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New Mexico Stays Ahead of the Class in ASA Report Card

Tue December 27, 2005 - National Edition
Construction Equipment Guide

New Mexico’s state motto, “It grows as it goes,” is an obscure reference to a 1st century B.C. poet’s comment on the way lightning bolts travel across the sky, but there’s no guessing as to where New Mexico ranks among states for subcontractor-friendly public policies.

“The ASA Report: The Policy Environment in the States,” published by the American Subcontractors Association (ASA), ranks New Mexico as No. 1 for its overall public policies impacting construction subcontractors. The annual report, now in its second year, scores each state in individual policy areas such as retainage and “bid shopping,” and uses the scores to assign an overall score and grade to each state.

All states other than New Mexico had overall scores of less than 58 points out of 100, failing grades, as calculated by ASA.

“The overall policy environment for subcontractors in the states remains unacceptable,” said ASA President Vincent Terraferma.

“While there are some states that improved in particular areas, such as prompt payment and retainage, even high-ranking New Mexico’s overall score was 69 points out of a possible 100. ASA is committed to improving the policy environment for subcontractors, including using this report to educate policymakers and others about the need for reforms.”

ASA is contacting media, legislators and other public officials across the country to share the results of “The ASA Report.” ASA’s campaign will warn subcontractors of deficits in their state laws, provide advocacy information to help change laws, and educate subcontractors about the need to remain vigilant when negotiating contracts in a harsh public policy environment.

ASA calculated the overall grade for each state (including the District of Columbia) by scoring seven key state public policy areas, and then combining the points for a final score and a final grade for each state. ASA scored:

• Prompt payment protections;

• Treatment of pay-if-paid clauses;

• Mechanic’s lien protections;

• Payment bond protections;

• Retainage limitations;

• Anti-indemnity protections, including limits on “additional insured” endorsements; and

• Anti-“bid shopping” measures.

The scoring in each policy area took into account both laws and judicial decisions.

Kansas showed the greatest overall improvement among the states in the past year, with its state ranking increasing from 29 to 19 out of 50. This shift was due to a sweeping law (S.B. 33) for private construction (except small residential work) requiring construction owners to pay prime contractors within 30 days for completed, undisputed work, and contractors to pay their subcontractors within seven days of receipt of payment for subcontractors’ work.

The law also preserves contractors’ and subcontractors’ ability to assert mechanic’s lien rights notwithstanding pay-if-paid clauses, provides for suspension of work after progress payments are 14 days late, limits retainage to 10 percent, establishes equal retainage levels at all tiers, bans out-of-state arbitration and litigation on disputes over Kansas construction, provides attorney fees for the prevailing party in disputes, and prohibits waivers of subrogation for workers’ compensation losses.

“The ASA Report: The Policy Environment in the States” revealed significant legislative/judicial activity in individual policy areas affecting subcontractors in 11 states: Arizona, Florida, Kansas, Kentucky, Maryland, Montana, North Carolina, Oklahoma, Oregon, Rhode Island and Tennessee.

Kansas showed the most improvement in payment and retainage policies with S.B. 33.

Kentucky showed the most improved anti-indemnity policy due to enactment of its first anti-indemnity statute (H.B. 449) for construction, which limits contractors’ indemnity obligations under hold harmless clauses to the extent of their own fault.

Tennessee showed the most improved mechanic’s lien law with enactment of a law (H.B. 743) prohibiting contractual lien waivers in construction contracts.

Other notable policy developments in the states (some of which impacted state rankings in “The ASA Report,” and others which did not) within the past year include:

• Arizona legislators prohibited retainage on all job order contracting construction contracts with enactment of H.B. 2579.

• Florida legislators limited retainage on state and local public projects to 10 percent on the first half of the job and 5 percent on the second half, and established project closeout procedures and milestones for final payment of retainage with enactment of S.B. 632.

The law also reduced the statutory period from receipt of progress payment funds to payment from 15 to 10 days for contractor payments to subcontractors, and from 15 to seven days for subcontractor payments to sub-subcontractors.

Late payments accrue interest at the rate of 1 percent per month and prevailing parties in disputes are entitled to court costs and attorney fees.

• The Maryland Court of Appeals preserved the payment bond rights of subcontractors and suppliers with its ruling that sureties must follow procedures in bond forms, including those that require them to respond promptly to claims.

ASA and its chapters in the region, ASA of Baltimore and the D.C. Metropolitan Subcontractors Association, filed an amici curiae brief in the case.

• Montana legislators reduced the maximum retainage rate from 10 to 5 percent on public works with enactment of S.B. 286.

• North Carolina legislators revised the state’s mechanic’s lien law to offer lien rights to all parties that furnish labor or materials on a project with enactment of S.B. 887.

• With S.B. 1001, a law that applies to public works, Oklahoma legislators expanded the items for which contractors and subcontractors can recover costs when they suspend work because of nonpayment, and limited retainage to 5 percent of the value of the whole contract after the subcontractor has properly invoiced half of the contract value.

• In the case of Walsh v. Enumclaw, Oregon’s Supreme Court preserved the state’s potent anti-indemnity law for construction. ASA filed an amicus curiae brief in the case.

• The Rhode Island Supreme Court preserved the lien rights of subcontractors by ruling that the filing of a mechanic’s lien without a pre-lien hearing does not violate constitutional due process. ASA and its state chapter, the Rhode Island Subcontractors Association, filed an amici curiae brief in the case.

• South Carolina legislators reduced the maximum retainage rate on public and private work from 5 percent to 3.5 percent with enactment of S. 365.

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