1     
CONSTRUCTION TRADE AMENDMENTS

2     
2017 GENERAL SESSION

3     
STATE OF UTAH

4     
Chief Sponsor: D. Gregg Buxton

5     
House Sponsor: Mike Schultz

6     

7     LONG TITLE
8     General Description:
9          This bill amends provisions related to the construction trade.
10     Highlighted Provisions:
11          This bill:
12          ▸     defines terms;
13          ▸     provides a maximum rate of interest for a lien filed against project property by a
14     person without privity of contract with the owner-builder; and
15          ▸     provides the director of the Division of Occupational and Professional Licensing
16     discretion to determine if a claimant has met certain requirements to recover from
17     the Residence Lien Recovery Fund.
18     Money Appropriated in this Bill:
19          None
20     Other Special Clauses:
21          None
22     Utah Code Sections Affected:
23     AMENDS:
24          13-8-5, as last amended by Laws of Utah 2012, Chapters 86 and 278
25          38-1a-309, as enacted by Laws of Utah 2012, Chapter 330
26          38-11-204, as last amended by Laws of Utah 2016, Chapter 238
27     

28     Be it enacted by the Legislature of the state of Utah:

29          Section 1. Section 13-8-5 is amended to read:
30          13-8-5. Definitions -- Limitation on retention proceeds withheld -- Deposit in
31     interest-bearing escrow account -- Release of proceeds -- Payment to subcontractors --
32     Penalty -- No waiver.
33          (1) As used in this section:
34          (a) (i) "Construction contract" means a written agreement between the parties relative
35     to the design, construction, alteration, repair, or maintenance of a building, structure, highway,
36     appurtenance, appliance, or other improvements to real property, including moving,
37     demolition, and excavating for nonresidential commercial or industrial construction projects.
38          (ii) If the construction contract is for construction of a project that is part residential
39     and part nonresidential, this section applies only to that portion of the construction project that
40     is nonresidential as determined pro rata based on the percentage of the total square footage of
41     the project that is nonresidential.
42          (b) "Construction lender" means any person, including a bank, trust company, savings
43     bank, industrial bank, land bank, safe deposit company, private banker, savings and loan
44     association, credit union, cooperative bank, small loan company, sales finance company,
45     investment company, or any other financial institution that advances money to a borrower for
46     the purpose of making alterations or improvements to real property. A construction lender
47     does not include a person or entity who is acting in the capacity of contractor, original
48     contractor, or subcontractor.
49          (c) "Construction project" means an improvement to real property that is the subject of
50     a construction contract.
51          [(c)] (d) "Contractor" means a person who, for compensation other than wages as an
52     employee, undertakes any work in a construction trade, as defined in Section 58-55-102 and
53     includes:
54          (i) any person engaged as a maintenance person who regularly engages in activities set
55     forth in Section 58-55-102 as a construction trade; or

56          (ii) a construction manager who performs management and counseling services on a
57     construction project for a fee.
58          [(d)] (e) "Original contractor" [has the same meaning as provided] means the same as
59     that term is defined in Section 38-1a-102.
60          [(e)] (f) "Owner" means the person who holds any legal or equitable title or interest in
61     property. Owner does not include a construction lender unless the construction lender has an
62     ownership interest in the property other than solely as a construction lender.
63          [(f)] (g) "Public agency" means any state agency or a county, city, town, school district,
64     local district, special service district, or other political subdivision of the state that enters into a
65     construction contract for an improvement of public property.
66          [(g)] (h) "Retention payment" means release of retention proceeds as defined in
67     Subsection (1)[(h)](i).
68          [(h)] (i) "Retention proceeds" means money earned by a contractor or subcontractor but
69     retained by the owner or public agency pursuant to the terms of a construction contract to
70     guarantee payment or performance by the contractor or subcontractor of the construction
71     contract.
72          [(i)] (j) "Subcontractor" [has the same meaning as] means the same as that term is
73     defined in Section 38-1a-102.
74          (2) (a) This section is applicable to all construction contracts relating to construction
75     work or improvements entered into on or after July 1, 1999, between:
76          (i) an owner or public agency and an original contractor;
77          (ii) an original contractor and a subcontractor; and
78          (iii) subcontractors under a contract described in Subsection (2)(a)(i) or (ii).
79          (b) This section does not apply to a construction lender.
80          (3) (a) Notwithstanding Section 58-55-603, the retention proceeds withheld and
81     retained from any payment due under the terms of the construction contract may not exceed 5%
82     of the payment:

