Last week, Pennsylvania’s House Labor and Industry Committee considered PA House Bill 1602 (HB 1602). Construction industry experts, including Cohen Seglias’ own Jason A. Copley, critiqued the bill in testimony presented at a televised public hearing. If approved, HB 1602 would require additional notice provisions and reduce a claimant’s time to file a lien from six to four months.
What is HB 1602?
Under HB1602, any subcontractor, contractor, or second-tier subcontractor who fails to provide the newly proposed Notice of Furnishing within 20 days after first performing work or rendering services or material at the property could forfeit its lien rights. The Notice of Furnishing requires disclosure of, among other things, the estimated price of the labor, materials, and tools furnished. If approved, HB 1602 would also require owners, owner’s agents, and/or general contractors to file and post at the property a Notice of Commencement disclosing the true owner of the property, among other things.
Possible Effects on the Construction Industry
House Bill 1602 has negative implications for the construction industry as a whole because:
1. The lien law exists to protect all contractors and make sure that they get paid for work when unscrupulous owners fail to pay their bills. Making any changes that curtail those rights must only be done with great caution and to correct a “wrong” resulting from the current law. In this regard, the reduction of time to file from six to four months works to the detriment of both subcontractors and general contractors in that it would inadvertently increase the number of lien filings and prevent the amicable resolution of claims as parties rush to satisfy the shortened deadline.
2. Some subcontractors and second-tier contractors, that the lien law is designed to protect, will likely unwittingly forfeit their lien rights for the labor and materials they supply on projects by failing to satisfy the new Notice of Furnishing requirement.
3. The current Mechanic’s Lien Law is intended to protect contractors and promote economic growth by providing needed protection to contractors who provide labor and materials on projects. It is counterintuitive to the law’s purpose to restrict its scope and application by requiring notice prior to a dispute. Also, since the amendments in 2009, no floodgate has opened with respect to the filing of liens. Therefore, there is no economic or governmental interest to support an amendment to more narrowly tailor the application of the current version of the Mechanic’s Lien Law.
4. The potential for a general contractor’s forced “double payment” (once to the subcontractor and again to a supplier or sub-subcontractor) should be otherwise avoided by limiting the liability of general contractors in relation to the amount they have already paid under a contract, similar to the defense owners enjoy pursuant to Section 1405 of the current Mechanic’s Lien Law. In addition, a “fund” could be established by an amendment to set up a trust fund mechanism like exists in New Jersey, which would provide for unpaid second-tier subcontractors to receive a pro rata distribution of unpaid funds.
5. Only 21 states have currently enacted legislation similar to the notice provisions proposed in HB 1602. Also, given that Pennsylvania law already offers other avenues of protection for owners and general contractors, the additional protections proposed by HB 1602 are unnecessary.
Cohen Seglias will continue to monitor HB 1602 and any amendments. If you have any questions about HB 1602 or the June 13, 2011 public hearing, please contact Jason Copley at email@example.com or Jennifer Horn at firstname.lastname@example.org, 215.564.1700.