Carolinas AGC - The Only Construction Industry Group to Testify Against NC Lien Agent Law

Carolinas AGC (Associated General Contractors) was the only construction industry association last week to testify in a legislative hearing against new lien agent legislation in North Carolina, scheduled to take effect April 1, which will cause more red tape and risks for contractors, specialty contractors, subs and suppliers.

CAGC staff and members, in a Jan. 30 legislative public hearing chaired by Rep. Sarah Stevens (R-Surry), said that the commercial construction industry should be exempt from the cumbersome legislation and that it should only apply to one- and two-family residential construction projects. That's because most of the problems with so-called hidden liens, as previously represented by the title insurers, who support the legislation, lie with large-tract residential construction. The title insurers are now stating that they run into similar problems on isolated commercial projects as well.

The legislation - Senate Bill 42 - is modeled after a law in Virginia, which only applies to one- and two-family residential construction projects. Under the law, to protect lien rights on private commercial jobs where the total amount is $30,000 or more, a contractor or subcontractor within three business days of contracting with a lower-tier sub or supplier would have to furnish the lower tiers with a written notice identifying the lien agent (who must be a title insurer). Then, within 15 days of the first furnishing of labor or materials, anyone who provides labor or materials would have to notify the lien agent. The notice could be in the form of a certified letter, a signature confirmation, a physical delivery, a fax, Fed Ex or an email with a receipt to the lien agent.

"The basic question I have asked repeatedly - and have not gotten a clear answer to - is: If it is so important for commercial construction to be included with SB 42, why is not part of Virginia law?" Dave Simpson, CAGC's NC government relations and building director, said in comments at the Raleigh hearing. "Why use an approach of hitting a gnat with a sledge hammer when the real problem on hidden liens is with large-tract residential construction projects - not commercial projects?"

Matt Bouchard, an attorney with Lewis & Roberts, testified at the hearing that there are far less risks for title insurers on commercial property because a commercial owner, unlike in residential construction, typically hires one general contractor, at-risk construction manager or design builder - not numerous prime contractors. Bouchard likened residential contracting to "multi-prime on steroids."

"It's not unusual for the residential owner/developer to contract directly with 15, 20, 25 trades or more, all of whom the law treats as 'prime contractors' with direct lien rights against the property being improved," Bouchard said. "When that contracting reality is coupled with the pressure on the residential owner/developer to sell a new house as soon as possible, all the ingredients for title insurer loss arising from hidden liens on tract developments is present."

Ricky Vick of S.T. Wooten, in written comments submitted to the legislative staff and in a presentation at the hearing, agreed that SB 42 should not apply to commercial construction. "We do not see any justifiable reason to burden NC construction firms with the additional cost and responsibility that this law places on them when the main issue that is trying to be resolved is not commercial construction. Placing additional costs and burdens on NC firms in this economy has the real potential to costs jobs and/or force firms out of business," he said.

Scott Bengel of Shelco, Inc., said at the hearing that the new law "significantly changes the risk scenario for commercial projects, creates a great deal of inefficiency that can increase risk and is generally confusing and inefficient without reducing the commercial project's risk."

CAGC Offers Solutions: In the week before the legislative hearing, Dave Simpson of CAGC circulated to numerous stakeholders, as well as legislative staff, possible language for discussion purposes to carve commercial construction out of the lien legislation. The proposal CAGC floated was crafted mostly by Holt Gwyn of Conner Gwyn Schenck PLLC at the request of contractors and subcontractors on the NC Bar Association-Construction Section/CAGC Committee, which he co-chairs. Click here for details of the proposal, which CAGC has not endorsed but is being used to facilitate discussion and respond to numerous concerns CAGC heard in recent months.

What CAGC Heard from the Construction Industry: After the NC General Assembly adjourned last summer, CAGC held seven well-attended seminars across North Carolina on the new double payment legislation, House Bill 1052, which was one of CAGC's top legislative priorities last year, and on SB 42. CAGC staff and construction attorney members heard from dozens of folks in the commercial construction industry who questioned why so much additional paperwork would be required when it had not been demonstrated that there was a widespread problem on hidden liens on commercial jobs. Many of those concerns were from specialty contractors, subcontractors and suppliers.

During last week's legislative hearing, Simpson of CAGC commended the title insurers for their work in trying to put in place an online application for each construction project that could help to reduce paperwork involving notification to lien agents. But he also noted that regardless of what notification method is used, there likely will be significant pushback from the commercial construction industry when they realize what they must do to protect their lien rights.

Other Speakers/Feedback: Before last week's legislative hearing, Bill Patterson of the NC General Assembly's Research Division, distributed written comments, submitted to him, to the stakeholders' group interested in the issue. Additional letters, not included in the text above, also were submitted by James Creekman , Brian Schoolman on behalf of the American Subcontractors Association of the Carolinas and Nancy Ferguson.

Click here to see more details of the legislative hearing in an article published in North Carolina Construction News and written by Lindsey Powell of Safran Law Offices. It should be noted that while they did not make verbal presentations during the hearing, others who were listed by the legislative staff as supporting the concept of carving commercial construction out of the new lien law included the Associated Builders and Contractors of the Carolinas, attorney Brian Schoolman of Safran Law Offices, attorney Dailey Derr and the Professional Engineers of North Carolina. Opponents who spoke included the Carolinas Ready Mixed Concrete Association and title insurance representatives. Others listed by legislative staff as "undecided" included the NC Aggregates Association, American Council of Engineering Companies, the NC Association of Realtors, the National Association of Credit Management, the NC Association of Plumbing & Mechanical Contractors, Carolinas Electrical Contractors Association, the NC Chapter of the American Fire Sprinkler Contractors Association and the North Carolina Plumbing & Mechanical Association.

Next Step in the Legislative Process: Work will continue by CAGC to try to improve SB 42 in the wake of the NC General Assembly convening its long session on Jan. 30.

What You Need to Do to Comply with the New Legislation: Special thanks to Raleigh attorneys Keith Coltrain and Matt Bouchard, for crafting an abbreviated summary of the lien and bond laws as modified by H1052 and S42.

For more info, contact Dave Simpson (dsimpson@carolinasagc.org) of CAGC.

 

 

 

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