Critical Changes to NC Construction Laws

Were from the government, andwere here to help.

1Presented by: Ned McNaughtonMcNaughton & Associates, PLLCwww.mcnaughton-law.com

North Carolina Subcontractors Alliance

Charlotte, NCSeptember 17, 2013

CRITICAL Changes to North Carolina CONSTRUCTION Laws

2legislation

3Senate Bill 452 Act to Increase the Jurisdictional Amounts in the General Courts of Justice, To Make Arbitration Mandatory in Certain Civil CasesSigned into law June 19, 2013Went into effect August 1, 2013

Increases jurisdiction of small claims court to $10,000.Increases jurisdiction of district court to $25,000.Orders all cases up to $25,000 to non-binding arbitration, unless all parties to the action waive the right.

McNaughton & Associates, PLLC44House Bill 786 Act to Clarify Which Employers are Subject to the States E-Verify LawsSigned into law September 4, 2013 (over a veto)Went into effect September 4, 2013

No public body may enter into a contract unless the contractor and the contractors subcontractors are enrolled in E-Verify.

Definition of Employee does not include an individual whose term of employment is less than nine months in a calendar year.

McNaughton & Associates, PLLC55House Bill 857 Act Authorizing Public Contracts to Utilize the Design-Build Method or Public-Private Partnership Construction Contracts Signed into law August 23, 2013Goes into effect September 22, 2013Adds Design-Build and Public-Private Partnership as acceptable construction methods for contracts to erect, construct, alter, or repair buildingsAllows the Public Body to designate the contractor on P3 jobs.Mandates payment bonds on P3 jobs.Allows the P3 developer and surety to discharge LORPs and LOFs by filing a copy of the payment bond with the court.

McNaughton & Associates, PLLC66House Bill 476 Act Rewriting the Laws Regulating Underground Utility Damage PreventionSigned into law August 23, 2013Goes into effect October 1, 2013

Defines demolition as: Any operation by which a structure or mass of material is wrecked, razed, rendered, moved, or removed by any means...

Defines excavation as: Any operation for the purpose of the movement or removal of earth, rock, in or on the ground by use of manual or mechanized equipment

McNaughton & Associates, PLLC77House Bill 476 Act Rewriting the Laws Regulating Underground Utility Damage Prevention

Requires anyone performing demolition or excavation to contact the Notification Center [NC811] 3 to 12 full working days before commencing the work.Exemptions: By owner of single family residence.Agriculture or gardening (landscaping?).NCDOT or other governmental entity.Railroads. If Notification Center does not respond, and no visible indication of any underground facility (such as a pole, marker, pedestal, meter, or valve), contractor may proceed. If visible indications are present, then contractor must call again.

McNaughton & Associates, PLLC88House Bill 476 Act Rewriting the Laws Regulating Underground Utility Damage Prevention

Penalties:If the contractor does follow the requirements:contractor will not be liable to the non-responding or improperly responding operator for damagesIf the contractor does not follow the requirements:Negligence: a requirement of training and/or education.Gross Negligence: $1,000, plus training and/or education.Willful or Wanton negligence: $2,500, plus training and education.

McNaughton & Associates, PLLC99House Bill 110 Act to Provide for Fair and Open Competition in Governmental Construction ContractsSigned into law July 17, 2013Goes into effect October 1, 2013

No public body may, in any bid specifications, project agreements, or other controlling documents:Require or prohibit a bidder from adhering to agreements with labor organizations in regard to that Project, orOtherwise discriminate relating to agreements with labor organizations in regard to that Project.

McNaughton & Associates, PLLC1010Senate Bill 414 Act to Provide that Reciprocal Attorneys Fees Provisions in Business Contracts are ValidSigned into law June 17, 2011Went into effect October 1, 2011 [2 years ago!]

The winner of a lawsuit can recover its attorneys fees from the losing party when:The recovery of attorneys fees is available to both sides, andThe parties to the contract signed by hand.The attorneys fees awarded will not be limited to any statutory or contractual percentage, but cannot exceed the monetary damages awarded.

McNaughton & Associates, PLLC1111Case law

12Overton v. Evans Logging, Inc., (N.C. App. 1/15/13):Truck driver slipped while walking over scattered debris to get trip ticket signed at a logging site in Halifax Co.Court ruled: If condition cannot be negotiated with reasonable safety, even though the plaintiff is fully aware of it, it may be found that obviousness, warning or even knowledge is not enough. [If] the defendant knew that the employee had no choice but to encounter the obvious dangerous conditions, [then] whether the defendants failure to take additional precautions for the employees safety was reasonable under [the] circumstances was for the jury to determine.

