By Attorney Edward Jesson
In January of this year, the North Carolina legislature passed some significant changes to North Carolina’s mechanics lien laws that went into effect on March 1, 2022. The main changes to the law make void and unenforceable contractual provisions requiring lien waivers as a condition for progress payments, modify the attorneys’ fee provisions contained in the lien statutes, and affect the design-build contracting process.
Chapter 22B of the North Carolina General Statutes, titled “Contracts Against Public Policy,” has been amended to include a new Section 22B-5, which provides that requiring someone to submit a waiver or release of lien as a condition to receiving progress payments under a construction agreement or design professional agreement are void and unenforceable unless limited to the progress payments actually received in exchange for the lien waiver. In other words, broad blanket lien waivers in exchange for progress payments are now unenforceable unless the lien waiver is specifically drafted and narrow enough in scope to only apply to the money actually being received by the party applying for payment.
The attorneys’ fee section of the mechanics lien statutes has been updated to specify the method that the court or arbitrator must use to determine which party is the “prevailing party” in circumstances where attorneys’ fees may be at issue. Instead of the Plaintiff in a lawsuit having to obtain a judgment of at least 50% of the amount it claimed, which was the case prior to March 1, the court or arbitrator will look to the party whose monetary position at the beginning of the trial is closest to the amount of the final judgment or arbitration award. The new statute also specifically allows the court or arbitrator to look at several factors, including the economic circumstances of the parties or whether one party unreasonably exercised its superior bargaining power (e.g., a very wealthy general contractor working with a relatively small subcontractor). This process, while a big change to the existing law, should have the effect of giving much more certainty when evaluating whether the court or arbitrator is likely to grant attorney’s fees when it comes time to try a case.
The changes to the design-build process only appear, at this time, to affect the design-build process as it applies to State funded projects. The changes include adding statutory definitions for “design builder,” “design professional,” “first-tier subcontractor,” “licensed contractor,” “licensed subcontractor,” “unlicensed subcontractor,” “costs of the subcontractor work,” “general conditions,” and “key personnel.” The changes also now require design builders responding to requests for proposals from the government to select their project team by one of two methods that are outlined in the new law. Furthermore, the law makes some changes specific to the bidding process for publicly funded bridging contracts and makes it clear that the requests for proposals public notice provisions require the owner to provide a list of general conditions for which the design builder needs to provide a fixed fee in its response to the proposal. This is not an exhaustive list of the changes that have been made, but given the nature and number of changes to the public design-build process, it is important to carefully review these new requirements prior to bidding on publicly funded design build projects.
These new laws will have a significant impact on many contracts used in North Carolina, litigation over attorneys’ fees in lien claims, and those design-builders engaged in the public bidding process. Should you require assistance with any of these changes, please do not hesitate to call Jesson & Rains.
By Attorney Edward Jesson
In North Carolina, the Licensing Board for General Contractors controls who can apply for and hold a general contractor’s license and what the criteria is for those seeking to obtain a license. In general, in North Carolina, if you are wanting to bid on or perform construction projects with a value in excess of $30,000.00, you must obtain a general contractor’s license. Of course, if you are involved in plumbing, electrical, or HVAC work (or various other trades), you must obtain a license from the relevant board controlling those trades.
We have frequently been asked if a company or individual who doesn’t own a general contractor’s license can simply “lease” or “borrow” a license from someone who does hold a general contractor’s license. The answer is “no.”
The definition of a general contractor in North Carolina is “any person or firm or corporation” who plans on performing work in excess of $30,000.00. In order to hold a general contractor’s license, among other things, the license holder has to pass a test. A “firm or corporation” is not able to sit down and take a test—a person must. Therefore, this is where “qualifiers” come into play. In North Carolina, a business applicant must identify in its application a person who has successfully passed the exam (or who plans to take the exam) who will act as a qualifier for the business. A qualifier must be a responsible managing employee, officer, or member of the personnel of the business applying. A responsible managing employee is a person who is working for the applicant business for a minimum of 20 hours per week or a majority of the hours operated by the business. If the person is not an owner, officer, or partner, the person must be a W2 employee. Similarly, a member of the personnel refers to a W2 employee. Therefore, the qualifier cannot be an independent contractor and cannot be “leased” or “borrowed.”
Under these circumstances, for example, XYZ Building, Inc. would be the named license holder but “Mr. Jones” would be the qualifier—the individual who had actually passed the Board’s exam. If that qualifying individual is no longer employed or associated with the company, the company’s license will remain in effect for 90 days in order for the company to make arrangements to get another qualifier in place. However, and very importantly, during that 90 day period, the license holder company cannot bid on or obtain any more work until its license is fully reinstated.
