Date Requested:January 19, 2012
Time Requested:03:41 PM
Agency: Highways, Division of
CBD Number: Version: Bill Number: Resolution Number:
2011R2788 Carry Over HB3181
CBD Subject: PROMPT PAY ACT OF 2011
FUND(S)
State Road Fund 6700-16
Sources of Revenue
Special Fund
Legislation creates:
Neither Program nor Fund

Fiscal Note Summary

Effect this measure will have on costs and revenues of state government.

    The legislation will require the DOH to process all invoices within 15 days regardless of how the invoice is submitted. This short time frame, coupled with a lack of legislative guidance for circumstances in which an invoice is considered “contested” and the geographic span of the agency, could result in premature determinations on large-dollar invoices, particularly contractor voucher estimates. The DOH fully supports prompt payment of invoices by State agencies. However, the current process has proven effective in this regard, and concerns of fiscal responsibility should, under the circumstances, remain paramount.
    
    The bill may create problems on some types of invoices with the exception of those submitted through the Purchase Card (P Card).
    
    Many of the DOH’s contractor invoices are $1+ Million and in order to comply with Federal mandates, as well as accounting internal controls, the paperwork must go through multiple auditing processes prior to payment. Contractor voucher estimates, for example, are based upon the status of construction projects statewide. Status information is monitored and recorded at the local level, making the involvement in such voucher estimates critical. As such, a 15 day window would be extremely hard to meet for these invoice (voucher estimates)types.
    

Fiscal Note Detail
Over-all effect
Effect of Proposal Fiscal Year
2012
Increase/Decrease
(use"-")
2013
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 0 0
Personal Services 0 0 0
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 0 0
2. Estimated Total Revenues 0 0 0
3. Explanation of above estimates (including long-range effect):
    


Memorandum
Person submitting Fiscal Note:
Kathy J Holtsclaw
Email Address:
Kathy.J.Holtsclaw@wv.gov
    During Fiscal Year (2010) the Division of Highways (DOH) processed invoices (not inclusive of agency IGT’s) totaling $885,597,683. Of that total, the DOH’s P Card payments totaled $166,334,836 or 18.8%. These P-Card invoices are the ones the agency would be most comfortable with a 15 day processing limit.
    
    Another $553,300,507 of agency payments were the contractor voucher estimates which the agency routinely processes bi-monthly. The voucher estimate payments to DOH contractors are generated by the agency and must be audited by the DOH district responsible for the specific construction project. Upon completion of that audit process, the voucher estimates are processed by the agency’s central Finance & Administration Division for further processing to the State Auditor’s Office for additional audit and payment processing. It is not unusual for a voucher estimate payment to be in excess of $1 Million; due to the processing/auditing required and the value of these payment types, the agency would not be comfortable having only a 15 day processing window.
    
    The remaining $165,962,340 of agency payments are composed of the following types:
    
    Encumbered Purchases Utility Expenses
    Employee Expense Account Reimbursements
    Claims
    Right of Way Expenses Emergency Purchases
    Employee Benefit Payments
    
    Most of these payment types are not payable using the state P Card payment method. As a result, these invoices must be audited at the DOH location receiving the commodity or service and then forwarded to the central DOH Finance & Administration Division for audit and processing to the State Auditor’s Office for further processing.
    
    The DOH does not have issues with prompt payment. Its payables transactions are processed as expeditiously as possible, given the internal controls and audits that are required for a payables system. The DOH has worked to streamline the payables process at the same time, reducing the staffing once required to process the agency’s payables.
    
    That the DOH does not suffer from delayed payment in invoices is illustrated by the State Auditor’s 2010 State Dollar Report, which is available at http://www.wvsao.gov/Accounting/files/SDR2010.pdf. This document shows the amount of Prompt Payment Interest Penalties (for all state agencies) from 1992 to 2010 under the 60 day rule; that total for all 19 years is only $40,640.26. The greatest penalty amount for any year was $9,248.00 in 1994. Since 2005, the greatest penalty amount for a single year was $2,615.28 for 2007.
    
    The far majority of states recognize the special considerations present in construction contracts. A review of the prompt payment laws of other States reveals that, if enacted as currently drafted, the West Virginia Prompt Payment Act would mandate the shortest time frame for invoice processing in the nation, as measured by receipt of an invoice. Approximately 37 states allow for a 30-day processing time, and approximately one-half of those states differentiate between progress payments and final payments. Several states allow payment to be made within a certain time period after approval of the invoice. Other states explicitly permit construction project owners to set the time frame for payment by contract, within a permissible range. The proposed West Virginia law includes no provision like any of these, treating construction vouchers identically to utility payments for owned property. In short, it treats oranges the same as apples.
    
    For these reasons, the Division of Highways respectfully requests the agency be exempted from this legislation. In the alternative, the DOH requests that the legislation be altered to account for the administrative difficulties presented by construction invoices. Options for rendering the existing legislation more friendly to State Transportation Agencies (“STA”) are illustrated by the legislation of many other states. They include the following:
    
     Lengthening the time periods for payment for construction contract work performed for the State;
     Differentiating between progress and final payments on construction contract invoices;
     Starting the running of the time period for payment with acceptance of the work, as opposed to receipt of the invoice;
     Explicitly allowing the STA to contract for appropriate time periods in which to effectuate payments;
     Providing for circumstances in which an invoice may be considered “contested” and thus exempt from the statutory time frame;
     Excluding from the applicable time period the time of transmittal between agencies and its subdivisions.