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New Laws That May Affect Your Construction
Business
By Thomas
S. Smith and Dean
M. Phillips
As appeared in “Legal Ease,”
our monthly column in the Daily Journal of Commerce
The Oregon Legislature passed many important new
laws this year that will affect the way many Oregon contractors
do business. Following a push to minimize construction defect
claims—protecting both consumers and diligent contractors—Oregon
contractors will need to carry more insurance, rethink existing
contracts, and eventually revisit the classroom under the new
laws. In this article, we will outline the major new statutes
that contractors need to know about.
Contractors and their contracts will
be more heavily regulated
The following important new regulations under House Bill (HB)
2654 will affect all residential contractors.
- Liens: Jobs exceeding $2,000
already require a written contract. Now, however, contractors
can no longer claim a lien for their work without having that
contract in writing.
- Written Warranties: A contractor
must give a home’s original buyer a written warranty
against defects in both materials and workmanship. Customers
may refuse to sign the warranty. If a customer refuses to
sign the warranty before any written contract for the job
itself is executed, the contractor may still withdraw the
offer to build the home.
- Insurance and Bonding: Contractors
must add coverage for products liability and completed operations
to existing insurance requirements for public liability, personal
injury, and property damage. The dollar amounts of required
coverage and bonding may change depending on the license classification
of the contractor. However, the surety bonds filed with the
Construction Contractors Board (CCB) will increase by $5,000
for all types of contractors, developers and inspectors. This
increase applies to new licenses issued beginning January
1, 2008, and to renewals beginning July 1, 2009.
- Required Information and Education:
Residential contractors will need to supply initial home buyers
with home maintenance information, including descriptions
and prevention of moisture intrusion and water damage. This
applies to residences completed beginning July 1, 2008. The
CCB is still hammering out the rules implementing educational
requirements. Contractors will need to complete classes, though
not mandatorily for several years. Currently licensed contractors
will not need to meet this requirement until 2010 at the earliest.
Moreover, the CCB says it has not yet established the final
rules or processes for continuing education. Once established,
however, contractors will be unable to get their licenses
renewed until after the education requirement has been fulfilled.
- Sanctions and Penalties: The
CCB now has greater power to sanction contractors, including
the ability to revoke a license (rather than merely suspend
or refuse one) based on indebtedness or finding that the contractor
is unfit for licensure. Penalties extend to Responsible Managing
Individuals under the new law.
New License Endorsements and Warranty
Requirements
Being a licensed contractor is no longer enough. In addition
to the current licensure categories separating developers and
general, limited and specialty contractors from one another,
as well as divisions based on type of work performed, HB 3242
creates specific endorsement requirements. These endorsements
each carry their own insurance and bonding requirements, as
well as experience and education prerequisites.
For example, a home builder can be endorsed and licensed as
a residential general contractor, a residential specialty contractor,
a residential limited contractor, or a residential developer.
Those building large commercial structures must hold one of
five commercial endorsements, with “level 1” and
“level 2” endorsements indicating the experience
level of that contractor’s employees. Those contractors
building small commercial structures can hold any of the nine
endorsement types.
Bonding and insurance requirements vary based on the endorsement
level, as the legislature attempts to reflect involved risks.
For example, a “commercial general contractor level 1”
must hold at least $2 million in general liability insurance
and a $75,000 surety bond, but a “level 2” contractor
needs only $1 million in insurance and a $20,000 surety bond.
These requirements apply only to licenses issued or renewed
beginning July 1, 2008.
New education requirements for commercial contractors will
also vary with experience level; an entry-level contractor must
account for 40 hours of continuing education annually, while
a more experienced builder needs to have one or more key employees
certify 16 hours annually. Very small contracting entities are
subject to a separate formula requiring eight hours for each
key employee.
Commercial general contractors will need to certify eight
years total experience among key employees, and specialty contractors
will need to certify four years of experience, though apprenticeship
programs and academic degrees can substitute for as much as
three years of experience.
Contractors building large commercial structures must provide
a two year warranty on the building envelope against defects.
Beginning July 1, 2008, contractors must annually inspect the
building envelope under the warranty.
Changes to residential “flipping”
For years, a cottage industry has been prevalent in Oregon
where residential owners would purchase a home needing repairs,
fix it up and “flip” it shortly thereafter speculating
on an inflationary housing market. This practice was commonly
referred to as “flipping.” Many people thought that
improvements to residential structures could be performed by
the owner without a contractor’s license, whether general
or specialty contractor. This assumption was correct unless
the work was done “with the intent to sell the structure”
or “with the intent of offering the structure for sale
before, upon or after completion.” In other words, if
the remodel was performed or improvements were made with the
intent to sell the residence, the owner would become a “contractor”
and would be required to register with and be licensed by the
CCB as a general contractor. This exemption for a home owner's
work on their own residence has been in the law since at least
1985 and the exemption applied whether or not the owner hired
a general contractor to do the work. However, this law was honored
more in the breach than in the observance. Finally, somewhat
in desperation, in 2007 the legislature decided to recognize
this cottage industry through House Bill 2498 (HB 2498) which
modifies the licensing exemptions found in ORS 701.010. This
Bill, which is effective as of January 1, 2008, exempts an owner
from the licensing requirements if the owner contracts for the
remodel work through a licensed contractor for not more than
three existing residential structures each year.
This new law also makes it clear that an owner cannot directly
hire subcontractors to perform any work, for which a permit
is required (e.g., electrical or plumbing work), unless the
work is performed under the direction of a general contractor.