Not just anyone can act as a qualifier for a company. Moreover, simply hiring someone who holds a general contractor’s license does not mean that the company is properly licensed with the Board. XYZ Building, Inc. would have to submit an application to the Board that lists Mr. Jones as its qualifier, and Mr. Jones would have to fit the criteria to actually be a qualifier. Without going through the proper steps, XYZ Building, Inc. may be guilty of the “unauthorized practice of contracting,” which is a class 2 misdemeanor in North Carolina. Additionally, XYZ Building, Inc. may not have any recourse against a homeowner who fails to pay them because they were not properly licensed.
If you need assistance complying with the North Carolina Licensing Board for General Contractor’s rules or have already received notice from the Board that you are in violation of its rules, the attorneys at Jesson & Rains may be able to help.
By Attorney Edward Jesson
With the rise in popularity of “HGTV” and “DIY Network,” and with people looking to make additional income in the real estate market, we have seen a rise in the number of people wanting to “flip” their own homes. However, in North Carolina, there are important considerations when undertaking any construction project, especially when you are “flipping” a home.
Generally, under North Carolina law, a General Contractor is any person or corporation who bids on or contracts to perform construction work where the overall cost of the project is going to be greater than $30,000.00. If you want to perform work for another person, and the cost of that work is over $30,000.00, you’ll typically need a general contractor’s license. Importantly, for work totaling less than $30,000.00, you don’t need a license. This is why handyman services, etc. do not need to necessarily be licensed with the state.
However, there is an exception to the rule requiring a license for any work performed over $30,000.00—after all, YouTube tutorials are a thing! In North Carolina, you can act as your own General Contractor so long as you own the building or land at the time the work is being done and so long as the building is intended solely for occupancy by that person and his family. North Carolina presumes that if the property is sold within 12 months following completion of the work, the person did not intend the building to be solely for their occupancy.
What does this mean for budding HGTV stars? If the “flip” you are doing is going to cost more than $30,000.00 and you intend to sell the home once the home is complete, you need to get a general contractor’s license prior to beginning work or hire a general contractor to oversee the work instead of yourself.
It is important to note that you still need to pull the relevant permits, obtain the necessary inspections, and have work such as electrical, plumbing, and HVAC performed by properly licensed individuals, regardless of whether or not you need or have a General Contractor’s license.
Should you have any questions about the process or need additional help, please don’t hesitate to call Jesson & Rains today.
By Attorney Edward Jesson
Most people in the construction industry are at least partially familiar with the Mechanic’s Lien statutes in North Carolina. For those that are not familiar with them, you can always get a refresher from our previous article, “Construction Liens 101”. While most people understand that a general contractor, or sub-contractor, or a sub sub-contractor (and so on) may generally be entitled to at least some sort of lien on property if they are not paid, most people are surprised to learn that contractors aren’t the only ones entitled to a lien.
The applicable North Carolina statute states that:
Any person who performs or furnishes labor or professional design or surveying services or furnishes material or furnishes rental equipment pursuant to a contract, either express or implied, with the owner or real property for the making of an improvement thereon shall, upon complying with the processions of this Article, have a right to file a claim of lien on real property . . . .
As you can see, the definition of persons who can claim a mechanic’s lien is broad and is not just limited to those actually performing construction work. Those who provide materials (e.g. concrete suppliers, lumber suppliers) are entitled to mechanic’s liens if they do not receive payment. Likewise, those who provide rental equipment can file mechanic’s liens if they do not receive payment. This can be especially troubling for a general contractor, as often, the material suppliers and rental equipment businesses are several rungs down the contractual ladder from the general contractor or owner.
Similarly, those who provide professional design or surveying services are entitled to a mechanic’s lien if they don’t receive payment. North Carolina law provides that design services encompasses both architects and engineers.
Of course, not everyone involved in a construction project is entitled to a direct lien on the real property: only those who have a contract with the owner of the real property are entitled to a direct lien (subject to limited exceptions). Those further down the contractual chain are generally only going to be entitled to a subrogated lien (again, subject to certain exceptions).
It is incredibly important when involved in any construction project, whether you’re on the owner’s side or the construction/design side, to make sure that everyone down the chain is getting paid for the work that they are performing. Even if a supplier of a sub-sub-contractor doesn’t get paid, that can cause costly legal issues should they seek to file a lien at a later date. The attorneys at Jesson & Rains can assist if liens are filed and protect against liens being filed in the first place. Please give us a call if you need assistance!
By Attorney Edward Jesson
Hearings were recently scheduled on a proposed North Carolina state bill entitled “An Act to Provide Consumer Protections Related to Roofing Repair Contractors.”
