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CRITICAL CHANGES TO NORTH
CAROLINA CONSTRUCTION LAWS
Presented by: Ned McNaughton
McNaughton & Associates, PLLC
www.mcnaughton-law.com
North Carolina Subcontractors Alliance
Charlotte, NC
September 17, 2013
LEGISLATION
• Senate Bill 452 – Act to Increase the Jurisdictional Amounts
in the General Courts of Justice, To Make Arbitration
Mandatory in Certain Civil Cases…
• Signed into law June 19, 2013
• Went into effect August 1, 2013
1. Increases jurisdiction of small claims court to $10,000.
2. Increases jurisdiction of district court to $25,000.
3. Orders all cases up to $25,000 to non-binding arbitration,
unless all parties to the action waive the right.
MCNAUGHTON & ASSOCIATES, PLLC
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• House Bill 786 – Act to … Clarify Which Employers are Subject
to the State’s E-Verify Laws…
• Signed into law September 4, 2013 (over a veto)
• Went into effect September 4, 2013
1. No public body may enter into a contract “unless the contractor
and the contractor’s subcontractors” are enrolled in E-Verify.
2. Definition of ‘Employee’ does not include “an individual whose
term of employment is less than nine months in a calendar year.”
MCNAUGHTON & ASSOCIATES, PLLC
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• House Bill 857 – Act Authorizing Public Contracts to Utilize
the Design-Build Method or Public-Private Partnership
Construction Contracts
• Signed into law August 23, 2013
• Goes into effect September 22, 2013
1. Adds Design-Build and Public-Private Partnership as acceptable
construction methods for contracts to “erect, construct, alter, or
repair buildings…”
2. Allows the Public Body to designate the contractor on P3 jobs.
3. Mandates payment bonds on P3 jobs.
4. Allows the P3 developer and surety to discharge LORPs and LOFs
by filing a copy of the payment bond with the court.
MCNAUGHTON & ASSOCIATES, PLLC
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• House Bill 476 – Act Rewriting the Laws Regulating
Underground Utility Damage Prevention
• Signed into law August 23, 2013
• Goes into effect October 1, 2013
1. Defines demolition as: “Any operation by which a structure or
mass of material is wrecked, razed, rendered, moved, or
removed by any means...”
2. Defines excavation as: “Any operation for the purpose of the
movement or removal of earth, rock, in or on the ground by use
of manual or mechanized equipment …”
MCNAUGHTON & ASSOCIATES, PLLC
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• House Bill 476 – Act Rewriting the Laws Regulating
Underground Utility Damage Prevention
3.
Requires anyone performing demolition or excavation to
contact the Notification Center [NC811] “3 to 12 full working
days” before commencing the work.
Exemptions:
a. By owner of single family residence.
b. Agriculture or gardening (landscaping?).
c. NCDOT or other governmental entity.
d. Railroads.
4. If Notification Center does not respond, and no “visible
indication” of any underground facility (such as “a pole, marker,
pedestal, meter, or valve”), contractor may proceed. If visible
indications are present, then contractor must call again.
MCNAUGHTON & ASSOCIATES, PLLC
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• House Bill 476 – Act Rewriting the Laws Regulating
Underground Utility Damage Prevention
5. Penalties:
a.
If the contractor does follow the requirements:
i.
b.
contractor “will not be liable to the non-responding or
improperly responding operator for damages…”
If the contractor does not follow the requirements:
i.
Negligence: a requirement of “training” and/or
“education.”
ii.
Gross Negligence: $1,000, plus “training” and/or
“education.”
iii.
Willful or Wanton negligence: $2,500, plus “training”
and “education.”
MCNAUGHTON & ASSOCIATES, PLLC
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• House Bill 110 – Act to Provide for Fair and Open Competition
in Governmental Construction Contracts…
• Signed into law July 17, 2013
• Goes into effect October 1, 2013
No public body may, in any bid specifications, project agreements,
or other controlling documents:
1. “Require or prohibit” a bidder from adhering to agreements
with labor organizations in regard to that Project, or
2. “Otherwise discriminate” relating to agreements with labor
organizations in regard to that Project.