McNaughton & Associates, PLLC1313Phillips and Jordan, Inc. v. Bostic, (NC Business Ct. 6/1/12): Subcontractor sued officers/owners of GC in their personal capacity for Constructive Fraud after the GC went bankrupt.Court ruled: Because the officers/owners used their positions and control of their company to create a relationship wherein the Plaintiff trusted that the Defendants would use the construction loan proceeds for each project to pay for the actual costs of each project. Under North Carolina law, Directors of a corporation owe a fiduciary duty to creditors of the corporation only where there exist circumstances amounting to a winding-up or dissolution of the corporation.Since defendants used the proceeds to advance money to other companies they owned at a time, the GC was operated in a condition that verged on or near actual insolvency and constituted dissolution or winding up of the affairs of the company, and the Subcontractor had sufficiently stated its claim.

McNaughton & Associates, PLLC1414Godon Constr. V. Primo Enterprises, LLC, (N.C. App. 3/19/13):Contractor on commercial renovation project in Sanford sued the Owner for breach of contract and quantum meruit for change order work. Contract had expressed no changes unless in writing clause.Court ruled: As a general proposition, a contract may be modified or waived by subsequent parole agreement, or by conduct which naturally and justly leads the other party to believe the provisions of the contract have been modified or waived, even though the instrument involved provides that only written modifications shall be binding.However, since contract required the Contractor to complete the addition and have received the C/O within 120 days, work necessary for getting the C/O may not qualify as additional work.

McNaughton & Associates, PLLC1515QuestionsMcNaughton & Associates, PLLCAttorneys at Law2101 Sardis Road North Suite 208 Charlotte NC 28227704-841-8772 704-841-8773 (facsimile)ejmcnaughton@mcnaughton-law.comPresented by: Ned McNaughtonMcNaughton & Associates, PLLC16

16mechanics Liens

to protect the interests of those who supply labor and materials17Lien LegislationSenate Bill 1052 Act to Make Various Amendments as recommended by the Legislative Research Commissions Mechanics Lien Committee.Signed into law July 12, 2012, at 4:48 p.m.Went into effect January 1, 2013.Senate Bill 42 Act to Require Persons Furnishing Labor or Materials to Give Written Notice to the Designated Lien Agent of the OwnerSigned into law July 12, 2012, at 4:19 p.m.Went into effect April 1, 2013

McNaughton & Associates, PLLC1818Senate Bill 847 Act to Make Technical Corrections ...Signed into law July 17, 2012Went into effect January 1, 2013

Reconciled the lien waiver provisions of the two different versions of N.C. Gen. Stat. 44A-23 found in HB 1052 and SB 42:Prohibiting a lien waiver signed by a GC from prejudicing a subcontractors subrogated lien rights after:Subcontractor has given written Notice to the Lien Agent;Subcontractor has served a LOF on the Owner; andSubcontractor has delivered a copy of the served LOF to the Lien Agent.

McNaughton & Associates, PLLC1919House Bill 180 Act to Make Various Technical Corrections ...Signed into law March 28, 2013Went into effect April 1, 2013

Prohibiting a lien waiver signed by a GC from prejudicing a subcontractors subrogated lien rights after the Subcontractor had perfected its LORP, which requires:Giving written Notice to the Lien Agent within 15 days of the DOFW, or Giving written Notice to the Lien Agent and filing the LORP prior to recordation of a conveyance;Serving copy of the LORP on the Owner and GC; andFiling the LORP with the court.Subcontractor may use its own or the GCs DOFW and DOLW.McNaughton & Associates, PLLC2020House Bill 88 Act to Make Technical Corrections ...Signed into law June 19, 2013Went into effect June 22, 2013

Changed used by the owner to occupied by the owner for existing residential improvement exception to the Lien Agent requirement.Allows Custom Contractor to designate the Lien Agent if authorized by the Owner.Added providers of professional design and surveying services to the definition of Contractor and Subcontractor.

McNaughton & Associates, PLLC2121Key Elements of New Law:LNSS

ien Agentoticeerviceurvival

22LIEN AGENT

McNaughton & Associates, PLLC2323Lien agentLIEN AGENT DEFINEDLien Agent A title insurance company or title insurance agency designated by the owner. (Must be listed with NCDOI.)

