SENATE BILL REPORT

SB 6434

BYSenator Lee

Changing requirements for enforcement of liens by contractors.

Senate Committee on Economic Development & Labor

Senate Hearing Date(s):January 22, 1988

Senate Staff:Dave Cheal (786-7576)

AS OF JANUARY 22, 1988

BACKGROUND:

Suppliers of materials for the construction of single-family residences must provide the owner of the residence being constructed with notice that they have supplied materials within ten days of the first delivery of materials.  Subcontractors on the other hand are not required to give such notice.  The purpose of the notice required of suppliers, is to give the home owner notice of the existence and identity of potential lien claimants as a time when they can do something to make sure the supplier gets paid.  For example, they could make a check payable to both the contractor and the supplier, or require a lien waiver from the supplier indicating that they have been paid.

The requirement that general contractors post a notice at all job sites giving their own name and address, and the name and address of the owner of the building being built is ignored in many cases.  The purpose of this written notice is to provide subcontractors and material suppliers with information they need to file liens in the event they are not paid.  The penalty for this failure to post is prosecution under the criminal law for a gross misdemeanor.  Due to prosecutors caseloads, it is unlikely that a imposition of the penalties will ever occur.

Any lender providing interim construction financing must observe certain procedures before making periodic payments under the construction contract.  This tends to reduce the chances of subcontractors and material suppliers not being paid, and thus reduces the chances of lien claims being made against the finished building.  These procedures are not required in cases where a consumer pays the contractor directly.

SUMMARY:

Anyone who furnishes labor, materials, supplies or equipment is required to give notice to the owner within ten days of the commencement of the labor or furnishing of the materials, supplies or equipment.  This notice is a pre-requisite to enforcing any lien claim against the property.

Failure to post a notice at the job site, as is currently required by law, giving the name of the general contractor and the property owner is made a violation of the Contractor's Registration Act instead of a gross misdemeanor.

The Department of Labor and Industries is empowered to enforce the Contractor's Registration Act through investigation, citation and the hearings procedure provided in the Administrative Procedures Act.  Violations can result in a monetary penalty of between $200 and $3,000 and is expressly declared to be an unfair and deceptive business practice under the Consumer Protection Act.

In the case of residential construction, every contractor must provide the owner with a sworn statement listing every laborer and subcontractor who has furnished labor or material for the project and who has not been paid.  This sworn statement must be provided whenever payment becomes due from the owner or whenever the general contractor desires to draw money from the owner pursuant to their contract.  The contractor must also obtain contemporaneous statements from subcontractors and supplier which indicate how much they have been paid and how much remains unpaid. 

Appropriation:    none

Revenue:    none

Fiscal Note:      requested January 20, 1988