Senate File 317 - Introduced SENATE FILE BY WOOD Passed Senate, Date Passed House, Date Vote: Ayes Nays Vote: Ayes Nays Approved A BILL FOR 1 An Act requiring in=state home improvement contractors to obtain 2 surety performance bonds, and providing a criminal penalty. 3 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 4 TLSB 2425SS 82 5 ak/es/88 PAG LIN 1 1 Section 1. NEW SECTION. 91C.6A REGISTRATION REQUIRED == 1 2 IN=STATE CONTRACTS. 1 3 A contractor who is not registered with the labor 1 4 commissioner as required by this chapter shall not be awarded 1 5 a contract to perform work for the state or an agency of the 1 6 state. 1 7 Sec. 2. NEW SECTION. 91C.6B HOME IMPROVEMENT CONTRACTOR 1 8 PERFORMANCE BOND. 1 9 1. a. A contractor shall file with the division of labor 1 10 services of the department of workforce development a surety 1 11 bond. The bond shall be in the amount of seventy=five 1 12 thousand dollars and shall be for the benefit of any person 1 13 who, in connection with a home improvement contract with a 1 14 contractor, is damaged by a contractor's breach of the home 1 15 improvement contract or by a contractor's violation of section 1 16 714.16, subsection 2, paragraph "a". Any person so damaged 1 17 may bring suit directly on the bond without assignment, and 1 18 may recover from bond proceeds actual damages, court costs, 1 19 and reasonable attorney fees. 1 20 b. A person filing suit pursuant to this section shall 1 21 notify the division of labor services of the department of 1 22 workforce development at the time suit is filed, and the 1 23 division of labor services of the department of workforce 1 24 development shall maintain a record, available for public 1 25 inspection and copying, of all suits commenced. Notification 1 26 is not a precondition to the filing of a suit, and failure to 1 27 notify the division of labor services of the department of 1 28 workforce development shall in no way affect the validity of a 1 29 lawsuit. 1 30 2. The attorney general may bring an action in equity on 1 31 behalf of the state to recover bond proceeds for persons who 1 32 incur damage due to a contractor's breach of a home 1 33 improvement contract or violation of section 714.16, 1 34 subsection 2, paragraph "a", in connection with a person's 1 35 home improvement contract with a contractor. 2 1 3. Priority for payment of the proceeds of a bond issued 2 2 pursuant to this section shall be based upon the time of 2 3 filing notice of suit with the division of labor services of 2 4 the department of workforce development, except that any 2 5 action by the attorney general to recover bond proceeds shall 2 6 take precedence over all other claims on the bond, regardless 2 7 of the time of filing. 2 8 4. The issuer of a bond shall notify the labor 2 9 commissioner if a bond issued pursuant to this section is 2 10 canceled. If a bond issued pursuant to this section ceases to 2 11 be in effect, the contractor's registration pursuant to this 2 12 chapter shall be void. The failure of a contractor to have a 2 13 valid surety bond on file with the division of labor services 2 14 of the department of workforce development as of the date of a 2 15 home improvement contract shall make the contract and any 2 16 note, instrument, or other evidence of indebtedness executed 2 17 or entered into in connection with the contract voidable, and 2 18 shall constitute a complete defense in any action based on the 2 19 contract, note, instrument, or other evidence of indebtedness 2 20 brought by the contractor or the contractor's successors or 2 21 assigns. 2 22 5. Any contractor who violates the provisions of this 2 23 section shall be guilty of a simple misdemeanor. 2 24 Sec. 3. Section 91C.7, subsection 1, Code 2007, is amended 2 25 by striking the subsection. 2 26 EXPLANATION 2 27 This bill requires that in=state contractors who take 2 28 contracts for home improvement work to obtain a surety bond of 2 29 $75,000 before accepting contracts. The bond benefits a 2 30 person who may be damaged by a contractor's breach of contract 2 31 or by a contractor's violation of Code section 714.16, 2 32 subsection 2, paragraph "a", the consumer fraud statute. Any 2 33 person damaged in either way may sue directly on the bond and 2 34 may recover actual damages, court costs, and reasonable 2 35 attorney fees. When the suit is filed, the person who sues on 3 1 the bond shall notify the division of labor services of the 3 2 department of workforce development, which shall keep a public 3 3 record of all suits commenced. However, notification is not a 3 4 precondition to filing a suit and failure to notify the 3 5 department does not in any way invalidate the lawsuit. 3 6 The bill states that the attorney general may also bring an 3 7 action in equity against the bond on behalf of the state to 3 8 recover bond proceeds for persons damaged due to a 3 9 contractor's breach of contract or violation of the consumer 3 10 fraud statute in connection with a home improvement project 3 11 contract. 3 12 The bill provides that damages will be paid from the 3 13 proceeds of the bond based on the time of filing notice of 3 14 suit with the division of labor services of the department of 3 15 workforce development, except that any action by the attorney 3 16 general to recover damages against the bond shall take 3 17 precedence over all other claims, no matter the time of 3 18 filing. 3 19 The bill requires that when a bond issued pursuant to this 3 20 section is canceled, notice shall be given to the labor 3 21 commissioner by the issuer of the bond. If the bond becomes 3 22 ineffective, then the contractor's registration pursuant to 3 23 this chapter becomes void. The bill provides that the failure 3 24 of a contractor to have a valid surety bond on file as of the 3 25 date of a home improvement contract makes the contract and any 3 26 note or instrument of indebtedness executed or entered into in 3 27 connection with the contract voidable, and shall be a complete 3 28 defense in any action brought based on the contract or 3 29 evidence of indebtedness by the contractor or the contractor's 3 30 successors or assigns. 3 31 The first section of the bill moves a current provision of 3 32 law that requires a contractor to be registered with the state 3 33 prior to being awarded a contract from the state to a separate 3 34 section so that it applies to all contractors. 3 35 The bill provides that a contractor who violates the 4 1 provisions of this Code section is guilty of a simple 4 2 misdemeanor. A simple misdemeanor is punishable by 4 3 confinement for no more than 30 days or a fine of at least $65 4 4 but not more than $625 or by both. 4 5 LSB 2425SS 82 4 6 ak:rj/es/88.1