APPLICABILITYAll improvements to real property costing over $30,000 at the time the original building permit is issued.Except for an existing single family home occupied by the owner as a residence, or accessory building/structure incidental to that residence. 44A-7(2a); 44A-11.1(a)& Associates, PLLC2424Lien agentTIME LIMIT TO DESIGNATE LIEN AGENTNo later than the time the owner first contracts with any person to improve the real property.

WHO IS RESPONSIBLE FOR DESIGNATING LIEN AGENTThe OWNER shall designate the lien agent.A CUSTOM CONTRACTOR, if authorized to do so in a written contract with the OWNER.

44A-11.1(a), 44A-11.2(h)Associates, PLLC2525Lien agentREQUIRED CONTACT INFORMATIONThe designation of LIEN AGENT shall include the following contact information for the LIEN AGENT and CUSTOM CONTRACTOR:Full legal Name Physical and mailing addressTelephone numberFacsimile numberE-mail address

POSTINGLIEN AGENT contact information must be conspicuously and continuously posted on the property until the completion of all construction, either by being contained in or attached to the building permit, or on a separate sign. 44A-11.2(a); 44A-11.2(e)& Associates, PLLC2626Lien agentNOTICE TO SUBCONTRACTORS AND SUPPLIERSTIME LIMIT: CONTRACTOR or SUBCONTRACTOR must provide any lower-tier Subcontractor or Supplier who is not required to furnish labor at the site of the improvement written notice of the LIEN AGENTs contact information within three business days of contracting.

DELIVERY: Notice may be given by Certified Mail, Confirmed Fax, Confirmed E-mail, including the information in a written subcontract or purchase order; or utilizing an Internet Web site approved by the LIEN AGENT.

PENALTY: Failing to provided the LIEN AGENTs contact information makes the CONTRACTOR or SUBCONTRACTOR liable to the lower-tier Subcontractor or Supplier for any actual damages incurred as a result of the failure. 44A-11.2(d)& Associates, PLLC2727Lien agentBUILDING PERMITSAny person, firm, or corporation applying for building permit where the cost is $30,000 or more shall be required to provide the LIEN AGENT information to the issuing authority.

PERMITS No permit shall be issued unless the LIEN AGENT designated by the OWNER is conspicuously set forth in the permit or in an attachment thereto. 87-14; 153A-357; 160A-417& Associates, PLLC2828

NOTICEMcNaughton & Associates, PLLC2929NOTICENOTICE TO LIEN AGENTNew statutory form that must be given by all POTENTIAL LIEN CLAIMANTS to the LIEN AGENT. Notice must include: Name, mailing address, telephone and fax number, and e-mail address of POTENTIAL LIEN CLAIMANT;Name of the party with whom POTENTIAL LIEN CLAIMANT has a contract;Description of the real property; and Statement declaring: I give notice of my right to pursue a claim of lien for improvements to the real property described in this notice.Exception for certain single-family residence contracts. 44A-11.2(h) & Associates, PLLC3030NOTICEPRECONDITION TO PERFECTION OF LIENA POTENTIAL LIEN CLAIMANT may perfect a claim of lien on real property only if one or more of the following conditions are met:

LIEN AGENT has received written Notice to Lien Agent no later than 15 days after the first furnishing of labor or materials by the POTENTIAL LIEN CLAIMANT; or

LIEN AGENT has received the Notice to Lien Agent prior to recordation of a conveyance of the property to a bona fide purchaser; or

POTENTIAL LIEN CLAIMANT has filed its LORP prior to recordation of a conveyance of the property to a bona fide purchaser. 44A-11.2(l)hton & Associates, PLLC3131SERVICE

McNaughton & Associates, PLLC3232SERVICEREQUIRED TO PERFECT A LIEN ON REAL PROPERTYA claim of lien on real property shall be perfected upon occurrence of all of the following:

Filing at the court house within 120 days from the date of last work;

Service of a copy of the claim of lien upon the record OWNER (at the address listed on the permit, on the tax roles, or the registered agent listed with the NCSOS); and

If a Subcontractor lien, service of a copy of the claim of lien upon the CONTRACTOR.

But may not perfect unless gave Written Notice to the Lien Agent.

M 44A-11; 44A-12 & Associates, PLLC3333SERVICEDEFINITION OF SERVICE ON OWNER AND CONTRACTORService of a claim of lien on real property on the OWNER or CONTRACTOR shall include, and shall be deemed complete upon:Personal delivery upon the recipient; Depositing a copy in the US Mail, properly addressed and postage pre-paid;Depositing a copy with a designated delivery service authorized pursuant to 26 U.S.C. 7502(f)(2), properly addressed and postage pre-paid.

Proof of actual receipt is not required.