83          (i) by the owner or public agency to the original contractor;
84          (ii) by the original contractor to any subcontractor; or
85          (iii) by a subcontractor.
86          (b) The total retention proceeds withheld may not exceed 5% of the total construction
87     price.
88          (c) The percentage of the retention proceeds withheld and retained pursuant to a
89     construction contract between the original contractor and a subcontractor or between
90     subcontractors shall be the same retention percentage as between the owner and the original
91     contractor if:
92          (i) the retention percentage in the original construction contract between an owner and
93     the original contractor is less than 5%; or
94          (ii) after the original construction contract is executed but before completion of the
95     construction contract the retention percentage is reduced to less than 5%.
96          (4) (a) If any payment on a contract with a private contractor, firm, or corporation to do
97     work for an owner or public agency is retained or withheld by the owner or the public agency,
98     as retention proceeds, it shall be placed in an interest-bearing account and accounted for
99     separately from other amounts paid under the contract.
100          (b) The interest accrued under Subsection (4)(a) shall be:
101          (i) for the benefit of the contractor and subcontractors; and
102          (ii) paid after the project is completed and accepted by the owner or the public agency.
103          (c) The contractor shall ensure that any interest accrued on the retainage is distributed
104     by the contractor to subcontractors on a pro rata basis.
105          (d) Retention proceeds and accrued interest retained by an owner or public agency:
106          (i) are considered to be in a constructive trust for the benefit of the contractor and
107     subcontractors who have earned the proceeds; and
108          (ii) are not subject to assignment, encumbrance, attachment, garnishment, or execution
109     levy for the debt of any person holding the retention proceeds and accrued interest.

110          (5) Any retention proceeds retained or withheld pursuant to this section and any
111     accrued interest shall be released pursuant to a billing statement from the contractor within 45
112     days from the later of:
113          (a) the date the owner or public agency receives the billing statement from the
114     contractor;
115          (b) the date that a certificate of occupancy or final acceptance notice is issued to:
116          (i) the original contractor who obtained the building permit from the building inspector
117     or public agency;
118          (ii) the owner or architect; or
119          (iii) the public agency;
120          (c) the date that a public agency or building inspector [having] that has the authority to
121     issue [its own] a certificate of occupancy does not issue the certificate but permits partial or
122     complete occupancy [of a newly constructed or remodeled building] or use of a construction
123     project; or
124          (d) the date the contractor accepts the final pay quantities.
125          (6) If only partial occupancy of a [building] construction project is permitted, any
126     retention proceeds withheld and retained pursuant to this section and any accrued interest shall
127     be partially released within 45 days under the same conditions as provided in Subsection (5) in
128     direct proportion to the value of the part of the [building] construction project occupied or
129     used.
130          (7) The billing statement from the contractor as provided in Subsection (5)(a) shall
131     include documentation of lien releases or waivers.
132          (8) (a) Notwithstanding Subsection (3):
133          (i) if a contractor or subcontractor is in default or breach of the terms and conditions of
134     the construction contract documents, plans, or specifications governing construction of the
135     project, the owner or public agency may withhold from payment for as long as reasonably
136     necessary an amount necessary to cure the breach or default of the contractor or subcontractor;

137     or
138          (ii) if a project or a portion of the project has been substantially completed, the owner
139     or public agency may retain until completion up to twice the fair market value of the work of
140     the original contractor or of any subcontractor that has not been completed:
141          (A) in accordance with the construction contract documents, plans, and specifications;
142     or
143          (B) in the absence of plans and specifications, to generally accepted craft standards.
144          (b) An owner or public agency that refuses payment under Subsection (8)(a) shall
145     describe in writing within 45 days of withholding such amounts what portion of the work was
146     not completed according to the standards specified in Subsection (8)(a).
147          (9) (a) Except as provided in Subsection (9)(b), an original contractor or subcontractor
148     who receives retention proceeds shall pay each of its subcontractors from whom retention has
149     been withheld each subcontractor's share of the retention received within 10 days from the day
150     that all or any portion of the retention proceeds is received:
151          (i) by the original contractor from the owner or public agency; or
152          (ii) by the subcontractor from:
153          (A) the original contractor; or
154          (B) a subcontractor.
155          (b) Notwithstanding Subsection (9)(a), if a retention payment received by the original
156     contractor is specifically designated for a particular subcontractor, payment of the retention
157     shall be made to the designated subcontractor.
158          (10) (a) In any action for the collection of the retained proceeds withheld and retained
159     in violation of this section, the successful party is entitled to:
160          (i) attorney fees; and
161          (ii) other allowable costs.
162          (b) (i) Any owner, public agency, original contractor, or subcontractor who knowingly
163     and wrongfully withholds a retention shall be subject to a charge of 2% per month on the

