Senate Study Bill 3159


                                          SENATE/HOUSE FILE       
                                          BY  (PROPOSED ATTORNEY
                                               GENERAL BILL)


       Passed Senate, Date               Passed House,  Date             
       Vote:  Ayes        Nays           Vote:  Ayes        Nays         
                    Approved                            

                                         A BILL FOR

     1 An Act relating to registration and bonding requirements for
     2    contractors, and providing criminal and civil penalties.
     3 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
     4 TLSB 5305DP 82
     5 ak/nh/8

PAG LIN



  1  1    Section 1.  Section 91C.6, Code 2007, is amended to read as
  1  2 follows:
  1  3    91C.6  RULES.
  1  4    The labor commissioner shall adopt rules, pursuant to
  1  5 chapter 17A, determined to be reasonably necessary for phasing
  1  6 in, administering, and enforcing the system of contractor
  1  7 registration and bonding established by this chapter.
  1  8    Sec. 2.  NEW SECTION.  91C.6A  STATE CONTRACTS WITH
  1  9 UNREGISTERED CONTRACTORS PROHIBITED.
  1 10    A contractor who is not registered with the labor
  1 11 commissioner as required by this chapter shall not be awarded
  1 12 a contract to perform work for the state or an agency of the
  1 13 state.
  1 14    Sec. 3.  NEW SECTION.  91C.6B  HOME IMPROVEMENT CONTRACTOR
  1 15 PERFORMANCE BOND == PENALTY.
  1 16    1.  For purposes of this section, the following definitions
  1 17 shall apply:
  1 18    a.  "Division" means the division of labor services of the
  1 19 department of workforce development created under section
  1 20 84A.1.
  1 21    b.  "Home improvement contract" means any contract for the
  1 22 improvement or repair of existing residential property,
  1 23 including appurtenances to the property, but does not include
  1 24 contracts for less than two hundred dollars in the aggregate.
  1 25    2.  Any contractor, prior to entering into a home
  1 26 improvement contract in Iowa, shall file with the division a
  1 27 surety bond.  The bond shall be in the amount of seventy=five
  1 28 thousand dollars and shall be for the benefit of any person
  1 29 who, in connection with a home improvement contract with the
  1 30 contractor, is damaged by the contractor's breach of the home
  1 31 improvement contract or by the contractor's violation of
  1 32 section 714.16, regardless of whether the person has a direct
  1 33 cause of action pursuant to section 714.16.  Any person so
  1 34 damaged may bring suit directly on the bond without
  1 35 assignment, and may recover from bond proceeds actual damages,
  2  1 court costs, and reasonable attorney fees.
  2  2    3.  A person filing suit pursuant to this section shall
  2  3 notify the division at the time the suit is filed, and the
  2  4 division shall maintain a record, available for public
  2  5 inspection and copying, of all suits commenced.  Notification
  2  6 is not a precondition to filing of a suit, and failure to
  2  7 notify the division shall in no way affect the validity of a
  2  8 lawsuit.  However, notification pursuant to this section must
  2  9 be completed prior to payout of any bond proceeds pursuant to
  2 10 this section.
  2 11    4.  The attorney general may bring an action in equity on
  2 12 behalf of the state to recover bond proceeds for persons who
  2 13 incur damage due to a contractor's breach of a home
  2 14 improvement contract or violation of section 714.16 in
  2 15 connection with a person's home improvement contract with a
  2 16 contractor.
  2 17    5.  Priority for payment of the proceeds of a bond filed
  2 18 pursuant to this section shall be based upon the time of
  2 19 filing a notice of suit with the division, except that any
  2 20 action by the attorney general to recover bond proceeds shall
  2 21 take precedence over all other claims on the bond, regardless
  2 22 of the time of filing.
  2 23    6.  The surety bond shall be executed by a surety company
  2 24 authorized to do business in this state, and the bond shall be
  2 25 continuous in nature until canceled by the surety with not
  2 26 less than thirty days written notice to the contractor and to
  2 27 the division of the surety's decision to cancel bond.  The
  2 28 surety's obligation under the bond shall continue until the
  2 29 surety has fully satisfied the notice requirements of this
  2 30 section.
  2 31    7.  The failure of a contractor to have a valid surety bond
  2 32 on file with the division at any time a home improvement
  2 33 contract is in effect shall make the contract and any note,
  2 34 instrument, or other evidence of indebtedness executed or
  2 35 entered into in connection with the contract to the contractor
  3  1 voidable, and shall constitute a complete defense in any
  3  2 action based on the contract, note, instrument, or other
