Important Changes in New House Bills Affecting Your Construction Clients and Practice

By Jillian C.S. Blanchard

House Bill 489

House Bill 489 is the annual package of regulatory reform changes to the North Carolina State Building Code supported by the N.C. Home Builders Association. This bill includes changes regarding criminal background checks, continuing education courses, and erosion control plan permits, among others.

The bill would revise § 87-10 to require a person seeking to be licensed as a general contractor in the State of North Carolina to consent to and pay the costs of a criminal background check, if required by the Board, prior to being entitled to take the exam. All documentation relating to such criminal background checks would remain confidential and not be considered public records.

Following the addition of internet-based courses to satisfy annual general contractor continuing education requirements in response to COVID-19, the bill would also revise § 87-10.2 to expressly allow such continuing education requirements to be completed through approved internet-based e-learning courses, as well as the standard live courses. The bill would also require providers and instructors of such continuing education courses to be evaluated and approved by the Board.

Additionally, the bill would revise § 87-13.1 to remove attorney’s fees from the discretion of the court, and instead, entitle the Board to attorney’s fees in a maximum amount of $5,000, plus costs associated with obtaining the relief, when the Board prevails on an action brought to address a violation of any provisions of this Article or rules and regulations of the Board promulgated under this Article.

The bill would also revise § 143-138 to not limit the Building Code Council’s review of any proposed revision or amendment to the North Carolina State Building Code to a “cost-benefit analysis” provided by the proponents of the revision or amendment. Instead, the Council would be required to either conduct its own economic analysis or cost-benefit analysis or consider an economic analysis or cost-benefit analysis submitted other than by the proponent of the proposed revision or amendment. However, this requirement would not apply to the proposal of revisions or amendments made upon motion of the Building Code Council or submitted by a state agency or political subdivision of the state.

The bill would also cap fees a local government is entitled to assess for erosion control plan permits, proposing that the fee “shall be calculated on the basis of either the number of acres disturbed or in the case of a single-family lot in a residential development or common plan of development that is less than 1 acre set at no more than one hundred dollars ($100.00) per lot developed.” According to certain proponents of this provision, the cap reflects the average of permit fees that currently vary greatly between towns, providing more conformity throughout the state in assessing such fees.

The bill would prohibit a local plan from requiring a silt fence, wire-back reinforced silt fence, or other erosion control measure as part of the local erosion control plan, where the fence would not substantially and materially retain the sediment generated by the land-disturbing activity within the boundaries of the tract during construction upon and development of the tract due to the contour and topography of the development site.

Additionally, when a development project contains an approved erosion control plan for the entire development, a separate erosion control plan shall not be required by the local government for development of individual residential lots within that development that disturb less than 1 acre, so long as the developer and the builder are the same financially responsible person.

Further, the bill would add a new subsection, to § 113A-54.1, which would explain that for land-disturbing activities on a single-family residential lot involving new construction with land disturbance of less than 1 acre where the builder or developer is the owner of the lot being developed and the person financially responsible for the land-disturbing activity, the financial responsibility for land-disturbing activity on a lot transfers to the new owner upon the builder’s or developer’s conveyance of the lot to the new owner, recording of the deed in the office of the register of deeds, and notification to the office or local program that approved the erosion control plan.

House Bill 489 passed 80-33.

House Bill 783

North Carolina does not currently have a system in place for certifying individuals responsible for enforcing the building code. However, House Bill 783 would change that by creating a new State Building Code Permit Technician Certification program, under a new section to Chapter 143, Article 9C, § 143-151.22.

This certification would require an exam based on the North Carolina State Building Code, administrative procedures applicable to permit administration, and relevant topics in support of Code-enforcement officials and local inspection departments.

However, under § 143-151.22(e), the bill would provide an “exam waiver” for qualified code enforcement official that would require the North Carolina Code Officials Qualification Board (the “Board”) to grant certification, without requiring an exam, to any person possessing a Building Inspector standard certificate issued by the Board who is in good standing at the time of application.

Additionally, under § 143-151.22(f), the bill would also provide comity for any person who, at the time of the application, is similarly certified as a permit technician in good standing by a similar board of another jurisdiction, or certified as a permit technician in good standing by the International Code Council, where such standards are acceptable to the Board. However, a certificate granted in this manner would expire after 1 year, unless the certificate holder completes a short course prescribed by the Board and based on the North Carolina State Building Code and administrative procedures within that time period.

All certificate holders would be required to renew their certificate annually, on or before the first day of July pursuant to § 143-151.22(c). Under § 143-151.22(b), The bill would authorize the Board to establish professional development requirements for State Building Code Permit Technicians to maintain their certificate. The Board would determine the annual continuing education hours required to renew the certificate, with a maximum requirement of 3 credit hours.

Under § 143-151.22(d) of the bill, the North Carolina Code Officials Qualification Board (the “Board”) would also be authorized to establish the required fees for issuance of an initial certificate (with a maximum fee of $20.00) and issuance of renewal certificates (with a maximum fee of $10.00), as well as charge a late fee of $4.00 for renewals made after the first day of July each year.

House Bill 783 passed unanimously.

House Bill 820

This Bill remains subject to ongoing discussions and refinements, but would, among other things, add a new section to Chapter 22B, Article 1, § 22B-5, which is intended to clarify the proper use of an interim lien waiver and prevent the abuse of interim lien waivers by using the same to force promisors to release claims in return for no consideration, other than payments rightfully owed by the promisee under the construction agreement.