MCNAUGHTON & ASSOCIATES, PLLC
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• Senate Bill 414 – Act to Provide that Reciprocal Attorneys’
Fees Provisions in Business Contracts are Valid…
• Signed into law June 17, 2011
• Went into effect October 1, 2011 [2 years ago!]
1. The winner of a lawsuit can recover its attorneys’ fees
from the losing party when:
a. The recovery of attorneys’ fees is available to
both sides, and
b. The parties to the contract signed by hand.
2. The attorneys’ fees awarded will not be limited to any
statutory or contractual percentage, but cannot exceed
the monetary damages awarded.
MCNAUGHTON & ASSOCIATES, PLLC
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CASE LAW
• Overton v. Evans Logging, Inc., (N.C. App. 1/15/13):
• Truck driver slipped while walking over scattered debris to
get trip ticket signed at a logging site in Halifax Co.
Court ruled:
If condition “cannot be negotiated with reasonable safety,
even though the plaintiff is fully aware of it, it may be found
that obviousness, warning or even knowledge is not enough.
… [If] the defendant knew that the employee had no choice
but to encounter the obvious dangerous conditions, [then]
whether the defendant’s failure to take additional precautions
for the employee’s safety was reasonable under [the]
circumstances was for the jury to determine.”
MCNAUGHTON & ASSOCIATES, PLLC
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Phillips and Jordan, Inc. v. Bostic, (NC Business Ct. 6/1/12):
• Subcontractor sued officers/owners of GC in their personal capacity
for Constructive Fraud after the GC went bankrupt.
Court ruled:
1. Because the officers/owners “used their positions and control” of
their company to create “a relationship wherein the Plaintiff trusted
that the Defendants would use the construction loan proceeds for
each project to pay for the actual costs of each project.”
2.
Under North Carolina law, Directors of a corporation owe a fiduciary
duty to creditors of the corporation only where there exist
‘circumstances amounting to a ‘winding-up’ or dissolution of the
corporation.
Since defendants used the proceeds to advance money to other
companies they owned at a time, the GC “was operated in a condition
that verged on or near actual insolvency and constituted dissolution or
winding up of the affairs of the company,” and the Subcontractor had
sufficiently stated its claim.
MCNAUGHTON & ASSOCIATES, PLLC
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• Godon Constr. V. Primo Enterprises, LLC, (N.C. App. 3/19/13):
• Contractor on commercial renovation project in Sanford sued the
Owner for breach of contract and quantum meruit for change order
work. Contract had expressed “no changes unless in writing” clause.
Court ruled:
1. “As a general proposition, a contract may be modified or waived
by subsequent parole agreement, or by conduct which naturally
and justly leads the other party to believe the provisions of the
contract have been modified or waived, even though the
instrument involved provides that only written modifications shall
be binding.”
2. However, since contract required the Contractor to “complete the
addition and have received the C/O within 120 days,” work
necessary for getting the C/O may not qualify as additional work.
MCNAUGHTON & ASSOCIATES, PLLC
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QUESTIONS
Presented by: Ned McNaughton
MCNAUGHTON & ASSOCIATES, PLLC
ATTORNEYS AT LAW
2101 SARDIS ROAD NORTH SUITE 208 CHARLOTTE NC 28227
MCNAUGHTON & ASSOCIATES, PLLC
704-841-8772
704-841-8773 (facsimile)
ejmcnaughton@mcnaughton-law.com
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MECHANICS LIENS
“to protect the interests of those who supply labor and materials”
LIEN LEGISLATION
• Senate Bill 1052 – Act to Make Various Amendments … as
recommended by the Legislative Research Commission’s
Mechanic’s Lien Committee.
• Signed into law July 12, 2012, at 4:48 p.m.
• Went into effect January 1, 2013.
• Senate Bill 42 – Act to Require Persons Furnishing Labor or
Materials … to Give Written Notice to the Designated Lien
Agent of the Owner…
• Signed into law July 12, 2012, at 4:19 p.m.
• Went into effect April 1, 2013
MCNAUGHTON & ASSOCIATES, PLLC
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• Senate Bill 847 – Act to Make Technical Corrections ...
• Signed into law July 17, 2012
• Went into effect January 1, 2013
Reconciled the lien waiver provisions of the two different versions
of N.C. Gen. Stat. § 44A-23 found in HB 1052 and SB 42:
1. Prohibiting a lien waiver signed by a GC from prejudicing a
subcontractor’s subrogated lien rights after:
a.
