned retainage as well as receipt of any
offsets by the Department but was later stricken by amendment.
Proper clarification on both these issues is essential prior to
enactment of this program into law.

Before concluding, I note that the Department of
Transportation estimates that the proposed escrow accounts will
divert from the Transportation Trust Fund "(the Fund") interest
earnings of approximately $2.5 million per year. I understand
the sponsor's view that the loss of interest earnings to the Fund
will be largely offset by reduced bid prices from highway
contractors. Although the Department does not share that
optimism, I believe that a two year evaluation period, as
provided for in the bill, would be a reasonable approach to test
that hypothesis. With that in mind, I have directed the
Department of Transportation to work with the sponsor of House
Bill 1690 to develop legislation consistent with this message for
introduction at the 1986 Session.

Therefore, for the above reasons, I have decided to veto
House Bill 1690.

Sincerely,