Senate Study Bill 3039 - Introduced SENATE FILE _____ BY (PROPOSED COMMITTEE ON JUDICIARY BILL BY CHAIRPERSON ZAUN) A BILL FOR An Act relating to mechanics’ liens, public construction liens, 1 and the early release of retained funds. 2 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 3 TLSB 5704XC (2) 87 asf/jh
S.F. _____ Section 1. Section 26.3, subsection 3, Code 2018, is amended 1 to read as follows: 2 3. Sections 26.4 through 26.13 26.12 apply to all 3 competitive bidding pursuant to this section . 4 Sec. 2. Section 314.1, subsection 2, Code 2018, is amended 5 to read as follows: 6 2. Notwithstanding any other provision of law to the 7 contrary, a public improvement that involves the construction, 8 reconstruction, or improvement of a highway, bridge, or culvert 9 and that has a cost in excess of the applicable threshold 10 in section 73A.18 , 262.34 , 297.7 , 309.40 , 310.14 , or 313.10 , 11 as modified by the bid threshold subcommittee pursuant to 12 section 314.1B , shall be advertised and let for bid, except 13 such public improvements that involve emergency work pursuant 14 to section 309.40A , 313.10 , or 384.103, subsection 2 . For a 15 city having a population of fifty thousand or less, a public 16 improvement that involves the construction, reconstruction, or 17 improvement of a highway, bridge, or culvert that has a cost 18 in excess of twenty-five thousand dollars, as modified by the 19 bid threshold subcommittee pursuant to section 314.1B , shall be 20 advertised and let for bid, excluding emergency work. However, 21 a public improvement that has an estimated total cost to a 22 city in excess of a threshold of fifty thousand dollars, as 23 modified by the bid threshold subcommittee pursuant to section 24 314.1B , and that involves the construction, reconstruction, or 25 improvement of a highway, bridge, or culvert that is under the 26 jurisdiction of a city with a population of more than fifty 27 thousand, shall be advertised and let for bid. Cities required 28 to competitively bid highway, bridge, or culvert work shall 29 do so in compliance with the contract letting procedures of 30 sections 26.3 through 26.13 26.12 . 31 Sec. 3. Section 572.26, Code 2018, is amended to read as 32 follows: 33 572.26 Kinds of action —— amendment. 34 1. An action to enforce a mechanic’s lien shall be by 35 -1- LSB 5704XC (2) 87 asf/jh 1/ 7
S.F. _____ equitable proceedings, and no other cause of action shall be 1 joined therewith. 2 2. a. Any lien statement may be amended by leave of court 3 in furtherance of justice, except as to the amount demanded 4 Except as provided in paragraph “b” , a lien statement may only 5 be amended by leave of court in furtherance of justice . 6 b. A lien statement may be amended without leave of court 7 to decrease the amount demanded, and such amendment shall be 8 effected through the mechanics’ notice and lien registry. 9 Amendment of a lien statement pursuant to this subparagraph 10 shall not change or otherwise affect its priority. 11 c. A lien statement shall not be amended to increase the 12 amount demanded. 13 Sec. 4. Section 573.15, Code 2018, is amended by striking 14 the section and inserting in lieu thereof the following: 15 573.15 Exception. 16 A person, firm, or corporation that has performed labor 17 for or furnished materials, service, or transportation to 18 a subcontractor shall not be entitled to a claim against 19 the retainage or bond under this chapter unless the person, 20 firm, or corporation that performed the labor or furnished 21 the materials, service, or transportation does all of the 22 following: 23 1. Notifies the principal contractor in writing with a 24 one-time notice containing the name, mailing address, and 25 telephone number of the person, firm, or corporation that 26 performed the labor or furnished the materials, service, 27 or transportation, and the name of the subcontractor for 28 whom the labor was performed or the materials, service, or 29 transportation were furnished, within thirty days of first 30 performing the labor or furnishing the materials, service, or 31 transportation for which a claim may be made. Additional labor 32 performed or materials, service, or transportation furnished by 33 the same person, firm, or corporation to the same subcontractor 34 for use in the same construction project shall be covered by 35 -2- LSB 5704XC (2) 87 asf/jh 2/ 7