Subcontractor has given written Notice to the Lien Agent;
b.
Subcontractor has served a LOF on the Owner; and
c.
Subcontractor has delivered a copy of the served LOF to
the Lien Agent.
MCNAUGHTON & ASSOCIATES, PLLC
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• House Bill 180 – Act to Make Various Technical Corrections ...
• Signed into law March 28, 2013
• Went into effect April 1, 2013
1. Prohibiting a lien waiver signed by a GC from prejudicing a
subcontractor’s subrogated lien rights after the Subcontractor had
“perfected” its LORP, which requires:
a.
Giving written Notice to the Lien Agent within 15 days of the
DOFW, or
Giving written Notice to the Lien Agent and filing the LORP
prior to recordation of a conveyance;
2.
b.
Serving copy of the LORP on the Owner and GC; and
c.
Filing the LORP with the court.
Subcontractor may use its own or the GC’s DOFW and DOLW.
MCNAUGHTON & ASSOCIATES, PLLC
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• House Bill 88 – Act to Make Technical Corrections ...
• Signed into law June 19, 2013
• Went into effect June 22, 2013
1. Changed “used by the owner” to “occupied by the owner” for
existing residential improvement exception to the Lien Agent
requirement.
2. Allows ‘Custom Contractor’ to designate the Lien Agent if
authorized by the Owner.
3. Added providers of professional design and surveying services
to the definition of Contractor and Subcontractor.
MCNAUGHTON & ASSOCIATES, PLLC
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KEY ELEMENTS OF NEW LAW:
•L ien Agent
•Notice
•Service
•Survival
LIEN AGENT
MCNAUGHTON & ASSOCIATES, PLLC
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LIEN AGENT
• LIEN AGENT DEFINED
• Lien Agent – A title insurance company or title insurance agency
designated by the owner. (Must be listed with NCDOI.)
• APPLICABILITY
• All improvements to real property costing over $30,000 “at the time the
original building permit is issued.”
• Except for an existing single family home occupied by the owner as a
residence, or accessory building/structure incidental to that residence.
§ 44A-7(2A); § 44A-11.1(A)& ASSOCIATES, PLLC
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LIEN AGENT
• TIME LIMIT TO DESIGNATE LIEN AGENT
• No later than the time the owner “first contracts with any person to
improve the real property.”
• WHO IS RESPONSIBLE FOR DESIGNATING LIEN AGENT
• The OWNER shall designate the lien agent.
• A “CUSTOM CONTRACTOR,” if authorized to do so in a written contract
with the OWNER.
§ 44A-11.1(A), § 44A-11.2(H)ASSOCIATES, PLLC
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LIEN AGENT
•
REQUIRED CONTACT INFORMATION
• The designation of LIEN AGENT shall include the following contact information
for the LIEN AGENT and CUSTOM CONTRACTOR:
• Full legal Name
• Physical and mailing address
• Telephone number
• Facsimile number
• E-mail address
•
POSTING
• LIEN AGENT contact information must be “conspicuously and continuously
posted on the property until the completion of all construction”, either by being
contained in or attached to the building permit, or on a separate sign.
§ 44A-11.2(A); § 44A-11.2(E)& ASSOCIATES,
PLLC
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LIEN AGENT
•
NOTICE TO SUBCONTRACTORS AND SUPPLIERS
• TIME LIMIT: CONTRACTOR or SUBCONTRACTOR must provide any lower-tier
Subcontractor or Supplier “who is not required to furnish labor at the site of the
improvement” written notice of the LIEN AGENT’s contact information “ within
three business days of contracting.”
• DELIVERY: Notice may be given by Certified Mail, Confirmed Fax, Confirmed
E-mail, including the information in a written subcontract or purchase order; or
“utilizing an Internet Web site” approved by the LIEN AGENT.
• PENALTY: Failing to provided the LIEN AGENT’s contact information makes the
CONTRACTOR or SUBCONTRACTOR liable to the lower-tier Subcontractor or
Supplier “for any actual damages incurred … as a result of the failure.”
