House Study Bill 15 - Introduced SENATE/HOUSE FILE _____ BY (PROPOSED ATTORNEY GENERAL BILL) A BILL FOR An Act relating to registration and bonding requirements for 1 contractors, and providing criminal and civil penalties. 2 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 3 TLSB 1262DP (2) 88 gh/rn

S.F. _____ H.F. _____ Section 1. Section 91C.2, subsection 3, Code 2019, is 1 amended to read as follows: 2 3. An In addition to any bond required by section 91C.6B, 3 an out-of-state contractor shall either file a surety bond, 4 as provided in section 91C.7 , with the division of labor 5 services in the amount of twenty-five thousand dollars or 6 shall provide a statement to the division of labor services 7 that the contractor is prequalified to bid on projects for the 8 department of transportation pursuant to section 314.1 . 9 Sec. 2. Section 91C.6, Code 2019, is amended to read as 10 follows: 11 91C.6 Rules. 12 The labor commissioner shall adopt rules, pursuant to 13 chapter 17A , determined to be reasonably necessary for phasing 14 in, administering, and enforcing the system of contractor 15 registration and bonding established by this chapter . 16 Sec. 3. NEW SECTION . 91C.6A State contracts with 17 unregistered contractors prohibited. 18 A contractor who is not registered with the labor 19 commissioner as required by this chapter shall not be awarded 20 a contract to perform work for the state or an agency of the 21 state. 22 Sec. 4. NEW SECTION . 91C.6B Home improvement contractor 23 performance bond —— penalty. 24 1. For purposes of this section: 25 a. “Division” means the division of labor services of the 26 department of workforce development. 27 b. “Home improvement contract” means any contract for the 28 improvement or repair of existing residential property and the 29 appurtenances of such property, including but not limited to 30 landscaping, garages, storage sheds, sidewalks, driveways, and 31 retaining walls, but does not include contracts for less than 32 two hundred dollars in the aggregate. 33 2. Any contractor, prior to entering into a home improvement 34 contract in Iowa, shall file with the division a surety bond. 35 -1- LSB 1262DP (2) 88 gh/rn 1/ 5

S.F. _____ H.F. _____ The bond shall be in the amount of seventy-five thousand 1 dollars and shall be for the benefit of any person who, in 2 connection with a home improvement contract with a contractor, 3 is damaged by the contractor’s breach of the home improvement 4 contract or by the contractor’s violation of section 714.16, 5 regardless of whether the person has a direct cause of action 6 pursuant to section 714.16. Any person so damaged may bring 7 suit directly on the bond without assignment, and may recover 8 from bond proceeds actual damages, court costs, and reasonable 9 attorney fees. 10 3. A person filing suit pursuant to this section shall 11 notify the division at the time the suit is filed, and the 12 division shall maintain a record, available for public 13 inspection and copying, of all suits commenced. Notification 14 is not a precondition to the filing of a suit, and failure to 15 notify the division shall in no way affect the validity of a 16 lawsuit. However, notification pursuant to this section must 17 be completed prior to payout of any bond proceeds pursuant to 18 this section. 19 4. The attorney general may make a direct claim on a 20 bond or bring an action in equity on behalf of the state 21 to recover bond proceeds for persons who incur damage due 22 to a contractor’s breach of a home improvement contract or 23 violation of section 714.16 in connection with a person’s home 24 improvement contract with a contractor. 25 5. Priority for payment of the proceeds of a bond filed 26 pursuant to this section shall be based upon the time of filing 27 a notice of suit with the division, except that any claim or 28 action by the attorney general to recover bond proceeds shall 29 take precedence over all other claims on the bond, regardless 30 of the time of filing. 31 6. The issuer of a surety bond filed pursuant to this 32 section shall notify the labor commissioner upon the 33 cancellation of such bond. If a surety bond filed pursuant to 34 this section is canceled or otherwise ceases to be in effect, 35 -2- LSB 1262DP (2) 88 gh/rn 2/ 5