S.F. _____ this notice. 1 2. Supports the claim with a certified statement that 2 the principal contractor received the notice described in 3 subsection 1. 4 Sec. 5. NEW SECTION . 573.28 Early release of retained 5 funds. 6 1. For purposes of this section: 7 a. “Authorized contract representative” means the person 8 chosen by the governmental entity or the department to 9 represent its interests or the person designated in the 10 contract as the party representing the governmental entity’s 11 or the department’s interest regarding administration and 12 oversight of the project. 13 b. “Department” means the state department of 14 transportation. 15 c. “Governmental entity” means the state, political 16 subdivisions of the state, public school corporations, and all 17 officers, boards, or commissions empowered by law to enter 18 into contracts for the construction of public improvements, 19 excluding the state board of regents and the department. 20 d. “Public improvement” means a building or construction 21 work which is constructed under the control of a governmental 22 entity and is paid for in whole or in part with funds of the 23 governmental entity, including a building or improvement 24 constructed or operated jointly with any other public or 25 private agency, but excluding urban renewal demolition and 26 low-rent housing projects, industrial aid projects authorized 27 under chapter 419, emergency work or repair or maintenance 28 work performed by employees of a governmental entity, and 29 excluding a highway, bridge, or culvert project, and excluding 30 construction or repair or maintenance work performed for a city 31 utility under chapter 388 by its employees or performed for a 32 rural water district under chapter 357A by its employees. 33 e. “Repair or maintenance work” means the preservation of a 34 building, storm sewer, sanitary sewer, or other public facility 35 -3- LSB 5704XC (2) 87 asf/jh 3/ 7
S.F. _____ or structure so that it remains in sound or proper condition, 1 including minor replacements and additions as necessary to 2 restore the public facility or structure to its original 3 condition with the same design. 4 f. “Substantially completed” means the first date on which 5 any of the following occurs: 6 (1) Completion of the public improvement project or the 7 highway, bridge, or culvert project or when the work on the 8 public improvement or the highway, bridge, or culvert project 9 has been substantially completed in general accordance with the 10 terms and provisions of the contract. 11 (2) The work on the public improvement or on the designated 12 portion is substantially completed in general accordance with 13 the terms of the contract so that the governmental entity or 14 the department can occupy or utilize the public improvement or 15 designated portion of the public improvement for its intended 16 purpose. This subparagraph shall not apply to highway, bridge, 17 or culvert projects. 18 (3) The public improvement project or the highway, bridge, 19 or culvert project is certified as having been substantially 20 completed by either of the following: 21 (a) The architect or engineer authorized to make such 22 certification. 23 (b) The authorized contract representative. 24 (4) The governmental entity or the department is occupying 25 or utilizing the public improvement for its intended purpose. 26 This subparagraph shall not apply to highway, bridge, or 27 culvert projects. 28 2. Payments made by a governmental entity or the department 29 for the construction of public improvements and highway, 30 bridge, or culvert projects shall be made in accordance with 31 the provisions of this chapter, except as provided in this 32 section: 33 a. At any time after all or any part of the work on the 34 public improvement or highway, bridge, or culvert project is 35 -4- LSB 5704XC (2) 87 asf/jh 4/ 7
S.F. _____ substantially completed, the contractor may request the release 1 of all or part of the retained funds owed. The request shall be 2 accompanied by a sworn statement of the contractor that, ten 3 calendar days prior to filing the request, notice was given as 4 required by paragraphs “f” and “g” to all known subcontractors, 5 sub-subcontractors, and suppliers. 6 b. Except as provided under paragraph “c” , upon receipt of 7 the request, the governmental entity or the department shall 8 release all or part of the retained funds. Retained funds that 9 are approved as payable shall be paid at the time of the next 10 monthly payment or within thirty days, whichever is sooner. If 11 partial retained funds are released pursuant to a contractor’s 12 request, no retained funds shall be subsequently held based 13 on that portion of the work. If within thirty days of when 14 payment becomes due the governmental entity or the department 15 does not release the retained funds due, interest shall accrue 16 on the amount of retained funds at the rate of interest that is 17 calculated as the prime rate plus one percent per year as of 18 the day interest begins to accrue until the amount is paid. 19 c. If labor and materials are yet to be provided at the 20 time the request for the release of the retained funds is made, 21 an amount equal to two hundred percent of the value of the 22 labor or materials yet to be provided, as determined by the 23 governmental entity’s or the department’s authorized contract 24 representative, may be withheld until such labor or materials 25 are provided. 