  3  3 evidence of indebtedness brought by the contractor or the
  3  4 contractor's successors or assigns.
  3  5    8.  A contractor who violates any provision of this section
  3  6 is guilty of a simple misdemeanor.
  3  7    Sec. 4.  Section 91C.7, subsection 1, Code 2007, is amended
  3  8 by striking the subsection.
  3  9    Sec. 5.  Section 91C.7, subsection 2, unnumbered paragraph
  3 10 1, Code 2007, is amended to read as follows:
  3 11    An In addition to any bond required by section 91C.6B, an
  3 12 out=of=state contractor before commencing a contract in excess
  3 13 of five thousand dollars in value in Iowa this state, shall
  3 14 file a bond with the division of labor services of the
  3 15 department of workforce development.  The surety bond shall be
  3 16 executed by a surety company authorized to do business in this
  3 17 state, and the bond shall be continuous in nature until
  3 18 canceled by the surety with not less than thirty days' written
  3 19 notice to the contractor and to the division of labor services
  3 20 of the department of workforce development indicating the
  3 21 surety's desire to cancel the bond.  The surety company shall
  3 22 not be liable under the bond for any contract commenced after
  3 23 the cancellation of the bond.  The bond shall be in the sum of
  3 24 the greater of the following:
  3 25    Sec. 6.  NEW SECTION.  91C.8  UNLAWFUL PRACTICE.
  3 26    A violation of this chapter is an unlawful practice
  3 27 pursuant to section 714.16.
  3 28                           EXPLANATION
  3 29    This bill relates to contractor registration and bonding
  3 30 requirements.
  3 31    The bill requires in new Code section 91C.6B, that a
  3 32 contractor, prior to entering into a home improvement contract
  3 33 in this state, obtain a surety bond of $75,000 before
  3 34 accepting work.  The new bond is in addition to any other bond
  3 35 requirements in Code chapter 91C.  The bond benefits a person
  4  1 who may be damaged by the contractor's breach of contract or
  4  2 by the contractor's violation of Code section 714.16, the
  4  3 consumer fraud statute, regardless of whether the person has a
  4  4 cause of action directly under that Code section.  Any person
  4  5 damaged in either way may sue directly on the bond and may
  4  6 recover actual damages, court costs, and reasonable attorney
  4  7 fees.  "Home improvement contract" is defined in the bill as
  4  8 any improvement or repair to an existing residential property
  4  9 or secondary structure but not contracts that are for a total
  4 10 of less than $200.
  4 11    When a suit is filed, the person who sues on the bond shall
  4 12 notify the division of labor services of the department of
  4 13 workforce development, which shall keep a public record of all
  4 14 suits commenced.  Notification is not a precondition to filing
  4 15 a suit and failure to notify the division does not in any way
  4 16 invalidate the lawsuit.  However, bond proceeds cannot be paid
  4 17 out to anyone who has not filed notification.
  4 18    The bill states that the attorney general may also bring an
  4 19 action in equity against the bond on behalf of the state to
  4 20 recover bond proceeds for persons damaged due to a
  4 21 contractor's breach of contract or a contractor's violation of
  4 22 the consumer fraud statute in connection with a home
  4 23 improvement contract.  The attorney general's action shall
  4 24 take precedence over all other claims on the bond regardless
  4 25 of the time of filing.
  4 26    The bill requires a surety company licensed to do business
  4 27 in Iowa issue the surety bond to the contractor and that the
  4 28 bond be continuous until canceled by the surety, but there
  4 29 must be at least 30 days notice to the contractor and the
  4 30 division.  The bill provides that the failure of a contractor
  4 31 to have a valid surety bond on file as of the date of a home
  4 32 improvement contract makes the contract and any note or
  4 33 instrument of indebtedness executed or entered into in
  4 34 connection with the contract to the contractor voidable, and
  4 35 shall be a complete defense in any action brought based on the
  5  1 contract or evidence of indebtedness by the contractor or the
  5  2 contractor's successors or assigns.
  5  3    The bill provides that a contractor who violates the
  5  4 provisions of new Code section 91C.6B is guilty of a simple
  5  5 misdemeanor.  A simple misdemeanor is punishable by
  5  6 confinement for no more than 30 days or a fine of at least $65
  5  7 but not more than $625 or by both.  The bill further provides
  5  8 that a failure to comply with Code chapter 91C is an unlawful
  5  9 practice pursuant to Code section 714.16, a civil statute
  5 10 enforced by the attorney general, and violations of which
  5 11 could result in the imposition of injunctive relief, civil
  5 12 penalties, attorney fees, and costs.
  5 13 LSB 5305DP 82
  5 14 ak/nh/8.1