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For Subs, Fine Print Gets Friendlier

Friday, January 6, 2012

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Thousands of subcontractors in Texas, Alabama, California and Iowa are among those reaping major gains in laws and contracts nationwide, thanks to changes in multiple states in 2011, the American Subcontractors Association reports.

Key victories in courtrooms, stepped-up legislative efforts to limit risk transfer, and other subcontractor-friendly changes in many states improved the public policy environment for many construction subs last year, according to The ASA Report: The Policy Environment in the States, commonly known as ASA’s annual report card.

 Contract and gavel
Courtroom victories and new state laws in 2011 mean fewer devils in the details for construction subcontractors, according to ASA.

Texas subs fared especially well, with five new laws that propelled the state from its 29th-place ranking to No. 10 in ASA’s annual analysis.

The report card scores states in a variety of policy areas, including Retainage Limits, Prompt Payment, Mechanic’s Lien, Bid Shopping, Anti-indemnity / Additional Insured, Payment Bonds, and Consolidated Insurance Programs. Each state then receives an overall score, grade and rank.

The scores factor in both laws and judicial decisions, and “extra credit” is available for states that act to regulate controlled insurance programs (also known as CIPs or wrap-ups), which can have hidden risks for subcontractors.

Warning and Educating

The report aims to warn policy makers and subcontractors about weaknesses in their states’ public policy landscape and to help subs negotiate contracts “in a harsh public policy environment,” says ASA.

The association credits its chapters’ grassroots advocacy efforts for effecting the changes.

“These victories and victories in other states demonstrate that subcontractors can make a difference working through ASA,” said ASA president Kerrick Whisenant “In 2012, subcontractors across the country should build on these victories.”

Highlights

In 2011, Alabama, California, Colorado and Nevada improved their laws restricting retainage, while new laws in California, Iowa and Texas will help limit unfair allocation of risk through contract terms.

Among the year’s changes:

Retainage Limitation

Alabama nearly doubled its retainage score with a new law that limits to 10 percent limit the amount of retainage contractors can hold from subcontractors on private construction projects. The state previously had no such limits.

California passed a new law capping retainage at 5 percent on state and local public contracts signed between Jan. 1, 2012, and Jan. 1, 2016.

Colorado now limits retainage by state and local governments to 5 percent, instead of 10 percent. The law does not apply to water storage projects or highway and bridge construction projects that are opened to traffic.

Nevada has reduced the maximum retainage for the first half of a state or local public project to 5 percent of the progress payment owed to a contractor.

Prompt Payment

California now requires upper-tier contractors on local and state public projects to pay lower-tier contractors within seven days of receiving a progress payment. Although an improvement over the old 10-day limit, the state still was graded “D” for its Prompt Payment policies.

Oregon made minor changes to the billing cycle requirement for prompt payment in private construction contracts.

And a Maryland appeals court ruled that a public school board could not defend its failure to pay its debt to a subcontractor on the grounds that it doesn’t have the funds or that it has “sovereign immunity” as a government entity from the claim.

Mechanic’s Lien

Several states made changes to lien laws that improved their scores.

Texas subcontractors now have more time—30 days from completion of their work—to provide lien notices to owners.

Massachusetts gave architects, landscape architects, professional engineers, licensed site professionals and land surveyors the same mechanic’s lien rights as contractors, subcontractors and materialmen.

In New York, subcontractors may now file a lien for unpaid retainage on private construction projects up to 90 days after payment is due.

Oklahoma also strengthened lien rights on construction projects, while the North Carolina Court of Appeals upheld a law establishing a contractor’s mechanic’s lien as effective on the date on which it first furnishes labor or materials.

Meanwhile, a California appellate court agreed that a fabricator of custom components is a subcontractor entitled to mechanic’s lien and payment bond rights under state law.

Bid Shopping

A new Texas ban protects subcontractors from being forced to divulge and change their bids in reverse auctions for bonded state and local work.

Nevada now requires contractors to forfeit 1 percent of the contract amount back to the state if it does “not comply with the requirements related to the substitution of subcontractors.”

Anti-indemnity / Additional Insured

Texas has enacted several major changes in its indemnity and additional insured laws, rocketing that state’s anti-indemnity score rose from a failing 6 to an A-level 94.

Iowa and California also made some minor changes, but kept their failing grades in this area.

Arkansas, Hawaii and South Carolina all made statutory tweaks, but ASA did not find them meaningful. Arkansas kept its score of 0; Hawaii, its 12; and South Carolina, its 41.

Payment Bonds

New York slightly improved its score by extending the timing for suit against a payment bond. California, Texas and Virginia all made changes that did not nudge their scores either way.

Consolidated Insurance Program

Texas earned “extra credit” as it now requires three years of completed operations coverage on CIPs, helping to protect subs and other workers against third-party claims for bodily injury or property damage filed after they complete work on a CIP project.

The ASA Report: The Policy Environment in the States

   

Tagged categories: American Subcontractors Association (ASA); Bidding; Contracts; Industrial Contractors; Laws and litigation; Painters; Subcontractors

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