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Report Sees Laws Improving for Subcontractors

Monday, December 7, 2009

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Despite a historically challenging economic environment, construction subcontractors scored major public policy victories at the state level this year, a new report concludes.

Kansas, California and New York “made significant strides” in their legal and judicial efforts this year to earn a passing grade for supporting/protecting subcontractor rights—the only states outside New Mexico to do so, according to the American Subcontractors Association, authors of The ASA Report: The Policy Environment in the States.

The annual report scores and grades each state on its laws and judicial decisions in seven policy areas:

• Prompt payment protections

• Treatment of pay-if-paid clauses

• Mechanic’s lien protections

• Payment bond protections

• Retainage limitations

• Anti-indemnity protections

• Anti-“bid shopping” measures

This year, ASA added an “extra credit” course that evaluates how well states regulate the insurance program known as CIPs.

Kansas earned the points needed for a passing grade for its new Controlled Insurance Programs Act, signed into law in May. This law makes Kansas the first state to comprehensively regulate the terms and conditions of CIPs, also know as wrap-up insurance. Enactment was a major accomplishment for ASA – Greater Kansas City.

In California, a new wrap-up insurance law requires owners, builders and contractors who obtain a wrap-up insurance policy to disclose its terms to subcontractors required to enroll in it. The measure pushed California’s grade from an F to a D.

And in New York, a new law eliminates a loophole that allowed parties to private construction contracts to negotiate payment terms other than those outlined by the state’s prompt pay law. The measure also halves the dollar thresholds that trigger the payment deadlines and affirms subcontractors’ right to suspend work with cost reimbursement if they are not paid.

Other states improved their scores but not their grades, due to legislative or judicial activity. Arkansas adopted new limits on retainage and revised its mechanic’s lien law. New Hampshire enacted a form of bid listing, and North Dakota reformed its mechanic’s lien law.

“The 2009 ASA Report shows that complex policy changes can happen when ASA members speak with one voice, regardless of how tough the business environment might be,” said 2009-10 ASA President Darlene East, of Holes Inc. in Houston. “ASA urges construction subcontractors to use the results of The ASA Report to help policymakers understand why reforms are needed to implement positive change for the construction industry.”

The report summarizes legal/judicial changes by category. Among the highlights:

Mechanic’s Liens

Arkansas, North Dakota and South Carolina all signed laws that improved their scores; Illinois, Montana, Colorado, Tennessee and Pennsylvania all changed their mechanic’s lien laws without triggering a change in score.

Anti-‘Bid Shopping’

New Hampshire earned half credit for changes in its bid-shopping regulations. In Ohio, a decision by the10th District Court of Appeals should discourage bid shopping, even though it did not change Ohio’s scoring for this policy area, ASA said.

Retainage Limitations

A new Arkansas law limits retainage on public construction projects to 5 percent (rather than the previous 10 percent) when a contractor secures payment and performance bonds. The change added a point to the state’s score in this category.

On the other hand, an Ohio law increased retainage on certain minority business enterprise contracts, shaving three points from its last year’s total of 20. Minnesota and Oregon legislatures adopted changes to the states’ retainage laws that did not impact their scores.

Prompt Payment

The Minnesota, Montana and Washington legislatures all passed modifications to prompt pay laws that did not result in score changes.

Payment Bonds

Ohio passed a law that eroded subcontractor payment protections on some contracts, dropping its score in that category to 66 from 68.

The complete report is available at www.asaonline.com.

   

Tagged categories: American Subcontractors Association (ASA); Subcontractors

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