SF 456 (LSB 2669XS (3) 88)

SENATE FILE 456

BY  CELSI

A BILL FOR

An Act relating to registration and bonding requirements for contractors, and providing criminal and civil penalties.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  Section 91C.2, subsection 3, Code 2019, is amended to read as follows:
   3.  An In addition to any bond required by section 91C.6B, an out-of-state contractor shall either file a surety bond, as provided in section 91C.7, with the division of labor services in the amount of twenty-five thousand dollars or shall provide a statement to the division of labor services that the contractor is prequalified to bid on projects for the department of transportation pursuant to section 314.1.
    Sec. 2.  NEW SECTION.  91C.5A  Registered contractors —— unpaid court orders.
   1.  The labor commissioner shall make available on the division of labor services of the department of workforce development’s internet site a searchable database of all contractors registered under this chapter with unpaid court orders.
   2.  The labor commissioner shall adopt rules to implement this section.
    Sec. 3.  Section 91C.6, Code 2019, is amended to read as follows:
   91C.6  Rules.
   The labor commissioner shall adopt rules, pursuant to chapter 17A, determined to be reasonably necessary for phasing in, administering, and enforcing the system of contractor registration and bonding established by this chapter.
    Sec. 4.  NEW SECTION.  91C.6A  State contracts with unregistered contractors prohibited.
   A contractor who is not registered with the labor commissioner as required by this chapter shall not be awarded a contract to perform work for the state or an agency of the state.
    Sec. 5.  NEW SECTION.  91C.6B  Home improvement contractor performance bond —— penalty.
   1.  For purposes of this section:
   a.  “Division” means the division of labor services of the department of workforce development.
   b.  “Home improvement contract” means any contract for the improvement or repair of existing residential property and the appurtenances of such property, including but not limited to landscaping, garages, storage sheds, sidewalks, driveways, and retaining walls, but does not include contracts for less than two hundred dollars in the aggregate.
   2.  Any contractor, prior to entering into a home improvement contract in Iowa, shall file with the division a surety bond. The bond shall be in the amount of seventy-five thousand dollars and shall be for the benefit of any person who, in connection with a home improvement contract with a contractor, is damaged by the contractor’s breach of the home improvement contract or by the contractor’s violation of section 714.16, regardless of whether the person has a direct cause of action pursuant to section 714.16. Any person so damaged may bring suit directly on the bond without assignment, and may recover from bond proceeds actual damages, court costs, and reasonable attorney fees.
   3.  A person filing suit pursuant to this section shall notify the division at the time the suit is filed, and the division shall maintain a record, available for public inspection and copying, of all suits commenced. Notification is not a precondition to the filing of a suit, and failure to notify the division shall in no way affect the validity of a lawsuit. However, notification pursuant to this section must be completed prior to payout of any bond proceeds pursuant to this section.
   4.  The attorney general may make a direct claim on a bond or bring an action in equity on behalf of the state to recover bond proceeds for persons who incur damage due to a contractor’s breach of a home improvement contract or violation of section 714.16 in connection with a person’s home improvement contract with a contractor.
   5.  Priority for payment of the proceeds of a bond filed pursuant to this section shall be based upon the time of filing a notice of suit with the division, except that any claim or action by the attorney general to recover bond proceeds shall take precedence over all other claims on the bond, regardless of the time of filing.
   6.  The issuer of a surety bond filed pursuant to this section shall notify the labor commissioner upon the cancellation of such bond. If a surety bond filed pursuant to this section is canceled or otherwise ceases to be in effect, the contractor’s registration pursuant to this chapter shall be void. The failure of a contractor to have a valid surety bond on file with the division as of the date of a home improvement contract shall make the contract and any note, instrument, or other evidence of indebtedness executed or entered into in connection with the contract voidable, and shall constitute a complete defense in any action based on the contract, note, instrument, or other evidence of indebtedness brought by the contractor or the contractor’s successors or assigns.
   7.  a.  A contractor who violates any provision of this section is guilty of a simple misdemeanor.
   b.  A violation of this section is an unlawful practice pursuant to section 714.16.
    Sec. 6.  Section 91C.7, subsection 1, Code 2019, is amended by striking the subsection.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
   This bill relates to contractor registration and bonding requirements.
   The bill requires the labor commissioner of the division of labor services of the department of workforce development to make available on the division’s internet site a searchable database of all contractors registered under Code chapter 91C with unpaid court orders. The bill requires the labor commissioner to adopt rules to implement this requirement. 
   The bill requires in new Code section 91C.6B that a contractor, prior to entering into a home improvement contract in Iowa, obtain a surety bond of $75,000. The new bond is in addition to any other bond requirements in Code chapter 91C. The bond benefits a person who is damaged by the contractor’s breach of contract or by the contractor’s breach of Code section 714.16, the consumer fraud statute, regardless of whether the person has a direct cause of action under that Code section. Any person damaged in either way may sue directly on the bond and may recover actual damages, court costs, and reasonable attorney fees. The bill defines “home improvement contract” to mean any contract for the improvement or repair of existing residential property and the appurtenances of such property, as specified in the bill, but not including contracts of less than $200 in total.
   The bill provides that when a suit is filed, the person who sues on the bond shall notify the division of labor services, which shall maintain a public record of all suits commenced. Notification is not a precondition to filing a suit and failure to notify the division does not in any way invalidate a lawsuit. However, bond proceeds cannot be paid out to anyone who has not filed notification.
   The bill provides that the attorney general may also make a direct claim on a bond or bring an action in equity against the bond on behalf of the state to recover bond proceeds for persons damaged due to a contractor’s breach of contract or violation of the consumer fraud statute in connection with a home improvement contract. The attorney general’s action shall take precedence over all other claims on the bond regardless of the time of filing.
   The bill requires the issuer of a bond to notify the labor commissioner upon the cancellation of the bond. If a bond is canceled or otherwise ceases to be in effect, the contractor’s registration pursuant to Code chapter 91C shall be void. The failure of a contractor to have a valid bond on file as of the date of a home improvement contract makes the contract and any note or instrument of indebtedness executed or entered into in connection with the contract to the contractor voidable, and shall be a complete defense in any action based on the contract or evidence of indebtedness by the contractor of the contractor’s successors or assigns.
   The bill provides that a contractor who violates any provision of new Code section 91C.6B is guilty of a simple misdemeanor. A simple misdemeanor is punishable by confinement for no more than 30 days or a fine of at least $65 but not more than $625 or by both. The bill further provides that a violation of new Code section 91C.6B is an unlawful practice pursuant to Code section 714.16, which allows the attorney general to investigate, issue subpoenas, and commence civil proceedings seeking restraining orders or injunctions prohibiting persons from engaging in unlawful practices or seeking termination of the business affairs of a person engaging in unlawful practices. A court may also impose a civil penalty of up to $40,000 per violation against a person found to have committed an unlawful practice.