In short, if the owner acts as his or her own general contractor
and hires subcontractors directly (for work requiring a permit),
the owner loses this exemption from licensing and is required
to be a licensed general contractor.
Future use of EIFS type (stucco) products
prohibited
As of January 1, 2008, the use of “barrier-type exterior
insulation and finish systems are prohibited for use by licensed
contractors on any new buildings or existing buildings in Oregon.
See House Bill 2112 (which will be codified in ORS Chapter 701).
This new Bill defines these systems to mean any “foam
insulation board inner layer, a polymer and cement base coat
middle layer reinforced with glass fiber mesh and a textured
finish coat exterior layer” in which “the layers
are bonded to the outside face of an exterior wall; the middle
or exterior layer, but not the inner layer, provides a water
resistant barrier for the exterior of the building envelope,
and the layers do not provide a means of drainage for water
that accumulates behind the exterior surface and the layers
insulate the building. This definition is extremely broad in
that it prohibits all “barrier-type” systems meeting
above the elements. The term EIFS (exterior insulation and finish
system) came into disrepute because of the use of synthetic
stucco material and was commonly known as synthetic stucco.
This Bill should not affect true stucco systems that are applied
correctly. However, if a stucco system incorporates an insulation
backer board over exterior sheeting without a “rain screen”
system, this application will also be prohibited. Because this
statute is written in the conjunctive, any EIFS or stucco system
that does not meet all of these requirements may still be used.
For example, many synthetic stucco systems are now using a “rain
screen” system to provide for water drainage behind the
stucco to protect the interior wall. True stucco systems do
not typically incorporate an insulation barrier as part of the
stucco application. Any barrier-type system that does not meet
all the prohibited requirements may still be used after January
1, 2008.
Furthermore, the statute does not prohibit the use of EIFS
applications may still be used by homeowners, the use for repair
or replacement of a previously installed barrier-type exterior
insulation and finish system, the use as an architectural feature
not intended to provide protection to an interior space, or
for use on concrete or CMU walls.
Choice of forum clauses may not be enforceable
When a contract or job goes bad, under Senate Bill (SB) 484,
Oregon residents now have more power to have their disputes
heard in Oregon courts. When contracting with an individual
Oregonian purchasing less than $15,000 in residential construction
services, any out-of-state forums mandated in the contract are
unenforceable.
This legislation allows individual residents to revoke agreed-upon
clauses requiring non-Oregon forums for both arbitration and
contract suits. The first lesson is clear: contractors cannot
rely on contract language as concerns the choice of forums.
The second repercussion presents a danger for contractors ignoring
that first lesson: attempting to enforce the forum clause may
make a contractor liable for the consumer’s resulting
attorney’s fees.
Chimney Sweeps
SB 605 may be overlooked due to its narrow scope, but it makes
a big difference to those earning their living cleaning or servicing
chimneys. Chimney sweeps are considered “contractors”
under the new legislation and therefore must be licensed as
such, and at times appropriate insurance and bonds. This modifies
the current law requiring a license to inspect or repair a chimney,
but not to clean one. One exception: chimney sweeps have a grace
period of one year after the date of enactment of this Bill
before being disciplined for not being licensed.
Home Inspectors
A new fee structure under SB 95 means more up-front costs to
fund licensing and regulation. In place of the current $75 maximum
fee for annual certificate renewal, fees may now be levied totaling
$150 for the initial two-year certificate and another $150 for
renewal every other year.
Landscape Contractors
Mostly clarifying existing law, SB 62 lays out the circumstances
under which property owners, their agents and subcontractors
can make claims against landscapers for breach of contract,
negligent work, or improper work.
In another consumer protection move ensuring money exists for
homeowner recovery, the law provides that claimants other than
the property owner cannot recover more than $3,000 from a bond.
Additionally, no single recovery can exceed $3,000 for all dispute
resolution costs, including interest and attorney fees. The
law also formally approves mediation as a dispute resolution
device. The State Landscape Contractors Board already uses mediation
for most claims.
Personnel Changes
Licensed contractors must immediately notify the CCB upon an
identity, name, or address change for the contractor, Responsible
Managing Individual, or other controlling individuals named
in SB 91. Moreover, when a partner or joint venturer leaves
a construction partnership or joint venture, a new license is
required before continuing work. These changes apply to personnel
and license applications occurring Jan. 1, 2008 or later.
Another minor change contained in this legislation requires
trustees’ information to be included in licensing applications
by trusts.
Rights Following State Agency Action
Parties to a contested hearing before a state agency must now
be served personally or in the mail by the agency under HB 2423.
Additionally, they are entitled to a more extensive explanation
of what the hearing will involve, including what evidence can
be presented and explanations of when a default order can be
entered. The State agency must also deliver notice of a right
to hearing and information regarding how to request a hearing
if one is not scheduled to anyone affected by actions of that
State agency.
With the plethora of new laws enacted during the last session
that can affect many different areas of an Oregon contractor’s
business, we advise all contractors to seek legal counsel for
a more thorough explanation of these bills and whenever assistance
is needed.
For more information, please contact:
This advisory is a publication of the Real Property Group of
Davis Wright Tremaine LLP. Our purpose in publishing this advisory
is to inform our clients and friends of recent legal developments.
It is not intended, nor should it be used, as a substitute for
specific legal advice as legal counsel may be given only in
response to inquiries regarding particular situations.
Copyright ©
2007, Davis Wright Tremaine LLP.
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