§ 44A-11.2(D)& ASSOCIATES, PLLC
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LIEN AGENT
• BUILDING PERMITS
• Any person, firm, or corporation applying for building permit where the
cost is $30,000 or more “shall be required to provide” the LIEN AGENT
information to the issuing authority.
• PERMITS
• “No permit shall be issued … unless … the LIEN AGENT designated by
the OWNER is conspicuously set forth in the permit or in an attachment
thereto.”
§ 87-14; § 153A-357; § 160A-417& ASSOCIATES,
PLLC
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NOTICE
MCNAUGHTON & ASSOCIATES, PLLC
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NOTICE
• NOTICE TO LIEN AGENT
• New statutory form that must be given by all POTENTIAL LIEN CLAIMANTS
to the LIEN AGENT. Notice must include:
• Name, mailing address, telephone and fax number, and e-mail address
of POTENTIAL LIEN CLAIMANT;
• Name of the party with whom POTENTIAL LIEN CLAIMANT has a
contract;
• Description of the real property; and
• Statement declaring: “I give notice of my right to pursue a claim of
lien for improvements to the real property described in this notice.”
•
Exception for certain single-family residence contracts
§ 44A-11.2(H) & ASSOCIATES, PLLC
.
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NOTICE
• PRECONDITION TO PERFECTION OF LIEN
• A POTENTIAL LIEN CLAIMANT may perfect a claim of lien on real
property only if one or more of the following conditions are met:
• LIEN AGENT “has received” written Notice to Lien Agent “no later
than 15 days after the first furnishing of labor or materials by the
POTENTIAL LIEN CLAIMANT”; or
• LIEN AGENT “has received” the Notice to Lien Agent prior to
recordation of a conveyance of the property to a bona fide
purchaser; or
• POTENTIAL LIEN CLAIMANT has filed its LORP prior to recordation
of a conveyance of the property to a bona fide purchaser.
§ 44A-11.2(L)HTON & ASSOCIATES, PLLC
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SERVICE
MCNAUGHTON & ASSOCIATES, PLLC
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SERVICE
• REQUIRED TO PERFECT A LIEN ON REAL PROPERTY
• A claim of lien on real property shall be perfected upon occurrence of all
of the following:
• Filing at the court house within 120 days from the date of last work;
• Service of a copy of the claim of lien upon the record OWNER (at
the address listed on the permit, on the tax roles, or the registered
agent listed with the NCSOS); and
• If a Subcontractor lien, service of a copy of the claim of lien upon the
CONTRACTOR.
•
But may not perfect unless gave Written Notice to the Lien Agent.
M§ 44A-11; § 44A-12 & ASSOCIATES, PLLC
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SERVICE
• DEFINITION OF SERVICE ON OWNER AND CONTRACTOR
• Service of a claim of lien on real property on the OWNER or
CONTRACTOR shall include, and shall be deemed complete upon:
• Personal delivery upon the recipient;
• Depositing a copy in the US Mail, properly addressed and postage
pre-paid;
• Depositing a copy with a “designated delivery service authorized
pursuant to 26 U.S.C. § 7502(f)(2),” properly addressed and postage
pre-paid.
• Proof of actual receipt is not required.
§ 44A-11MCNAUGHTO & ASSOCIATES, PLLC
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SURVIVAL
MCNAUGHTON & ASSOCIATES, PLLC
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SURVIVAL
• CONTRACTOR WAIVER WIPES OUT SUBCONTRACTOR LIEN,
UNLESS PRIOR NOTICE
• A lien waiver signed by the CONTRACTOR before the
SUBCONTRACTOR has perfected its LORP waives the
SUBCONTRACTOR’s right to enforce its subrogated lien.
• “Perfecting” =
• Filing the LORP with court within 120 days of the DOLW;
• Service of a copy of the filed LORP on the OWNER and
CONTRACTOR;
• Which cannot be done until after:
• Written Notice received by LIEN AGENT;
• Service of a LOF on the OWNER; and
• Delivery of a Copy of the LOF to the LIEN AGENT.
§ 44A-20(D); § 44A-23(C)& ASSOCIATES, PLLC
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SURVIVAL
• FALSE LIEN WAIVERS
• Any signing of a false lien waiver “by any licensed contractor or
qualifying party… shall constitute deceit and misconduct” and be
subject to disciplinary action by licensing board, including:
• Revocation of license;
• Suspension of license; or
• Restriction of license or ability to act as a qualifying party.
