H.B. 82

1

CONTRACTORS BONDS AND LETTERS OF
2 CREDIT
3 2005 GENERAL SESSION
4 STATE OF UTAH
5 Sponsor: Stephen D. Clark
6
7 LONG TITLE
8 General Description:
9 This bill amends the provisions related to private commercial construction contracts.
10 Highlighted Provisions:
11 This bill:
12 . allows contractors to obtain an irrevocable letter of credit meeting certain
13 requirements instead of a payment bond when working on a major electric plant
14 construction project;
15 . prohibits rejecting a bid or conditioning a bid for a major electric plant construction
16 project on the basis of the type of security that is submitted by a contractor if the
17 security meets certain requirements;
18 . clarifies language regarding attorneys' fees; and
19 . makes technical changes.
20 Monies Appropriated in this Bill:
21 None
22 Other Special Clauses:
23 None
24 Utah Code Sections Affected:
25 AMENDS:
26 14-2-1, as last amended by Chapter 111, Laws of Utah 2004
27 14-2-2, as last amended by Chapter 111, Laws of Utah 2004

28 14-2-5 (Effective 05/01/05), as last amended by Chapters 30 and 250, Laws of Utah
29 2004
30 ENACTS:
31 14-2-6, Utah Code Annotated 1953
32
33 Be it enacted by the Legislature of the state of Utah:
34 Section 1. Section 14-2-1 is amended to read:
35 14-2-1. Definitions -- Payment bond or irrevocable letter of credit required --
36 Right of action -- Attorneys' fees.
37 (1) For purposes of this chapter:
38 (a) "Commercial contract" means a contract for the construction, alteration, or repair of
39 the following if it is not residential construction:
40 (i) a building;
41 (ii) a structure; or
42 (iii) an improvement upon land that is not associated with a single family detached
43 housing.
44 (b) "Contractor" means any person who is or may be awarded an original commercial
45 contract for the construction, alteration, or repair of any building, structure, or improvement
46 upon land.
47 (c) "Major electric plant construction project" means a project for the construction,
48 alteration, or repair of an electric plant as defined in Section 54-2-1 that has a total cost that
49 exceeds $50,000,000.
50 [(c)] (d) "Owner" means any person contracting with the original contractor for
51 construction, alteration, or repair of the following if it is not residential construction:
52 (i) a building;
53 (ii) a structure; or
54 (iii) an improvement upon land.
55 [(d)] (e) (i) "Residential construction" means the construction, alteration, or repair of:
56 (A) single family detached housing; or
57 (B) multifamily attached housing up to and including a fourplex.
58 (ii) "Residential construction" includes rental housing.

59 (2) [Before] (a) Except as provided in Subsection (2)(b), before any original
60 commercial contract exceeding $50,000 in amount for the construction, alteration, or repair of
61 any building, structure, or improvement upon land is awarded to any contractor, the owner
62 shall obtain from the contractor a payment bond[:] that complies with Subsection (3).
63 [(a) complying with Subsection (3); and]
64 [(b) that becomes binding upon the award of the original commercial contract to the
65 contractor.]
66 (b) Notwithstanding Subsection (2)(a), an owner is not required to obtain a payment
67 bond from a contractor if:
68 (i) the contractor is bidding on a major electric plant construction project;
69 (ii) the owner obtains an irrevocable letter of credit from the contractor; and
70 (iii) the irrevocable letter of credit described in Subsection (2)(b)(ii) complies with
71 Subsection (3).
72 (3) The payment bond or irrevocable letter of credit required by Subsection (2) shall
73 be:
74 (a) binding upon the award of the original commercial contract to the contractor;
75 [(a)] (b) (i) in the case of a payment bond, with a surety or sureties satisfactory to the
76 owner for the protection of all persons supplying labor, services, equipment, or material in the
77 prosecution of the work provided for in the commercial contract; [and] or
78 (ii) in the case of an irrevocable letter of credit, issued by a financial institution whose
79 deposits are federally insured; and
80 [(b)] (c) in a sum equal to the original commercial contract price.
81 (4) A person shall have a right of action on a payment bond or irrevocable letter of
82 credit under this chapter for any unpaid amount due that person if that person:
83 (a) has furnished labor, services, equipment, or material in the prosecution of the work
84 provided for in the commercial contract for which the payment bond or irrevocable letter of
85 credit is furnished under this chapter; and
86 (b) has not been paid in full within 90 days after the last day on which that person:
87 (i) performed the labor or service for which a claim is made; or
88 (ii) supplied the equipment or material for which the claim is made.
89 (5) (a) An action under this section shall be brought in a court of competent jurisdiction