26 d. An itemization of the labor or materials yet to be 27 provided, or the reason that the request for release of 28 retained funds is denied, shall be provided to the contractor 29 in writing within thirty calendar days of the receipt of the 30 request for release of retained funds. 31 e. The contractor shall release retained funds to the 32 subcontractor or subcontractors in the same manner as retained 33 funds are released to the contractor by the governmental entity 34 or the department. Each subcontractor shall pass through to 35 -5- LSB 5704XC (2) 87 asf/jh 5/ 7
S.F. _____ each lower-tier subcontractor all retained fund payments from 1 the contractor. 2 f. Prior to applying for release of retained funds, the 3 contractor shall send a notice to all known subcontractors, 4 sub-subcontractors, and suppliers that provided labor or 5 materials for the public improvement project or the highway, 6 bridge, or culvert project. 7 g. The notice shall be substantially similar to the 8 following: 9 NOTICE OF CONTRACTOR’S REQUEST 10 FOR EARLY RELEASE OF RETAINED FUNDS 11 You are hereby notified that [name of contractor] will be 12 requesting an early release of funds on a public improvement 13 project or a highway, bridge, or culvert project designated as 14 [name of project] for which you have or may have provided labor 15 or materials. The request will be made pursuant to Iowa Code 16 section 573.28. The request may be filed with the [name of 17 governmental entity or department] after ten calendar days from 18 the date of this notice. The purpose of the request is to have 19 [name of governmental entity or department] release and pay 20 funds for all work that has been performed and charged to [name 21 of governmental entity or department] as of the date of this 22 notice. This notice is provided in accordance with Iowa Code 23 section 573.28. 24 Sec. 6. REPEAL. Section 26.13, Code 2018, is repealed. 25 EXPLANATION 26 The inclusion of this explanation does not constitute agreement with 27 the explanation’s substance by the members of the general assembly. 28 This bill relates to mechanics’ liens and public 29 construction liens. 30 MECHANIC’S LIENS. Under current law, a lien statement may 31 only be amended by leave of court in furtherance of justice 32 or as to the amount demanded. The bill provides that a lien 33 statement may only be amended by leave of court in furtherance 34 of justice or to decrease the amount demanded. An amendment to 35 -6- LSB 5704XC (2) 87 asf/jh 6/ 7
S.F. _____ decrease the amount demanded must be accomplished through the 1 mechanics’ notice and lien registry. The bill provides that 2 amending a lien statement to decrease the amount demanded does 3 not affect the priority of the lien statement. The bill also 4 provides that a lien statement shall not be amended to increase 5 the amount demanded. 6 PUBLIC CONSTRUCTION LIENS. Current Code section 573.15 7 provides an exception to the requirement that a public 8 corporation retain a portion of funds due a contractor on a 9 public improvement project in a fund for the payment of claims 10 for materials furnished and labor performed. The exception 11 provides that a public corporation need only retain funds due a 12 supplier of material to a general contractor if the supplier 13 provides the general contractor with one of two permitted types 14 of notice after the materials are supplied. The bill provides 15 that, in addition to claims for materials, the exception shall 16 apply to claims for labor, service, or transportation. The 17 bill also amends the notice requirement to provide that a 18 supplier of labor, materials, service, or transportation to a 19 general contractor must give only one type of notice, along 20 with a certified statement that such notice was given. 21 The bill repeals Code section 26.13 (public construction 22 bidding —— early release of retained funds), creates new Code 23 section 573.28 with the same language except for corrected 24 internal references, and provides that the Code section no 25 longer applies to all competitive bidding done pursuant to Code 26 section 26.3 or 314.1. 27 -7- LSB 5704XC (2) 87 asf/jh 7/ 7