• Note: May be used as the basis for UDTPA claim.
M§ 44A-24& ASSOCIATES, PLLC
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PAYMENT BONDS
“the substitute for the lien”
CONTRACTOR’S PROJECT
STATEMENT
MCNAUGHTON & ASSOCIATES, PLLC
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CONTRACTOR’S PROJECT STATEMENT
• APPLICABILITY
• Applies to any public construction contract where the total
amount exceeds $300,000, or for State or University of North
Carolina projects, where the total amount exceeds $500,000.
• PENALTY
• “No agreement … shall be enforceable against a lower tier
party until the Contractor’s Project Statement has been
provided to the lower tier party.”
§ 44A-27(F); § 44A-27(F)(3)
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CONTRACTOR’S PROJECT STATEMENT
•
CONTRACTOR
•
•
CONTRACTOR shall provide each SUBCONTRACTOR it “engages to perform labor or
furnish materials” with a written Contractor’s Project Statement.
FORM
• The Contractor’s Project Statement must include:
• Project Name;
• Physical address of the Project;
• Name of Contracting Body (OWNER);
• Legal name of CONTRACTOR;
• Name and address of the SURETY on the payment bond;
• Name, address, and phone number of agent authorized to accept service of
requests, notices, and claims on the payment bond.
M§ 44A-27(F)(1);A§ 44A-27(F)(1) & ASSOCIATES,
PLLC
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(SUB)CONTRACTOR’S PROJECT STATEMENT
• SUBCONTRACTOR
• Each SUBCONTRACTOR must provide every lower tier
subcontractor or supplier it “engages to perform labor or
furnish materials” with a copy of the Contractor’s Project
Statement.
• PENALTY
• “No agreement … shall be enforceable against a lower tier
party until the Contractor’s Project Statement has been
provided to the lower tier party.”
M§ 44A-27(F)(2); § 44A-27(F)(3) ASSOCIATES,
PLLC
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NOTICE OF PUBLIC SUBCONTRACT
MCNAUGHTON & ASSOCIATES, PLLC
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NOTICE OF PUBLIC SUBCONTRACT
• APPLICABILITY
• Notice of Public Subcontract requirements apply to “any claim
exceeding twenty thousand dollars ($20,000).”
• Does not apply to the claims in the amount of $20,000 or less,
or the first $20,000 of any claim.
• PENALTY Failing to provide the Notice of Public Subcontract
bars recovery for labor or materials provided prior to 75 days of
the claim.
M§ 44A-27(C)& ASSOCIATES, PLLC
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NOTICE OF PUBLIC SUBCONTRACT
• SUBCONTRACTOR
• Every SUBCONTRACTOR or SUPPLIER (through third-tier) must serve
upon the CONTRACTOR a written Notice of Public Subcontract.
• FORM
• The Notice of Public Subcontract must include:
• Legal name and address of SUBCONTRACTOR;
• General description of the real property where the Project is located;
• General description of the subcontract, including names and addresses
of the parties; and
• General description of the labor and materials to be furnished.
§ 44A-27(F)(2); § 44A-27(D)(3)
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COPY OF PAYMENT BOND
• CONTRACTOR’S DUTY TO PROVIDE
• CONTRACTOR shall provide “any claimant” a copy of the
payment bond within seven calendar days of the receipt of a
written request.
• PENALTY: If CONTRACTOR fails to provide a copy of the
payment bond as required, Claimant will not be penalized for
not serving a Notice of Public Subcontract.
•
Note: New laws did not revoke contracting body’s duty to provide certified copies under § 44A-31.
M§ 44A-27(B)& ASSOCIATES, PLLC
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QUESTIONS
Presented by: Ned McNaughton
MCNAUGHTON & ASSOCIATES, PLLC
ATTORNEYS AT LAW
2101 SARDIS ROAD NORTH SUITE 208 CHARLOTTE NC 28227
MCNAUGHTON & ASSOCIATES, PLLC
704-841-8772
704-841-8773 (facsimile)
ejmcnaughton@mcnaughton-law.com
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