Changes Could be Coming for Iowa Lien and Bond Law

Not that long ago, Iowa mechanics lien law moved to the forefront of lien law modernization by utilizing an online registry system. While Utah led the charge way back in 2005, online construction registries are only present in a few states, including Pennsylvania who recently took to the web. It appears that Iowa lien and bond law is not yet done evolving, and recently House Study Bill 62 (“HSB 62”) was introduced to suggest further adjustments.

Suggestions for Changes to Iowa Lien and Bond Law

It’s important to note that this does not signal immediate changes to Iowa lien law, but merely tests the waters to see if the proposed changes draw the interest of Iowa’s House of Representatives. So while “House Study Bill 62” sounds official, it can be equated to a mere suggestion at this point.

The following would be the biggest changes to current Iowa lien and bond law:

Lien Law

  • Mechanics liens would now attach to an easement or right of way, which was previously barred.
  • Currently, in order to perfect a lien after 90 days have elapsed, general contractors and subcontractors must post a lien to Iowa’s online registry and must serve the property owner with notice of posting. Under HSB 62, general contractors would no longer be required to do so to perfect a lien.
  • Arbitration actions regarding mechanics liens would have to take place in the county where the affected property lies. Currently, only court actions are required to take place in the same county as the affected property.
  • Under HSB 62, a lien statement can only be amended via leave of court in furtherance of justice or to decrease the amount demanded. Currently, a leave of court may also be taken to increase the amount of a lien. Under HSB 62, this would not affect priority. Currently, the law is silent on priority in such a situation.
  • General contractors would also now be able to demand that a claimant commence action to enforce a lien. Currently, only property owners may do so.
  • Under HSB 62, any prevailing party in a lien action may be awarded attorney fees by a court. Currently, only a prevailing plaintiff can recover fees on a commercial project, and only a property owner can recover them on a residential project.

Bond Claims

  • Under HSB 62, if the public entity failed to ensure that there were proper payment bonds on the project, the public entity would be liable to claimants in the event of  nonpayment by the general contractor.
  • A public entity need only retain funds that are due to a supplier of material, labor, materials, service, or transportation if that party provides a one-time notice containing its name, mailing address, and phone number and the name of the contractor or sub for whom the material, labor, etc. was provided. Additional labor, materials, etc. that occur would be covered by this notice as long as they were provided for the same contractor or sub. This claim must be supported with a certified statement that the general contractor received the notice. Previously, two different notices were required and only material providers. This would alter the exception to the retainage requirement in current code section 573.15.
  • Currently, the public entity may release payment to the general contractor, even if claimant has commenced an action for payment of funds, if the contractor files a surety bond in double the amount of the claim with the court. Under HSB 62, payment may also be released if the surety provider on the original performance bonds for the project gives written consent to the release of unpaid funds.
  • Under HSB 62, any prevailing party in a court or arbitration action may be awarded attorney fees. Currently, only prevailing claimants in court actions may be awarded attorney fees.
  • Prior legislation regarding the early release of retained funds (code section 26.13) would be repealed and replaced with new section 573.38 which is broken down below.

Early Release of Retained Funds

  • At any time after all or part of a public project, the general contractor may request the release of all or part of the retained funds it is owed. Such a request must come with a sworn statement by the contractor that notice was given ten calendar days prior to all known subcontractors, sub-subs, and suppliers.
    • The preferred form for this notice is provided in section (g) of 578.38 found on page 9 of HSB 62.
  • Retained funds approved as payable will be paid at the time of the next monthly payment or within 30 days, whichever is sooner.
  • A denial of the request for early release of retained funds must come in writing within 30 days of the public entity’s receipt of the request.
  • After a release of retained funds, no funds shall be subsequently retained based on that portion of work.
  • If retained funds that have been approved as payable are not distributed within 30 days, interest shall begin accruing (at the prime rate plus 1% per year).
  • If there is labor or materials remaining at the time of a request, 200% of the amount of any labor and materials that have not yet been provided may be withheld until it is provided. The rest must be released if the request is approved.
  • An itemized list of the labor or materials yet to be provided shall be provided to the contractor within 30 calendar days of the receipt of the request.
  • The general contractor shall release retained funds to the subcontractor or subcontractors in the same manner as retained funds are released to the contractor by the public entity.
  • Each subcontractor shall pass all retained fund payments from the contractor through to each lower-tier subcontractor.

Takeaway

Whew. That was a lot. Let’s break down the takeaways by mechanics liens and bond claims.

Mechanics Liens

The biggest takeaways from the proposed lien law changes is that any prevailing party would be able to recover in a mechanics lien action. This should encourage both property owners and lien claimants to only handle their payment disputes before liens become necessary. It’s also a fairly big deal that easements and right of ways would be subject to mechanics liens under this legislation- this would make it far easier to enforce lien rights on large scale projects such as pipelines. Lastly, but certainly not leastly (no, that’s not actually word), this bill would require that arbitration actions regarding lien rights would have to take place in the county where work was completed. This should help make sure that the proper lien laws are applied to the situation at hand during arbitration and dispel any benefit a higher-tiered party might gain from moving the arbitration elsewhere.

Bond Claims

By far the biggest (and best) change under bond claims would be that the public entity would be liable to claimants if the public entity failed to ensure that the project was properly bonded. This portion of HSB 62 was a little vague and would likely face heavy revision to limit the instances under which the public entity would be liable to a claimant. As with mechanics liens, a court would be able to award attorney fees to any prevailing party in bond claim action. Some notice provisions would be simplified as well, but the biggest alteration would obviously be replacing the procedure and requirements for the early release of retained funds. It appears that the safeguards put in place regarding the early release of retained funds would not disfavor parties down the chain, but before any real legislation is put forward, the procedure for how payments are passed down the chain should be more clearly articulated.

For more on current Iowa lien and bond law, check out our Iowa Construction Payment Resources and the Iowa Little Miller Act.

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