The new section would provide that provisions in lien waivers, releases, construction agreements and design professional agreements that purport to require a promisor to submit a waiver or release of liens or claims as a condition for receiving interim or progress payments due from the promisee under the construction agreement are void and unenforceable, unless limited to the specific interim or progress payment actually received by the promisor in exchange for the lien waiver. The new section is clear, however, that provisions of this nature are not void when included in a lien waiver or release for final payment, or in an agreement to settle and compromise disputed claims after the claim has been identified by the claimant in writing (regardless of whether the promisor has initiated a civil action or arbitration proceeding).

The bill would also clarify how attorneys’ fees should be determined under § 44A-35, with the intention of modernizing the existing provision to account for multi-party actions, clarify certain timeframes and would provide factors for the judge or arbitrator to consider in determining the reasonable amount of attorneys’ fees and expenses to be provided.

At § 44A-35(b) and § 44A-35(f), the bill would clarify that the court or arbitrator shall determine the prevailing party based on the principal amount in controversy between the parties as of the commencement of the trial, arbitration, or hearing resulting in a judgment or arbitration award, considering all relevant facts and circumstances. Additionally, at §44A-35(c), the bill would clarify the timeframe for determining the amount in controversy, providing that if a party serves an offer of judgment in accordance with G.S. 1A-1, Rule 68, or a written settlement offer, so that the offer is received at least 30 days before the commencement of the trial, arbitration, or hearing resulting in a judgment or award resolving all matters in controversy between the parties, the last offer shall be deemed to be that party’s monetary position for purposes of determining the amount in controversy.

The bill would also provide 11 factors that may be considered by a court or arbitrator in determining the amount reasonable attorneys’ fees and expenses to be provided to a prevailing party at §44A-35(d), as well as allow parties to submit evidence relating to an award of attorneys’ fees by affidavit or declaration, or expert testimony, and authorize the court or arbitrator to admit other evidence, including live or deposition testimony under § 44A-35(e).

Edition 3 of the bill included a provision refining portions of GS 22B-1(a). It is our understanding that that provision has been dropped from the bill.

Additionally, there are provisions being discussed that are intended to affect § 143-128.1A and .1B, pertaining to design-build and design-build bridging delivery options. The modifications are being sought to rectify several interpretations that are contrary to the overall intent of the statute and to refine provisions for practical purposes, and include:

  • Allowing the Design Builder to propose non-licensed subcontractors as part of its team under Option A set forth in § 142-128(c)(8)(a).

Currently, the statute provides that in submitting its proposal under Option A, the Design Builder is to identify all licensed contractors, licensed subcontractors and designers that will form its team for qualification-based selection purposes. Although the statute implicitly allows the Design Builder to enter into negotiated contracts with other subcontractors once it is awarded the contract, there are occasions where the Design Builder would like to showcase a non-licensed but highly skilled specialty subcontractor to the owner during the qualification selection process. Some owners have taken the position that the Design Builder could not showcase such subcontractors during the selection process.  The bill would refine the statute to allow the Design Builder to do so.

  • Allowing the Design Builder to self-perform work using its own employees when it chooses to use Option A set forth in § 14-128(c)(8)(a).

This was the intent of the current statute when it was originally enacted. The original concept was for the Design Builder to be treated like CMR’s, but utility contractors then asked that this restriction be omitted so that they could act as Design Builders and use their own employees. In response to utility contractors’ requests, the no-self performance restriction was redacted in the original statute, but unfortunately, no affirmative language was included to clearly indicate that Design Builders can self-perform using their own employees. Some owners have questioned this omission, and affirmative language is being added to clarify that Design Builders can self-perform using their own employees under Option A.

  • Allowing the Design Builder B to use bidding processes even when it chooses to use Option A set forth in § 14-128(c)(8)(a).

The Design Builder is implicitly free to enter into negotiated contracts with all of its subcontractors under Option A. This is the case, because Option B expressly requires bidding, and Option A does not include such a requirement. The bill would make it expressly clear that Design Builders may enter into negotiated subcontracts under Option A. At the same time, the bill would also allow a Design Builder to also use bidding processes to select non-licensed subcontractors in addition to negotiated processes. The intent is to allow options and not create restrictions on the Design Builder with regards to how it selects its non-licensed subcontractors.

  • The bill would also provide further definitions of who the “key personnel” are that could not be changed without the owner’s approval for the Design Builder under both Options A and B.
  • Refinement of the bidding procedures under § 143-128.1B for the Design Build Bridging delivery method, which is a hybrid system where the top three most qualified responders are identified and the one with the overall lowest bid between the three is awarded the contract. The key concepts of this delivery method are that the Design Build Bridging is bidding upon 30% complete drawings, all first-tier work is bid out akin to the CMR process, and the Design Builder’s bid covers only its own costs and that of its designers—not those of the first-tier subcontractors.

The current statute also requires that the bid be split into three components, identified as “fees.” This process left a number of open questions and, in at least one case, was used to force the responders to provide a bid covering the first-tier subcontractor work as well. Thus, the bill seeks to further refine and clarify the Design Build Bridging bid process by:

  • Providing that the owner must publish the contract form against which the respondents are bidding to make sure that the respondents are providing comparable bids.
  • Providing further definition of the “fees.” The current statute awards the contract to the respondent with the lowest cumulative amount of fees. Thus, the splitting of the fees into three components is for informational purposes only and does not control the award. However, the current fee definitions have caused frequent confusion. Thus, the bill would refine the fee definitions to provide that the “design fee” is the fee to be paid to the designers; the “general conditions fee” is to cover items to be specifically defined by the owner for that category; and the “general service fee” is a catchall fee that covers all other considerations to be paid to the Design Builder, excepting the amounts to be paid to first-tier subcontractors. Most importantly, the bill would clarify that the anticipated costs of engaging the first-tier subcontractors is not to be included in the “fees” bid to the owner.

House Bill 820 remains subject to ongoing discussions and revisions.