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Pennsylvania House of Representatives
http://www.legis.state.pa.us/cfdocs/Legis/CSM/showMemoPublic.cfm?chamber=H&SPick=20130&cosponId=10696
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House of Representatives
Session of 2013 - 2014 Regular Session

MEMORANDUM

Posted: January 9, 2013 11:13 AM
From: Representative Thomas H. Killion
To: All House members
Subject: Reintroduction of HB1602 from last session (Mechanics Lien Law)
 
In the near future, I plan to reintroduce legislation from last session (HB1602) to create a Notice of Commencement (NOC) process within the Mechanics Lien Law. As you may recall, House Bill 1602 passed the House with a strong bipartisan vote of 190-8, but, unfortunately was never acted upon by the Senate.

The legislation is intended to address a serious problem with the payment of the subcontractors on private construction projects. On any such project, owners typically reserve some portion of the payment due a contractor until they confirm that everything is completed to contract specification, and any last minute issues are resolved (contractors take a similar approach with their subcontractors). Owner/contractors can also hold out final payments until they are certain that the contractors/subcontractors have paid everyone below them for the work they had done or material provided.

Unfortunately, under current law, there is no way for an owner to know the entire universe of subcontractors that could potentially file a lien against their property (mainly with commercial properties). Thus, it is possible for a remote "downstream" subcontractor (who the owner did not know about) to file a mechanics lien against the owner if a contractor, or first tier subcontractor, did not pay them. In essence, the owner could be left to "double paying" for the same work. This problem was exacerbated with the passage of Act 52 of 2006, which amended the law to permit 2nd Tier subcontractors (those who have a contract with a subcontractor) to file liens. Act 52 added a new "population" of subcontractors who could file liens against owners.

If the owner knows who all of the subcontractors are who worked on his project, he can take positive steps to see that they were all paid, or to determine if there are any lingering disputes. It is in his commercial interest to do this to prevent liens from being filed.

My legislation proposes to establish an optional "Notice of Commencement" process that would allow owners to identify the universe of subcontractors working on their project. My legislation would allow an owner the option of filing a NOC on an internet website directory know as the "State Construction Notices Directory" which would be administered by the Department of Labor & Industry. The NOC would have to be filed prior to the commencement of work or furnishing of materials for an improvement. The NOC would have to contain information such as: i) name, address, and telephone number of the contractor and ii) name, address, and email address of the legal owner of the property. The owner would have to conspicuously post a copy of the notice at the project site at the time that physical work commenced upon the property.

If an owner filed a NOC, a subcontractor would have to, as a condition of retaining lien rights under the act, file a "Notice of Furnishing" upon the owner within 20 days after first performing work or first providing materials. The notice would have to be served in one of the following manners: i) certified mail to owner's address; ii) personal delivery to the owner; and iii) filing of notice on State Construction Notices Directory.

It is important to note that the concept of a state internet website acting as a central repository for filing mechanics lien notices is directly based on the state of Utah's system. Utah maintains an internet website known as the "State Construction Registry."

It is also important to note that the NOC concept proposed in my legislation is modeled on Ohio and Michigan's laws, which provide for an owner's rights to file a "Notice of Commencement." These states require that an owner file a NOC, and that all subcontractors must file "Notices of Furnishings" to maintain their lien rights. My legislation makes the NOC an optional tool for owners to utilize.

The benefit of my legislation is that it will allow owners to identify the entire field of subcontractors. This will assist subcontractors in getting paid in full because if the owner knows who all of the subcontractors are who worked on his project, he can take positive steps to see if they were all paid, or if there are any lingering disputes. Instead of keeping retainage possibly for six months, an owner can ensure all subcontractors were paid and possibly pay retainage earlier.

This legislation is strongly supported by the General Contractors Association of PA and PA Council of General Contractors. Because of the importance of the Mechanic's Lien Law to the construction industry, it is my expectation that there will be one or two more public hearings on this bill in order to arrive at complete consensus by all interest groups.

If you have any questions regarding this legislation, please contact Alison Hagler in my office at ahagler@pahousegop.com.


Introduced as HB473