Double payment legislation passes NC Legislature

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Guest editorial by Dave Simpson, CAE, NC Government Relations, Building Director at Carolinas AGC  

In good news for the construction industry on an issue Carolinas AGC has worked on more than 20 years, the state House and Senate last week unanimously approved CAGC-led legislation that will save the construction industry millions of dollars by helping to solve double payment problems where contractors unfairly have had to pay twice for the same work or materials. The legislation also includes a provision to help solve problems with lower-tier subcontractors and suppliers concerning bankruptcy by contractors.

“This has been an issue I have heard about from my father since I was a young child,” Susie Lewis of Beam Construction said of the double payment issue.  “It took a long time, but I am glad it is coming to pass in my lifetime.”

House Bill 1052 (Mechanics Liens/Payment Bond Reforms) will provide protection to contractors on public jobs by requiring that lower-tier specialty contractors and suppliers provide written, pre-notice to contractors that they are providing work or materials on a job site. The legislation applies to the furnishing of labor or materials over $20,000. In those instances, the subcontractor cannot recover for work (in excess of $20,000) performed more than 75 days prior to its written pre-notice to the contractor that he/she was on the job. This written pre-notice process applies to second and lower-tier subcontractors.

The double payment issue involves a general contractor paying, for example, an electrical subcontractor, who does not pay his or her supplier, who in turn can file a payment bond claim against the contractor, forcing payment again by the contractor. The legislation takes effect on January 1, 2013.

The legislation also helps subcontractors and suppliers by allowing them to continue to pursue lien claims even after someone up the chain files for bankruptcy.  Specifically, the legislation changes the effective date of the lien on funds thereby qualifying the lien on funds as an exception to the bankruptcy law’s automatic stay.

Passage of HB 1052 was a top priority for CAGC and the bill took a long, winding road to pass before it was ratified in a 112-0 vote in the House on June 28. The final version of the bill included an amendment by Sen. Dan Clodfelter (D-Mecklenburg) that eliminated a treble damages provision in which a contractor would face triple damages for actual harm if the contractor falsely certified that no money was owed. Before being approved, a section of the bill was removed concerning standard lien waivers that would have caused more confusion and trouble than it was worth.

Under HB 1052, contractors, upon written request from a subcontractor or supplier, also must provide information on the contractor’s payment bond.  In addition, the HB 1052 requires contractors to provide a project statement to all its subcontractors and suppliers.  This project statement will include all the necessary information for a payment bond claimant to provide its pre-notice.  The contractors’ subcontractors then have the obligation to pass this project statement to their respective subcontractors and suppliers.  The basic idea is that it will become industry custom for subcontractors and suppliers to ask for and receive this project statement before they start their work.

Passage of the bill, led on the Senate and House floors by Sen. Pete Brunstetter (R-Forsyth)  and Rep. Sarah Stevens (R-Surry) was a top priority for Carolinas AGC in chipping away at the issue over the last 20-plus years.

CAGC put together a coalition of CAGC members and construction attorneys to help pass HB 1052, including numerous meetings in the past year with all segments of the construction industry to try to get the badly needed legislation moving. In stakeholder meetings involving lawmakers, Susie Lewis of Beam Construction and Scott Bengel of Shelco testified about how the double payment process was hurting building contractors, with Bengel saying his company alone lost hundreds of thousands of dollars in the past few years.

The message CAGC members and staff focused on is that contractors just want to know who is out there and they will help ensure payment up and down the construction chain. Ricky Vick of S.T. Wooten also provided invaluable input to try to ensure that HB 1052 and related legislation was fair to the entire construction industry.

 Senate Bill 42, lien legislation sought by title insurers and lenders, also was ratified and sent to the governor last week following claims by title insurers that a large segment of the industry no longer would provide title insurance coverage without legislative relief from so-called hidden liens. CAGC was heavily involved in the legislation, which does not take effect until April 1, 2013 and which is much improved though the association will continue efforts to try to exempt commercial construction from the legislation.

Under the proposed legislation, lien claimants would have to preserve their lien rights by providing a pre-notice to the project owner’s designated lien agent on residential and commercial projects. In discussion on the Senate floor, Sen. Tommy Tucker (R-Union), a mechanical contractor, said that the construction industry was “under a veiled threat” by the title insurance industry, thereby representing a “you’d better!” bill that would leave subcontractors “holding the bag again.”  He expressed his support for the bill since the homebuilding industry supported it, but expressed his desire that the General Assembly re-visit the legislation to improve it early next year.

The final version of the ratified SB 42 contained several revisions to the version passed in the House on June 21.  CAGC members and staff were involved in negotiations to improve the bill, including these successful provisions:

•           The requirement of pre-notice will not apply where the improvements in question are to be made to an existing single-family residential dwelling unit that is used by the owner as a residence.

•           The failure to provide lien agent information to a supplier not expected to perform on-site labor will not result in triple damages exposure underNorth Carolina’s unfair and deceptive trade practices statute.

•           Higher tiered contractors will no longer be able to cut off the lien rights of lower tiered contractors through lien waivers once the lower tiered contractor (1) files pre-notice to the lien agent and (2) serves a notice of claim of lien upon funds up the entire contractual chain and upon the lien agent (under existing law, a higher tiered contractor’s ability to waive the rights of lower tier contractors is only shut off when the lower tiered contractor files a lien enforcement action in court).

•           Where a lien agent is not designated prior to the provision of design services by an architect or engineer, the design professional will be deemed to have met the requirement of pre-notice upon the owner’s designation of the lien agent.  Read More

 

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