Subcontractors are making headway in public policy reform, but …
Subcontractors everywhere are scrambling for work, and
what work they’re managing to land isn’t very profitable, but there’s at least
one little silver lining amid all the clouds. According to the American
Subcontractors Association (ASA), legislators in various states across the
country are adopting reforms that ensure prompt and full payment for the work
performed by construction subcontractors.
That’s the gist of a report issued by ASA last November:The ASA Report: The
Policy Environment in the States. Details can be accessed on the Web at
ASA is the lobbying arm for subcontractors and their trade groups across the
spectrum of construction trades. “There’s a saying in the industry: The only
thing worse than no job is a job with a non-paying customer,” says 2010-11 ASA
president Timmy McLaughlin, Austin Construction Co., Summerville, S.C.
“Subcontractors provide credit for projects on promises of future payment, and
are operating at the tightest margins. In this economy, they can’t afford
clients who pay late or hold excessive retainage, just as the clients can’t
afford subcontractors who don’t perform. It’s a two-way street, and legislators
can grasp the fundamental fairness of prompt and full pay for prompt and full
are among states that, last year, enacted laws both strengthening prompt
payment and restricting the practice of retainage. Kansas
were singled out for making significant strides in improving individual prompt
payment or retainage laws. Also noteworthy is a new anti-indemnity law in
Louisiana (S.B. 625) that severely limits 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”
7. anti-“bid shopping” measures.
Beginning in 2009, ASA added “extra credit” for states that have taken the
initiative to regulate controlled insurance programs. These
non-standard insurance programs, however, can have hidden risks for
Research showed great variation among the states in the level of protection and
support that they offer to subcontractors and suppliers, and scoring was
complex. For example, mechanic’s lien laws vary in how many tiers of
construction can claim liens, the construction owner’s liability, whether lien
rights can be contractually waived, and notice and filing requirements. ASA
developed evaluation factors for each policy area, and assigned a maximum
number of points that could be accrued for each factor. The result was a
numerical score and letter grade for each policy area for each
Now for the bad news: If this were a classroom and the states were students,
almost nine out of 10 would be flunking the course. According to ASA’s
scorecard, 45 out of the 50 states, plus the District of Columbia, received an overall
grade of “F.” California,
and New York squeaked by with barely passing
grades of D, while Kansas
was awarded a “gentleman’s C.” Only New
Mexico made the Dean’s List with a B average. Not a
single state earned an A in ASA’s estimation.
The real-world situation may not be quite as dire as these letter grades
suggest. ASA’s scoring is based on a concept of perfection, whereby every
public policy would be ideal in the eyes of its subcontractor constituency.
Here on Planet Earth, that’s never going to happen, and if it did, there would
be no reason for ASA to exist.
Moreover, as ASA itself acknowledges, the numerical scores within the “F” range
vary from 0 to 60 points, meaning that all the states with a failing letter
grade in any policy area are not necessarily equal in the harshness of their
policies relating to subcontractors and suppliers. A couple of minor reforms
could well boost some of those states into a passing grade.
In any case, ASA wants those of us in the trade media to share the results ofThe ASA Report as a means of reminding subcontractors of weaknesses in their
state laws, and that ASA offers advocacy information to help them change the
laws. ASA also wishes to remind subcontractors about the need to remain
vigilant when negotiating contracts in a harsh public policy
Media mission accomplished. The rest is up to you.
Smart Business: First the Good News …
March 1, 2011