44A-11McNaughto & Associates, PLLC3434SURVIVAL

McNaughton & Associates, PLLC3535SURVIVALCONTRACTOR WAIVER WIPES OUT SUBCONTRACTOR LIEN, UNLESS PRIOR NOTICEA lien waiver signed by the CONTRACTOR before the SUBCONTRACTOR has perfected its LORP waives the SUBCONTRACTORs right to enforce its subrogated lien.Perfecting = Filing the LORP with court within 120 days of the DOLW;Service of a copy of the filed LORP on the OWNER and CONTRACTOR;Which cannot be done until after:Written Notice received by LIEN AGENT;Service of a LOF on the OWNER; andDelivery of a Copy of the LOF to the LIEN AGENT.

44A-20(d); 44A-23(c)& Associates, PLLC3636SURVIVALFALSE LIEN WAIVERSAny signing of a false lien waiver by any licensed contractor or qualifying party shall constitute deceit and misconduct and be subject to disciplinary action by licensing board, including:Revocation of license;Suspension of license; or Restriction of license or ability to act as a qualifying party.

Note: May be used as the basis for UDTPA claim.M 44A-24& Associates, PLLC3737PAYMENT BONDS

the substitute for the lien38CONTRACTORS PROJECT STATEMENT

McNaughton & Associates, PLLC3939CONTRACTORS PROJECT STATEMENTAPPLICABILITYApplies to any public construction contract where the total amount exceeds $300,000, or for State or University of North Carolina projects, where the total amount exceeds $500,000.

PENALTY No agreement shall be enforceable against a lower tier party until the Contractors Project Statement has been provided to the lower tier party. 44A-27(f); 44A-27(f)(3)4040CONTRACTORS PROJECT STATEMENTCONTRACTOR CONTRACTOR shall provide each SUBCONTRACTOR it engages to perform labor or furnish materials with a written Contractors Project Statement.

FORM The Contractors Project Statement must include:Project Name;Physical address of the Project;Name of Contracting Body (OWNER);Legal name of CONTRACTOR;Name and address of the SURETY on the payment bond;Name, address, and phone number of agent authorized to accept service of requests, notices, and claims on the payment bond.M 44A-27(f)(1);a 44A-27(f)(1) & Associates, PLLC4141(SUB)CONTRACTORS PROJECT STATEMENTSUBCONTRACTOR Each SUBCONTRACTOR must provide every lower tier subcontractor or supplier it engages to perform labor or furnish materials with a copy of the Contractors Project Statement.

PENALTY No agreement shall be enforceable against a lower tier party until the Contractors Project Statement has been provided to the lower tier party.M 44A-27(f)(2); 44A-27(f)(3) Associates, PLLC4242NOTICE OF PUBLIC SUBCONTRACTMcNaughton & Associates, PLLC43

43NOTICE OF PUBLIC SUBCONTRACTAPPLICABILITYNotice of Public Subcontract requirements apply to any claim exceeding twenty thousand dollars ($20,000).Does not apply to the claims in the amount of $20,000 or less, or the first $20,000 of any claim.

PENALTY Failing to provide the Notice of Public Subcontract bars recovery for labor or materials provided prior to 75 days of the claim.M 44A-27(c)& Associates, PLLC4444NOTICE OF PUBLIC SUBCONTRACTSUBCONTRACTOR Every SUBCONTRACTOR or SUPPLIER (through third-tier) must serve upon the CONTRACTOR a written Notice of Public Subcontract.

FORM The Notice of Public Subcontract must include:Legal name and address of SUBCONTRACTOR;General description of the real property where the Project is located;General description of the subcontract, including names and addresses of the parties; andGeneral description of the labor and materials to be furnished. 44A-27(f)(2); 44A-27(d)(3) 4545COPY OF PAYMENT BONDCONTRACTORS DUTY TO PROVIDE

CONTRACTOR shall provide any claimant a copy of the payment bond within seven calendar days of the receipt of a written request.

PENALTY: If CONTRACTOR fails to provide a copy of the payment bond as required, Claimant will not be penalized for not serving a Notice of Public Subcontract.

Note: New laws did not revoke contracting bodys duty to provide certified copies under 44A-31.M 44A-27(b)& Associates, PLLC4646QuestionsMcNaughton & Associates, PLLCAttorneys at Law2101 Sardis Road North Suite 208 Charlotte NC 28227704-841-8772 704-841-8773 (facsimile)ejmcnaughton@mcnaughton-law.comPresented by: Ned McNaughtonMcNaughton & Associates, PLLC47

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