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2007's New Laws Limit Enforceability Of Clauses, Benefit Subcontractors

Friday, January 04, 2008 02:12 pm

2007's New Laws Limit Enforceability Of Clauses, Benefit Subcontractors

Several states passed laws in the 2007 legislative session affecting construction contracting, many of which address the concerns and lobbying efforts of subcontractors. Quite a few of the new laws limit enforceability of contractual clauses, including indemnity, pay-if-paid and "no damage for delay"clauses. We'll give a brief wrap-up of some of the legal changes from the past year -- paying particular attention to the new enforceability limits.

New prompt pay acts

Kentucky and New Mexico passed new prompt pay acts covering both public and private contracts (although New Mexico exempts the state's Department of Transportation). Kansas passed a prompt pay act covering just public contracts, as it already passed a law in 2005 covering private ones. Kansas and Kentucky set the interest rate for late payments at 18 percent and 12 percent per year respectively. New Mexico calibrates the interest rate monthly at 1.5 percent.

New rights for mechanic's lien claimants

Kentucky, New Mexico and Connecticut passed laws bolstering mechanic's lien rights. Kentucky has extended the amount of time to file a lien to 60 days from last performing work or substantial completion, whichever comes last. It also voids contract clauses that waive mechanic's lien rights (except for "partial waivers of lien rights provided by the contractor or subcontractor for progress payments").

Similarly, New Mexico's new law specifies that payif- paid clauses don't preempt mechanic's lien rights. It also clarifies fees and costs and allows arbitration for enforcing liens.

Both New Mexico's and Connecticut's new laws contain language that awards reasonable attorney's fees to certain lien claimants who are successful in litigation. Connecticut's law focuses on lien bond claimants, awarding court costs and reasonable attorney's fees to "a plaintiff who prevails in any action upon a bond which has been substituted for a mechanic's lien."

Limits on using retainage

Kansas [...]

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