If passed, the law would have a big effect on the roofing industry in North Carolina--written contracts between roofing contractors and consumers would now be required. The proposed bill would require the following provisions to be included in these contracts:
1. The roofing contractor’s contact information;
2. The name of the consumer;
3. The physical address of the property being worked on and a description of the structure being repaired;
4. A copy of the repair estimate that addresses:
a. a precise description and location of all the damage being claimed on the repair estimate;
b. an itemized estimate of repair costs, including the cost of raw materials, the hourly labor rate, and the number of hours for each item to be repaired; and,
c. a statement as to whether the property was inspected prior to the preparation of the estimate and a description of the nature of that inspection.
5. Date the contract was signed by the consumer;
6. A statement that the contractor shall hold in trust any payment from the consumer until the materials have been delivered to the job site or the majority of the work has been done;
7. A statement providing that the contractor shall provide a certificate of insurance to the consumer that is valid for the time during which the work is to be performed;
8. If the consumer anticipates that insurance funds will be used to pay for any portion of the job, a disclosure from the consumer that states that the consumer is responsible for payment if the insurance company denies the claim in whole or in part and a disclosure from the contractor that he or she has made no guarantees that the claimed loss will be covered by an insurance policy.
The new law, if passed, will also give the consumer the right to cancel the contract if the consumer’s insurance company denies the claim. Further, it will prohibit various practices from roofing contractors, including offering to pay insurance deductibles for the consumer or offering the consumer anything of value in order to display a sign or any other type of advertisement at the consumer’s property.
It is important to note that the proposed law specifically excludes licensed general contractors or subcontractors working underneath a licensed general contractor from the definition of “roofing repair contractors.”
While the new law would create an extra requirement that roofing contractors in NC may not be happy about, we always recommend having written contracts in place between contractors and the consumer. Too often the only written documentation is a cost estimate and, if there are any disputes, there are no provisions in these cost estimates for handling those disputes. The proposed law may also strengthen the reputation of the roofing industry by weeding out unscrupulous roofing contractors.
Jesson & Rains will continue to keep our clients updated on the passage of this law and are happy to assist with the drafting or review of any construction contracts. You can follow the status of the law yourself at: https://www.ncleg.gov/BillLookup/2019/S576.
By Attorney Edward Jesson
This week’s article deals with the responsibilities that contractors have with regards to the actual design of the building, which necessarily includes the building’s structural system. Generally, the contractor responsible for building the project, be it new construction or otherwise, is not responsible for the design aspects of the project unless we are talking about a design-build project. The design aspects will usually fall to a “design team,” often comprising of some combination of architects and engineers. Or, more often in the residential setting, the owner will provide plans and specifications to the contractor.
The following problem has come up time and time again: a general contractor finishes work on a project, built perfectly to the plans and specifications, only to find out that the plans and specifications were defective in some way, which has then caused issues with the final project (at the extreme end, these issues could be structural, rendering the completed project unfit for purpose). Invariably, on discovery that the project has some serious issues, the project’s owner will first turn to the general contractor to “fix it.” Of course, if “fixing it” involves starting from scratch, neither the owner nor the contractor wants to come out of pocket to pay for that.
Legally speaking, the courts throughout the United States have created a doctrine whereby the project owner impliedly warrants that the information, plans, and specifications that an owner provides to the general contractor are fit for purpose. In a residential setting, even if the owner used a design team, if the owner provided plans and specifications to the contractor, this doctrine would likely still apply. This doctrine is known as the Spearin Doctrine and arises from the case United States v. Spearin, which was argued in the United States Supreme Court in 1918.
What this essentially means is that, so long as the contractor complies with the plans and specifications supplied to it by the project owner, the contractor cannot be held legally responsible for structural defects if those plans and specifications are not adequate for the specific project. Contrast this, for example, with a design-build project, where the contractor or its consultants are partially responsible for the design aspect of the project, and you can see how Spearin would likely be inapplicable to those circumstances.
There are, of course, exceptions to this general rule. For example, if there is an express term contained in a contract that the contractor is responsible for any design defects, then it is likely that a contractor in that situation could be held legally responsible. Another exception is that of “reasonable reliance,” which means that if a design defect is so glaringly obvious that it could not be missed, a contractor would not then be able to later claim that they relied on the plans in order to avoid liability.
While generally not directly responsible for the design of structural systems (or, indeed, other areas of a project), that does not mean that a contractor cannot be held liable for deficiencies in the design. The best protection against issues such as the ones presented in this article are written contracts in place between all parties to a construction project, including the design team, and not just between the owner and general contractor.
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