Legislature(2013 - 2014)BARNES 124
04/17/2014 09:00 AM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| SB214 | |
| SB193 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 214 | TELECONFERENCED | |
| + | SB 193 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 193-CONTRACTORS: BONDS; LICENSING
9:16:26 AM
CHAIR OLSON announced that the final order of business would be
SENATE BILL NO. 193, "An Act relating to bonds required for
contractors."
9:16:29 AM
SENATOR PETER MICCICHE, Alaska State Legislature, speaking as
sponsor, stated that SB 193 is about updating the level of
protection associated with surety bonds, noting that surety
amounts have not been updated since 1982. The current bonding
rates are $10,000 for general contractors and $5,000 for
specialty contractors. This bill would increase the rate for
general contractors to $25,000, new residential-only endorsement
to $20,000, and mechanical and specialty contractor bonds to
$10,000, and it will bring down bonding rates for a handyman to
$5,000. This bill does not have any fiscal impact and is a key
piece of legislation for many reputable contractors in Alaska.
9:17:49 AM
REPRESENTATIVE CHENAULT related his understanding that the
fiscal note is indeterminate since the department doesn't know
the cost or revenues associated with the bill because the
potential number of handyman contractors is unknown. He further
assumed costs will be on the positive side rather than the
negative side. He noted that the DCCED's fiscal note was
changed and he was unsure why, but he offered to review it.
9:18:41 AM
REPRESENTATIVE JOSEPHSON asked whether the bond requirement
relative to "handyman" contractors is exempted.
SENATOR MICCICHE answered that "handymen" are exempted so long
as they don't perform jobs above $2,500. The bill does not
change the definition of a contractor, but will cover "handyman"
contractors who perform work in excess of $2,500. He said, "If
they're a contractor, they're a contractor; if they're not,
they're not." If the handyman's work fits into the definition
and he/she performs work over $2,500 on a job, it will fall
under the bond requirement. The cost of bonding and typical
costs for a $5,000 bond ranges from $125-$250 per year. The
most expensive cost for contractors is the cost of insurance.
9:19:46 AM
REPRESENTATIVE JOSEPHSON asked for further clarification. He
related a scenario in which a "handyman" charges a homeowner
$2,400. He asked whether the "handyman" would be exempted from
bond requirements.
SENATOR MICCICHE answered that if most of the work performed
falls below the [$2,500] level, the party may not be a
contractor. Previously, anyone who advertised was considered a
contractor. He reiterated that this bill doesn't change this
for a contractor, but will allow for a "handyman" category and
save them about $250 per year.
9:20:45 AM
REPRESENTATIVE JOSEPHSON wondered if someone could "stack" this
by doing a project and come back and still enjoy some exemption.
SENATOR MICCICHE stated that people still have the opportunity
to hire folks that are not operating legally. He suggested that
people who wish to "play the system" will do so, but if they are
typically doing work above that level, the person is considered
a contractor and requires a bond. He suggested that any
Alaskans should choose to have the work done on their homes be
done by insured, bonded and licensed professionals, since the
cost is low; in fact, reputable contractors don't even consider
it. It is the cost of doing business and protects consumers and
homeowners against things that can go wrong on the job.
9:22:03 AM
CHAIR OLSON explained that typically the licensed and insured
contractors are the ones who will report uninsured contractors.
It is "self-policing," as uninsured contractors could
consistently "low bid" if they are not paying any overhead.
9:22:33 AM
REPRESENTATIVE HERRON asked for the reason a public adjuster
would not be needed under this bill.
SENATOR MICCICHE asked for clarification on the term adjuster.
REPRESENTATIVE HERRON answered that the public adjuster could
work for the party and represents the person against the
insurance company.
The committee took an at-ease from 9:23 a.m. to 9:25 a.m.
9:25:13 AM
REPRESENTATIVE HERRON asked for the reason a public adjuster
would not be needed under this bill.