164     improperly withheld amount, in addition to any interest otherwise due.
165          (ii) The charge described in Subsection (10)(b)(i) shall be paid to the contractor or
166     subcontractor from whom the retention proceeds have been wrongfully withheld.
167          (11) A party to a construction contract may not require any other party to waive any
168     provision of this section.
169          Section 2. Section 38-1a-309 is amended to read:
170          38-1a-309. Interest rate -- Preconstruction service or construction contract --
171     Lien.
172           [Unless otherwise specified in a lawful contract between the owner-builder and the
173     person claiming a lien under this chapter, the interest rate applicable to the lien is the rate
174     described in Subsection 15-1-1(2).]
175          (1) Subject to Subsection (2), the interest rate that applies to a lawful contract for
176     preconstruction service or construction work on or for a project property, or to a lien claimed
177     under this chapter against the project property, is, unless otherwise provided in the lawful
178     contract, the rate described in Subsection 15-1-1(2).
179          (2) If a person that claims a lien against project property under this chapter is not in
180     privity of contract with the owner or owner-builder, the interest rate that applies to the person's
181     lien may not exceed the rate described in Subsection 15-1-1(2).
182          Section 3. Section 38-11-204 is amended to read:
183          38-11-204. Claims against the fund -- Requirements to make a claim --
184     Qualifications to receive compensation -- Qualifications to receive a certificate of
185     compliance.
186          (1) To claim recovery from the fund a person shall:
187          (a) meet the requirements of Subsection (4) or (6);
188          (b) pay an application fee determined by the division under Section 63J-1-504; and
189          (c) file with the division a completed application on a form provided by the division
190     accompanied by supporting documents establishing:

191          (i) that the person meets the requirements of Subsection (4) or (6);
192          (ii) that the person was a qualified beneficiary or laborer during the construction on the
193     owner-occupied residence; and
194          (iii) the basis for the claim.
195          (2) To recover from the fund, the application required by Subsection (1) shall be filed
196     no later than one year:
197          (a) from the date the judgment required by Subsection (4)(d) is entered;
198          (b) from the date the nonpaying party filed bankruptcy, if the claimant is precluded
199     from obtaining a judgment or from satisfying the requirements of Subsection (4)(d) because the
200     nonpaying party filed bankruptcy within one year after the entry of judgment; or
201          (c) from the date the laborer, trying to recover from the fund, completed the laborer's
202     qualified services.
203          (3) The issuance of a certificate of compliance is governed by Section 38-11-110.
204          (4) To recover from the fund, regardless of whether the residence is occupied by the
205     owner, a subsequent owner, or the owner or subsequent owner's tenant or lessee, a qualified
206     beneficiary shall establish that:
207          (a) (i) the owner of the owner-occupied residence or the owner's agent entered into a
208     written contract with an original contractor licensed or exempt from licensure under Title 58,
209     Chapter 55, Utah Construction Trades Licensing Act:
210          (A) for the performance of qualified services;
211          (B) to obtain the performance of qualified services by others; or
212          (C) for the supervision of the performance by others of qualified services in
213     construction on that residence;
214          (ii) the owner of the owner-occupied residence or the owner's agent entered into a
215     written contract with a real estate developer for the purchase of an owner-occupied residence;
216     or
217          (iii) the owner of the owner-occupied residence or the owner's agent entered into a

