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Electrical Contractors Take Steps to Limit Subcontractor Liability

Mar 1, 2009 12:00 PM

New report from American Subcontractors Association evaluates subcontractor liability, evaluating prompt payment protections, pay-if -paid clauses, mechanic’s lien protections, payment bond protections, retainage limitations, anti-indemnity protections, and anti-“bid shopping” measures

It's no secret that many subcontractors have sustained their fair share of hard knocks in the last year as a result of the economic crisis and construction industry downturn. However, the close of 2008 brought with it a glimmer of hope for subs struggling with mounting risk management issues, says a new report released in January by the American Subcontractors Association (ASA), Alexandria, Va. According to “The ASA Report: The Policy Environment in the States,” policymakers' understanding of sophisticated risk transfer issues is growing.

ASA's annual evaluation of public policies in the 50 states and the District of Columbia revealed that legislators and courts took new steps in 2008 to limit how contracts or insurance for construction/design services may allocate liabilities. This is a key public policy issue for subcontractors, which are often forced to pay for the costs of job-site injuries or damage caused by others, even though the subcontractors are faultless.

“The 2008 ASA Report shows that progress on a complex issue like indemnity is possible,” says 2008-09 ASA President Bill Olmo, Fedco Construction Inc., Santa Rosa, Calif. “ASA urges subcontractors to use the results of The ASA Report to help legislators understand why reforms are needed and possible in their states.”

Legislative/judicial activities in 2008 caused the scores of eight states to change from last year's ASA report — Arizona, California, Iowa, Kansas, Maine, Maryland, Nevada and New York. The scores of three of these states — Kansas, New York, and California — changed because (or partly because) of new restrictions on risk transfer.

ASA's report scores and grades each state in seven policy areas and uses the results to calculate an overall score, grade, and rank for each state. Taking into account both laws and judicial decisions, the report scores: (1) Prompt payment protections; (2) Treatment of pay-if -paid clauses; (3) Mechanic's lien protections; (4) Payment bond protections; (5) Retainage limitations; (6) Anti-indemnity protections, including limits on “additional insured” endorsements; and (7) Anti-“bid shopping” measures. New Mexico remains the only state to receive an overall passing grade in the report. Four states (California, Kansas, New York, and South Carolina) are within five points of a passing score of more than 60%.

Highlights from the report reveal that an ASA campaign to limit risk transfer is starting to pay off. For example, in the first ASA Report released in 2004, two states — Montana and New Mexico — had perfect scores in the anti-indemnity category and 48 states and the District of Columbia had scores of 41 or less. In the 2008 report, seven states scored better than 41 in this category. Several states continued retainage reform, with three states (California, Iowa, and Maryland) enacting laws that resulted in score changes for retainage reform in the study. Arizona enacted mechanic's lien reform, resulting in a score change in the report, while two others (Georgia and Rhode Island) made lien law changes that did not impact their scores. Although no states passed prompt payment reform legislation in 2008, Colorado came close, falling only four votes short in its House of Representatives vote.

For more details on “The ASA Report: The Policy Environment in the States,” visit the organization's Web site at http://www.asaonline.com/pdfs/The%20ASA%20Report%202008.pdf.

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