SENATOR MICCICHE answered that this bill is for licensed bonds
and not for a bid-in-performance bond. The bill does not change
the bond system and the party would choose an adjuster. He
reiterated that this is not part of the bill since this bill
just updates the levels of protection offered to consumers.
9:25:44 AM
REPRESENTATIVE HERRON remarked that if a party is in a dispute
with an insurance company it has been his experience that
sometimes an independent adjuster is not the best advocate.
CHAIR OLSON agreed that an independent adjuster could work for
the public and the insurance industry.
REPRESENTATIVE JOSEPHSON said at one point in time bonds would
be held by the department for up to three years, even after
cessation of the practice or business. He asked whether that is
still the case.
9:27:12 AM
LORI WING-HEIER, Director, Division of Insurance (DOI), DCCED,
highlighted the distinction between a licensing bond, which
allows the contractor to bid work and perform what the client
might request and a bid and performance bond that identifies
that the contractor has the wherewithal to order the materials,
make payroll, and to complete the project. She explained that
the performance bonds are bid on the value of the project. She
said this bill does not address bid and performance bonds. She
related her understanding that Representative Josephson was
asking whether the bid and performance bond is held for a period
of time after the job is completed to make sure that warranty
items and punch list items are completed. She acknowledged that
she thought that period was for three years.
9:28:17 AM
JOHN MACKINNON, Executive Director, Associated General
Contractors (AGC), testified on behalf of the AGC, representing
over 650 Alaska businesses and construction industry. He
testified in support of SB 193. He explained that the AGC began
working on this issue several years ago by engaging with other
trade associations, such as the National Electric Contractor's
Association (NECA), Alaska Mechanical Contractors Association
(AMCA), Associated Builders and Contractors, Inc. (ABC), Alaska
State Homebuilding Association (ASHBA), and state and local home
builders associations to agree on bond limits and reasonable,
affordable costs. He acknowledged that some associations wanted
higher limits than those in the bill; however, these groups
agreed on what closely approximated the 1982 levels would be if
those amounts were adjusted for inflation. He said that SB 193
is about increasing the license bond amounts for contractors.
It is not about limiting competition, but is about making
competition fair. He offered his belief that this bill is an
important and critical part of Alaska consumer protection laws.
When a contractor works for a client or when a contractor
purchases materials for a project, the best way for an aggrieved
person to recover is to go after the licensed bond. Another
alternative is to put a lien on the property and when a vendor
must put a lien on property, it often involves an innocent
property owner. He reiterated that the licensed bond offers the
best protection since it is directed at a person who is not
paying the bills. He said he was amazed at the number of
vendors, equipment rental companies, and material suppliers that
have called in expressing strong support for this bill. These
vendors believe it is an important part of their ability to
extend credit to people in the construction industry.
9:31:40 AM
CHAIR OLSON pointed out that the committee has distributed zero
fiscal notes for DCCED and the Department of Labor & Workforce
Development.
REPRESENTATIVE CHENAULT pointed out on page 2 of the fiscal note
from [Corporations, Business and Professional Licensing] that
the division does not anticipate any fiscal impact from this
legislation. He read, "It will likely increase the number of
licensees, but any additional workload would be absorbed by
existing staff." Additionally, page 2 of the DLWD fiscal note
reads: "The department does not anticipate a significant fiscal
impact as a result of the changes associated with the proposed
legislation." He offered his support for the bill; however, he
cautioned that even though the two fiscal notes are zero fiscal
notes, there will be costs associated with this. In fact, he
wouldn't be surprised if at some point the departments will
request additional funding to maintain their ongoing work.
9:33:10 AM
CHAIR OLSON asked whether they were overstaffed.
REPRESENTATIVE CHENAULT answered that he didn't think so at this
time, but he wasn't sure what the impacts of the bill will be.
CHAIR OLSON, after first determining no one else wished to
testify, closed public testimony on SB 193.
9:34:15 AM
REPRESENTATIVE REINBOLD moved to report SB 193 out of committee
with individual recommendations and the accompanying fiscal
notes. There being no objection, SB 193 was reported from the
House Labor and Commerce Standing Committee.