218     written contract with a factory built housing retailer for the purchase of an owner-occupied
219     residence;
220          (b) the owner has paid in full the original contractor, licensed or exempt from licensure
221     under Title 58, Chapter 55, Utah Construction Trades Licensing Act, real estate developer, or
222     factory built housing retailer under Subsection (4)(a) with whom the owner has a written
223     contract in accordance with the written contract and any amendments to the contract;
224          (c) (i) the original contractor, licensed or exempt from licensure under Title 58,
225     Chapter 55, Utah Construction Trades Licensing Act, the real estate developer, or the factory
226     built housing retailer subsequently failed to pay a qualified beneficiary who is entitled to
227     payment under an agreement with that original contractor or real estate developer licensed or
228     exempt from licensure under Title 58, Chapter 55, Utah Construction Trades Licensing Act, for
229     services performed or materials supplied by the qualified beneficiary;
230          (ii) a subcontractor who contracts with the original contractor, licensed or exempt from
231     licensure under Title 58, Chapter 55, Utah Construction Trades Licensing Act, the real estate
232     developer, or the factory built housing retailer failed to pay a qualified beneficiary who is
233     entitled to payment under an agreement with that subcontractor or supplier; or
234          (iii) a subcontractor who contracts with a subcontractor or supplier failed to pay a
235     qualified beneficiary who is entitled to payment under an agreement with that subcontractor or
236     supplier;
237          (d) (i) unless precluded from doing so by the nonpaying party's bankruptcy filing
238     within the applicable time, the qualified beneficiary filed an action against the nonpaying party
239     to recover money owed to the qualified beneficiary within the earlier of:
240          (A) 180 days from the date the qualified beneficiary filed a notice of claim under
241     Section 38-1a-502; or
242          (B) 270 days from the completion of the original contract pursuant to Subsection
243     38-1a-502(1);
244          (ii) the qualified beneficiary has obtained a judgment against the nonpaying party who

245     failed to pay the qualified beneficiary under an agreement to provide qualified services for
246     construction of that owner-occupied residence;
247          (iii) the qualified beneficiary has:
248          (A) obtained from a court of competent jurisdiction the issuance of an order requiring
249     the judgment debtor, or if a corporation any officer of the corporation, to appear before the
250     court at a specified time and place to answer concerning the debtor's or corporation's property;
251          (B) received return of service of the order from a person qualified to serve documents
252     under the Utah Rules of Civil Procedure, Rule 4(b);
253          (C) made reasonable efforts to obtain asset information from the supplemental
254     proceedings; and
255          (D) if assets subject to execution are discovered as a result of the order required under
256     this Subsection (4)(d)(iii) or for any other reason, obtained the issuance of a writ of execution
257     from a court of competent jurisdiction; and
258          (iv) if the nonpaying party has filed bankruptcy, the qualified beneficiary timely filed a
259     proof of claim where permitted in the bankruptcy action;
260          (e) the qualified beneficiary is not entitled to reimbursement from any other person;
261     and
262          (f) the qualified beneficiary provided qualified services to a contractor, licensed or
263     exempt from licensure under Title 58, Chapter 55, Utah Construction Trades Licensing Act.
264          (5) The requirements of Subsections (4)(d)(ii) and (iii) need not be met if the qualified
265     beneficiary is prevented from compliance because the nonpaying party files bankruptcy.
266          (6) To recover from the fund a laborer shall:
267          (a) establish that the laborer has not been paid wages due for the work performed at the
268     site of a construction on an owner-occupied residence; and
269          (b) provide any supporting documents or information required by rule by the division.
270          (7) A fee determined by the division under Section 63J-1-504 shall be deducted from
271     any recovery from the fund received by a laborer.

272          (8) The requirements of Subsections (4)(a) and (b) may be satisfied if an owner or
273     agent of the owner establishes to the satisfaction of the director that the owner of the
274     owner-occupied residence or the owner's agent entered into a written contract with an original
275     contractor who:
276          (a) was a business entity that was not licensed under Title 58, Chapter 55, Utah
277     Construction Trades Licensing Act, but was solely or partly owned by an individual who was
278     licensed under Title 58, Chapter 55, Utah Construction Trades Licensing Act; or
279          (b) was a natural person who was not licensed under Title 58, Chapter 55, Utah
280     Construction Trades Licensing Act, but who was the sole or partial owner and qualifier of a
281     business entity that was licensed under Title 58, Chapter 55, Utah Construction Trades
282     Licensing Act.
283          (9) The director shall have equitable power to determine if the requirements of
284     Subsections (4)(a) [and], (b), and (f) have been met, but any decision by the director under this
285     chapter shall not alter or have any effect on any other decision by the division under Title 58,
286     Occupations and Professions.