A. The following apply to the department's highway construction projects awarded pursuant to section 28-6923, 28-7365 or 28-7366:
1. Progress payments may be made by the department to the contractor on the basis of a duly certified and approved estimate of the work performed during a preceding period of time. The progress payments shall be paid on or before fourteen days after the estimate of the work is certified and approved. The estimate of the work shall be deemed received by the department on submission to the person designated by the department for the submission, review or approval of the estimate of the work. An estimate of the work submitted under this section shall be deemed approved and certified seven days after the date of submission unless before that time the department prepares and issues a specific written finding detailing those items in the estimate of the work that are not approved and certified under the contract. The department may withhold an amount from the progress payment that is sufficient to pay the expenses the department reasonably expects to incur in correcting the deficiency set forth in the written finding. On completion and acceptance of separate divisions of the contract on which the price is stated separately in the contract, payment may be made in full including retained percentages, less deductions, unless a substitute security has been provided.
2. The contractor shall pay to the contractor's subcontractors or material suppliers and each subcontractor shall pay to the subcontractor's subcontractors or material suppliers, within seven days after receipt of each progress payment, unless otherwise agreed in writing by the parties, the respective amounts allowed the contractor or subcontractor on account of the work performed by the contractor's or subcontractor's subcontractors or material suppliers, to the extent of each subcontractor's or material supplier's interest in the amount. These payments to subcontractors or material suppliers shall be based on payments received pursuant to this section. Any diversion by the contractor or subcontractor of payment received for work performed on a contract or failure to reasonably account for the application or use of the payments constitutes grounds for disciplinary action by the registrar of contractors. A subcontractor or material supplier shall notify the registrar of contractors and the department in writing of any payment less than the amount of percentage approved for the class or item of work as set forth in this section.
3. A subcontractor may notify the department in writing requesting that the subcontractor be notified by the department in writing within five days after payment of each progress payment that is made to the contractor. The subcontractor's request under this paragraph remains in effect for the duration of the subcontractor's work on the project.
4. If any payment to a contractor is delayed after the date due, interest shall be paid at the rate of one percent per month or a fraction of the month on the unpaid balance.
5. If any periodic or final payment to a subcontractor or material supplier is delayed by more than seven days after receipt of the periodic or final payment by the contractor or subcontractor, the contractor or subcontractor shall pay the subcontractor or material supplier interest, beginning on the eighth day, at the rate of one percent per month or a fraction of a month on the unpaid balance.
B. A contract for construction shall not materially alter the rights of any contractor, subcontractor or material supplier to receive prompt and timely payment as provided under this section.
C. This section does not prevent a contractor or subcontractor, at the time of application and certification to the department or contractor, from withholding the application and certification to the department or contractor for payment to the subcontractor or material supplier for unsatisfactory job progress, defective construction work or materials not remedied, disputed work or materials, third-party claims filed or reasonable evidence that a claim will be filed, failure of a subcontractor to make timely payments for labor, equipment and materials, damage to the contractor or another subcontractor, reasonable evidence that the subcontract cannot be completed for the unpaid balance of the subcontract amount or a reasonable amount for retention that does not exceed the annual percentage retained by the department.
D. This section does not create a duty of the department to a subcontractor or material supplier other than the duty to notify pursuant to subsection A, paragraph 3 of this section and does not create a cause of action in favor of a subcontractor or material supplier against this state, the department or any state employee or agent.
E. If the department directs the contractor in writing to perform changed or additional work in accordance with the terms of the construction contract and the contractor submits to the department a reasonable cost estimate of the changed or additional work as may be required under the construction contract, pending a final determination of the total amount to be paid for the changed or additional work, the contractor may request payment for changed or additional work that the contractor completed during the preceding calendar month in monthly pay estimates based on the costs the contractor incurred to perform that work. The person designated in the construction contract to certify and approve the monthly payment estimate shall make an interim determination for purposes of approval for payment of those costs and certify for payment the amount that person determines to be reasonably justified. Either party may disagree with the interim determination and may assert a claim in accordance with the terms of the construction contract.
F. If the department directs the contractor in writing to perform changed or additional work in accordance with the construction contract and the contractor submits to the department a reasonable cost estimate of the changed or additional work as may be required under the construction contract and if the contractor directs the subcontractor to perform the changed or additional work in accordance with the terms of the agreement between the contractor and subcontractor and the subcontractor submits to the contractor a reasonable cost estimate of the changed or additional work as may be required under the construction contract, pending a final determination of the total amount to be paid for the changed or additional work, the subcontractor may request payment from the contractor for the changed or additional work that the subcontractor completed during the preceding calendar month in monthly pay estimates based on the costs the subcontractor incurred to perform that work. Either party may disagree with the interim determination and may assert a claim in accordance with the terms of the agreement between the contractor and subcontractor.
G. In any action or arbitration brought pursuant to this section, the successful party shall be awarded reasonable attorney fees and costs.
H. For the purposes of this section:
1. "Construction contract" means a written agreement relating to constructing, altering or repairing all work on state highways.
2. "Contractor":
(a) Means any person, firm, partnership, corporation, association or other organization, or a combination of any of them, that has a direct contract with the department to perform work under a construction contract.
(b) Does not include an agricultural improvement district formed pursuant to title 48, chapter 17, an electric cooperative formed pursuant to title 10, chapter 19, article 2 or 4 or a domestic water improvement district or a domestic wastewater improvement district formed pursuant to title 48, chapter 6, article 4.
3. "Costs" means the aggregate costs of all labor, materials, equipment and services.
4. "Subcontractor":
(a) Means any person, firm, partnership, corporation, association or other organization, or a combination of any of them, that has a direct contract with a contractor or another subcontractor to perform a portion of the work under a construction contract.
(b) Does not include an agricultural improvement district formed pursuant to title 48, chapter 17, an electric cooperative formed pursuant to title 10, chapter 19, article 2 or 4 or a domestic water improvement district or a domestic wastewater improvement district formed pursuant to title 48, chapter 6, article 4.
5. "Work" means the labor, materials, equipment and services to be provided by a contractor or subcontractor under a construction contract.