IMPACTING LEGISLATIVE REFORM: ISSUES FOR 2015 TEXAS LEGISLATIVE SESSION
(Information provided by ASA-HC's Government Advocacy committee)
ASAT is proud to partner with Texas Construction Association (TCA) to move legislative reform forward. By working together, we pass legislation that directly affects subcontractors and the construction industry, and we always keep our members informed of the latest legislations and news. What's on tap for the 2015 session? Below are the issues we'll be tackling on behalf of ASA members throughout Texas.
Consolidated Insurance Programs (CIPs). Known typically as Owner Controlled or Contractor Controlled Insurance Programs, “Wrap-up” programs continue to be widely used by the construction industry in Texas. While possibly a money-saver for the Owner, currently there are no standards governing CIPs and their administration. Most subcontractors working under a CIP on a construction project have not been provided information to allow them to compare their liability coverage under a CIP with their own insurance program. Legislation should be passed that, at a minimum, would require information on coverages and limits of a CIP be provided in writing to subcontractors before bidding on and before signing a contract for a construction project.
Worker Classification. An employer is required by law to classify its workers on construction projects as employees or independent contractors. It is becoming increasingly prevalent that companies are not classifying properly. By not classifying properly, a company does not pay its fair share of taxes, giving the company an unfair advantage at bidding time on construction projects. Current law, with its minimal penalties for violators caught misclassifying employees, is not an incentive for compliance with the law. Legislation is needed to strengthen the law by increasing the monetary penalties for non-compliance. The legislation must provide some safeguards to allow companies to continue using legitimate independent contractors on construction projects.
Lender Notice of Default. In Texas there are no laws that require a lender to notify all parties on a construction project that the lender has decided to no longer fund the project. A lender should be required to give subcontractors and prime contractors notice of its decision to no longer fund the construction loan on a project. This notice will allow for work to be suspended until the default is cured.
Although legislation was approved in 2013 dealing with worker classification under government contracts, legislation dealing with private projects is expected to be filed in the 84th Texas Legislature that will track the worker classification bill that died in the House Calendars Committee in the 2013 session.
To view the 2013 Worker Classification legislative filed (but not passed) as well as links to more details and information visit Texas Construction Association webpage on Worker Classification
Legislation to deal with this issue was filed in each of the last two sessions, but died in House and Senate committees. The attached legislation, which is expected to be filed and considered by the 84th Texas Legislature in 2015, would require lenders to give immediate notice to a contractor when the lender suspends or ceases disbursement of the construction loan funds. The contractor would then be required to notify immediately the subcontractors on the project that the lender is suspending or ceasing to disburse payments on the construction loan. All parties on the construction project would have the opportunity to suspend work on the project until they receive assurances that they will be paid for their work on the project.
To view the latest draft of Lender Notice legislation that is expected to be filed in the upcoming legislative session as well as links to more details and information visit Texas Construction Association webpage on Lender Notice of Default.
Lien Law Reform. Texas’ lien laws are considered by many to be the most burdensome and complex in the country, and it is extremely difficult to navigate through those laws. The original intent of the lien laws to provide a statutory remedy to secure payment for labor, materials, or machinery furnished in the improvement of real property has been lost in, among other issues, the different notice requirements placed on subcontractors to secure their lien rights. There are a number of requirements in the laws that, if not followed as they are written, will trip up subcontractors and suppliers and, in effect, result in the loss of certain lien rights available to them.
Legislation is needed to make the processes and procedures for perfecting and maintaining one’s lien rights straightforward, and compliance with them should not be difficult or a stumbling block to maintaining lien rights.
To view the 2013 Lien Law Reform Legislation filed (but not passed) as well as links to more details and information visit Texas Construction Association webpage on Lien Law Reform.
Retainage Trust Fund. By contract or statutory requirement, a construction project owner retains money from a contractor’s monthly payment. The amount deducted from the contractor’s invoice, called retainage, is usually 10%. Thus, a contractor improves the owner’s property and only receives 90% of the value of the improvement. The monthly retainage should be accumulated by the owner until the end of the project when the owner pays retainage to the contractor. When there is a loan financing part of the project, the owner borrows only the 90% paid to the contractor each month. The 10% that is deducted from the contractor’s payment each month is never retained by the owner. Thus, in the event the bank forecloses, the 10% the owner deducted is not available to pay the contractor.
Legislation is needed that will require the project owner to set aside the retainage in a trust account (simple checking account) each month. In the alternative, the owner can purchase a retainage bond to secure the payment of the retainage.
To view the 2011 and 2013 Retainage Trust Fund Legislation filed (but not passed), the 2015 Draft Retainage Trust Fund Legislative as well as links to more details and information visit Texas Construction Association webpage on Retainage Trust Fund.