Illinois Construction Stuff and Stuff (9)

Something rare is happening, and no, I don’t mean me being quiet, though that is rare indeed. But it’s something else. As you know, I write pretty regularly in this newsletter, but it isn’t often I get to tell you all about new things going on in the world of construction law.

I mean, sure, there have been plenty of changes, like rentals becoming lienable, no lien contracts being allowed, then disallowed, then allowed again and finally disallowed. Other changes went through the courts rather than legislation, like the AY McDonald vs. State Farm decision that held there were no restrictions to lien tiers.

Then there was an Illinois Supreme court case, LaSalle Bank vs Cypress Creek which pretty much made banks the absolutely preferred beneficiary of foreclosures. The legislature recognized this was unfair to … well… everyone but the banks, so HB 3636 was passed restoring the equitableness of the lien statutes.

In 2016, we had a major revision to the Statutes which enabled an owner or GC to eliminate a lien by replacing it with a bond. I predicted this would wipe out many lien creditors, but my predictions have not come true. I suspect this is because these bonds are more expensive than a normal payment bond because the bond issuer knows right up front it is likely to be litigated. Also, they can’t cover multiple claimants with a single bond, so again, it’s more expensive.

I wrote about all of these in my book, The Illinois Mechanics Lien Statutes .. and other Construction Stuff, so if you want to read more of this cool, geeky stuff, you can buy the book from the publisher, NACM. You may have heard of this NACM organization once or twice before. If not, get thee to Google.

But the sands keep shifting and sometimes it’s the not actual lien Statutes that are changed. There are other laws that impact construction, such as the Contractor Prompt Payment Act, (815 ILCS 603/1), which mandates the timing for approval of payment draws and subsequent payment. This Act was amended in 2017 to provide that when a project is fifty percent completed, retention was required to be reduced to no more than 5%.

Which brings me to a new bill, HB 2878, which recently passed the Illinois House, and probably by the time you read this is will have been signed into law or not, though I suspect it will because of compromises agreed to get it through the House.

This new bill was introduced by IMSCA and the Legislative Committee of ASA, of which I am also a member (I hang around some cool people). This same group was responsible for the 2017 bill reducing retention on private projects, and they wanted to one-up this accomplishment by completely eliminating retention on any Illinois public projects, excluding Federal ones, because the feeling was that having retention on top of payment bonds was providing just a little too much cover.

I was a bit cool on this plan for a couple reasons. As a supplier, I liked the idea that it would free up more funds for my customers, usually electrical contractors, to pay my bills. But it would also complicate any lien action I might have to take because instead of being able to pursue both the funds remaining in a project and the bond, it would limit any action I took solely to bonds. And I don’t mean to cast aspersion on anyone, but bonding companies can be, well, jerks. The last thing they want to do is pay a bond claim to someone they don’t know, me, and then have to chase after their own client for money.

So while there are exceptions, most bonding companies fight, delay and just make it painfully difficult to get your money.

A claim on funds, though, can be much quicker, because the public entity pays it, and they don’t really care who it goes to. There’s a lot less resistance.

Another reason I didn’t like it was because for projects under the $50,000 threshold required by the Public Construction Bond Act, by the time you took action there might be no remaining funds available for any kind of claim on funds. So, you’d have to move quicker to capture any funds, and do so knowing you have no bond protection whatsoever if you don’t file in time to capture any money.

Fortunately, some other parties felt like I did, and a compromise agreement was reached to mimic private construction by requiring retention to be reduced to 5% when a public project is 50% complete. This would free up some money for contractors, but still leave some money for claims on funds.

I feel way more comfortable with this, so I hope the Governor signs the bill.

Or already signed it by the time you read this.

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