90 in the county where the commercial contract was to be performed and not elsewhere.
91 (b) An action under this section is barred if not commenced within one year after the
92 last day on which the claimant:
93 (i) performed the labor or service on which the claim is based; or
94 (ii) supplied the equipment or material on which the claim is based.
95 (c) The obligee named in the payment bond or irrevocable letter of credit need not be
96 joined as a party to an action under this section.
97 (d) In any action upon a payment bond or irrevocable letter of credit under this section,
98 the court may award reasonable attorneys' fees to the prevailing party, which attorneys' fees
99 shall be taxed as costs in the action.
100 (6) The payment bond or irrevocable letter of credit shall be exhibited to any interested
101 person upon request.
102 [(7) In any suit upon a payment bond under this chapter, the court shall award
103 reasonable attorneys' fees to the prevailing party.]
104 Section 2. Section 14-2-2 is amended to read:
105 14-2-2. Failure of owner to obtain payment bond or irrevocable letter of credit --
106 Liability.
107 (1) An owner who fails to obtain a payment bond or irrevocable letter of credit required
108 under Section 14-2-1 is liable to each person who performed labor or service or supplied
109 equipment or materials under the commercial contract for the reasonable value of the labor or
110 service performed or the equipment or materials furnished up to but not exceeding the
111 commercial contract price.
112 (2) An action to recover on the liability described in Subsection (1) may not be
113 commenced after the expiration of one year after the day on which:
114 (a) the last of the labor or service was performed; or
115 (b) the equipment or material was supplied by the person.
116 (3) In an action for failure to obtain a payment bond or irrevocable letter of credit, the
117 court shall award reasonable attorneys' fees to the prevailing party. These attorneys' fees shall
118 be taxed as costs in the action.
119 Section 3. Section 14-2-5 (Effective 05/01/05) is amended to read:
120 14-2-5 (Effective 05/01/05). Preliminary notice requirement.

121 (1) Any person furnishing labor, service, equipment, or material for which a payment
122 bond or irrevocable letter of credit claim may be made under this chapter shall provide
123 preliminary notice to the designated agent as prescribed by Section 38-1-32 , except that this
124 section does not apply:
125 (a) to a person performing labor for wages; or
126 (b) if a notice of commencement is not filed as prescribed in Section 38-1-31 for the
127 project or improvement for which labor, service, equipment, or material is furnished.
128 (2) Any person who fails to provide the preliminary notice required by Subsection (1)
129 may not make a payment bond or irrevocable letter of credit claim under this chapter.
130 (3) The preliminary notice required by Subsection (1) must be provided prior to
131 commencement of any action on the payment bond or irrevocable letter of credit.
132 Section 4. Section 14-2-6 is enacted to read:
133 14-2-6. Major electric plant construction project.
134 An owner of a major electric plant construction project may not:
135 (1) (a) if the bidding contractor obtains a payment bond meeting the conditions of
136 Section 14-2-1 , require as a condition of making a bid related to the major electric plant
137 construction project that the bidding contractor have an irrevocable line of credit; or
138 (b) if the bidding contractor obtains an irrevocable letter of credit meeting the
139 conditions of Section 14-2-1 , require as a condition of making a bid related to the major
140 electric plant construction project that the bidding contractor have a payment bond; and
141 (2) reject a bid related to the major electric plant construction project on the basis of
142 whether the contractor pursuant to Section 14-2-1 offers:
143 (a) a payment bond; or
144 (b) an irrevocable letter of credit.




Legislative Review Note
as of 12-13-04 3:18 PM

Based on a limited legal review, this legislation has not been determined to have a high
probability of being held unconstitutional.

Office of Legislative Research and General Counsel