(Written by Jack Milarch – NMHBA EVP/CEO – Originally published in the April 2014 Housing Journal)
When Can CID Order a Payout From Your Code Compliance Bond?
Construction Industries Division and NMHBA Propose Competing Rules for Contractor Code Compliance Bond
In 2008 then-Speaker of the House Ben Lujan created HB 199, and when it passed and was signed into law all New Mexico contractors were required to have a code compliance bond in force to qualify for a contractor’s license. The old bond was intended to cover only unpaid fines assessed to contractors by CID, while the new bond is to help building owners repair code violations.
The change was the result of CID management’s opinion that too many contractors were just leaving code violations unrepaired, and CID wanted more of a “hammer” to encourage contractors to fix the problems they were seeing. CID wanted the ability to order up to $10,000 be paid from the contractor’s code compliance bond to an owner when construction work was found to be faulty. A phase-in period for switching out the old bond for the new bond ended July 2011. All NM contractors must now carry the code compliance bond.
The new bond is relatively easy to get and costs about $100 for annual premium. Obtaining the bond requires a personal guarantee that any payouts will be reimbursed by the contractor to the bond carrier. From what we can see actual bond payouts have been few and far between, so far. That could change soon because CID is proposing new rules detailing the process by which property owners can request a “bond call” and receive a payout. However, CID’s new rules might be a big problem for contractors.
CID staff recently released a draft of their version of the rules. After careful analysis of that document NMHBA is strongly of the opinion that CID’s draft rules do not carry out the intent of the code compliance law. Not only that, we believe CID’s draft rules could expose contractors to abusive bond “calls”. NMHBA recently wrote a letter to each of the Construction Industries Commissioners requesting they vote to reject CID staff’s proposal and approve a version of new rules that NMHBA and Commissioner Pat Casey has submitted. Following is an excerpt from our letter.
“Perhaps the most important concept agreed upon between the construction industry, then-Construction Industries Division (CID) Director Lisa Martinez, and the insurance industry surety companies (sureties) was that bond payouts were to go directly to pay for eliminating code violations. All parties to the discussions did not want this to become a form of lottery where a lucky property owner could end up with a $10,000 check simply by finding a code violation. The concept was for the money to be paid out as a reimbursement for the costs of successfully repairing uncorrected code violations, as verified by an inspector. No attorney fees were to be included. These concepts are glaringly absent in the draft rules prepared by CID staff.”
In addition to the problems noted above, CID’s rule draft contains the following provision, which we feel is unnecessarily heavy-handed and would discourage contractors from even trying to undertake the repairs that many good contractors do in the interest of maintaining a happy customer.
“By attempting to correct a CVD (defined in the document as a Code Violation Determination Report), the licensee is thereby admitting that the CVD was properly issued and the licensee waives all appeal rights contained under this Section.”
Public hearings on the new rules were held the week of March 17th in Albuquerque, Santa Fe, and Las Cruces. Both NMHBA’s version and the CID version were presented for public review and comment. Local Association members and their Executive Officers at all three locations showed up to support NMHBA’s version of the rules.
The following week the Construction Industries Commissioners met for their regularly scheduled meeting and considered the competing rules drafts. The debate included a Commissioner’s opinion that $10,000 was not nearly enough and that the amount should be raised, and also that money should be paid directly to the complainant as soon as CID declared finding a code violation and prior to the code violation being fixed. NMHBA and Commissioner Casey argued against both provisions. After a long debate, Chairman Randy Baker asked that the matter be tabled for further negotiations and that action on these rules be postponed until the next Commission meeting which takes place in May.
NMHBA and Commissioner Pat Casey will continue to advocate that our version of these rules be adopted and we encourage you to do the same.
If you would like to review a copy of the drafts being proposed by both NMHBA and CID and would like contact information for the Construction Industries Commissioners, you may call or email Melanie Lawton at the NMHBA office.