S.F. _____ H.F. _____ the contractor’s registration pursuant to this chapter shall be 1 void. The failure of a contractor to have a valid surety bond 2 on file with the division as of the date of a home improvement 3 contract shall make the contract and any note, instrument, or 4 other evidence of indebtedness executed or entered into in 5 connection with the contract voidable, and shall constitute a 6 complete defense in any action based on the contract, note, 7 instrument, or other evidence of indebtedness brought by the 8 contractor or the contractor’s successors or assigns. 9 7. a. A contractor who violates any provision of this 10 section is guilty of a simple misdemeanor. 11 b. A violation of this section is an unlawful practice 12 pursuant to section 714.16. 13 Sec. 5. Section 91C.7, subsection 1, Code 2019, is amended 14 by striking the subsection. 15 EXPLANATION 16 The inclusion of this explanation does not constitute agreement with 17 the explanation’s substance by the members of the general assembly. 18 This bill relates to contractor registration and bonding 19 requirements. 20 The bill requires in new Code section 91C.6B that a 21 contractor, prior to entering into a home improvement contract 22 in Iowa, obtain a surety bond of $75,000. The new bond is in 23 addition to any other bond requirements in Code chapter 91C. 24 The bond benefits a person who is damaged by the contractor’s 25 breach of contract or by the contractor’s breach of Code 26 section 714.16, the consumer fraud statute, regardless of 27 whether the person has a direct cause of action under that Code 28 section. Any person damaged in either way may sue directly 29 on the bond and may recover actual damages, court costs, and 30 reasonable attorney fees. The bill defines “home improvement 31 contract” to mean any contract for the improvement or repair 32 of existing residential property and the appurtenances of such 33 property, as specified in the bill, but not including contracts 34 of less than $200 in total. 35 -3- LSB 1262DP (2) 88 gh/rn 3/ 5

S.F. _____ H.F. _____ The bill provides that when a suit is filed, the person who 1 sues on the bond shall notify the division of labor services of 2 the department of workforce development, which shall maintain 3 a public record of all suits commenced. Notification is not 4 a precondition to filing a suit and failure to notify the 5 division does not in any way invalidate a lawsuit. However, 6 bond proceeds cannot be paid out to anyone who has not filed 7 notification. 8 The bill provides that the attorney general may also make 9 a direct claim on a bond or bring an action in equity against 10 the bond on behalf of the state to recover bond proceeds for 11 persons damaged due to a contractor’s breach of contract or 12 violation of the consumer fraud statute in connection with a 13 home improvement contract. The attorney general’s action shall 14 take precedence over all other claims on the bond regardless 15 of the time of filing. 16 The bill requires the issuer of a bond to notify the labor 17 commissioner upon the cancellation of the bond. If a bond is 18 canceled or otherwise ceases to be in effect, the contractor’s 19 registration pursuant to Code chapter 91C shall be void. The 20 failure of a contractor to have a valid bond on file as of the 21 date of a home improvement contract makes the contract and any 22 note or instrument of indebtedness executed or entered into 23 in connection with the contract to the contractor voidable, 24 and shall be a complete defense in any action based on the 25 contract or evidence of indebtedness by the contractor of the 26 contractor’s successors or assigns. 27 The bill provides that a contractor who violates any 28 provision of new Code section 91C.6B is guilty of a simple 29 misdemeanor. A simple misdemeanor is punishable by confinement 30 for no more than 30 days or a fine of at least $65 but 31 not more than $625 or by both. The bill further provides 32 that a violation of new Code section 91C.6B is an unlawful 33 practice pursuant to Code section 714.16, which allows the 34 attorney general to investigate, issue subpoenas, and commence 35 -4- LSB 1262DP (2) 88 gh/rn 4/ 5

S.F. _____ H.F. _____ civil proceedings seeking restraining orders or injunctions 1 prohibiting persons from engaging in unlawful practices 2 or seeking termination of the business affairs of a person 3 engaging in unlawful practices. A court may also impose a 4 civil penalty of up to $40,000 per violation against a person 5 found to have committed an unlawful practice. 6 -5- LSB 1262DP (2) 88 gh/rn 5/ 5