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.