2007 Innovations Awards Program APPLICATION

Transcription

1 2007 Innovations Awards Program APPLICATION CSG reserves the right to use or publish in other CSG products and services the information provided in this Innovations Awards Program Application. If your agency objects to this policy, please advise us in a separate attachment to your program s application. ID # (assigned by CSG): 07-W-07UTCONSTRUCTREGISTRY Please provide the following information, adding space as necessary: State: Utah Assign Program Category (applicant): Infrastructure and Economic Development: Business/Commerce (Use list at end of application) 1. Program Name: The State Construction Registry (SCR) 2. Administering Agency: Utah Department of Commerce, Division of Occupational and Professional Licensing 3. Contact Person: Tom Harper, SCR Project Manager 4. Address: P.O. Box , Salt Lake City, Utah Telephone Number: FAX Number: Address: tharper@utah.gov 8. Web site Address: 9. Please provide a two-sentence description of the program. The State Construction Registry (SCR) is an online bulletin board of construction project information in Utah. Created by legislation, the State Construction Registry exists to provide a database of all construction projects in the state, protect property owners from unnecessary liens, ensure that all construction project participants (especially subcontractors and suppliers) are paid in a timely manner, and to make general contractors, property owners, banks, title companies, and other interested parties aware of all the sub-contractors and suppliers on any given commercial or residential construction project in Utah. 10. How long has this program been operational (month and year)? Note: the program must be between 9 months and 5 years old on April 2, 2007, to be considered. The State Construction Registry launched for commercial projects on May 1, 2005 and residential projects on November 1, The SCR has been fully operationally for approximately 1 year and 5 months. 11. Why was the program created? What problem[s] or issue[s] was it designed to address? The Utah Legislature created the State Construction Registry for two reasons: first, to reduce the drain on the Residential Lien Recovery Fund and second, to provide more visibility to property (change all instances of homeowner to property) owners, lenders, and general contractors or any party who has lien rights on a particular construction project. In most cases, liens are unpublished and unknown until filed, creating a blind liability to property owners. These problems are inherent in any situation where lien laws exist. Lien laws in America date back to the 1700s. According to Lien Law online: 1

2 Although every state in America provides builders, contractors, subcontractors and suppliers with legal means to get paid for their work (Mechanics Liens) no two states' lien laws are the same! Mechanic's liens exist because of the imbalance of power between many workers and material suppliers, and the property owner (or direct contractor with that owner) who has agreed to pay them. Without the mechanic's lien, the personal property artizan, or the real property contractor or material supplier has a limited number of options to enforce payment of the amounts owed. (Source: ). Mechanics liens, therefore, exist to help ensure that all construction projects participants get paid for labor and/or materials. Unfortunately, this protection for workers often means that property owners end up paying twice for the same work or they risk losing their property all together. The website of the Contractors State License Board in California explains the pros and cons of mechanics liens in more detail: When you hire a prime contractor to do construction on your home, he or she typically hires laborers and subcontractors to do some of the work, and purchases materials for the job from materials suppliers. No one would dispute that a homeowner should pay for goods or services provided to improve their home. If the contractor--or the subcontractors, workers or suppliers-- who provide goods or services to improve your property aren't paid, they can file what is called a mechanic's lien on your home. What is a Mechanic's Lien? A mechanic's lien is a "hold" against your property that, if unpaid, allows a foreclosure action, forcing the sale of your home. It is recorded with the County Recorder's office by the unpaid contractor, subcontractor or supplier. It means that any of these unpaid entities can claim a lien against the property until they are paid. The prime contractor has a direct contractual agreement with the homeowner. If the contractor isn't paid, he can sue on the contract and record a mechanic's lien. But subcontractors, workers and suppliers don't have a contract with the homeowner. A problem occurs when the homeowner pays the prime contractor for all or some of the work, but the prime contractor fails to pay the laborers, subcontractors and materials suppliers that were hired to do portions of the job. If they are not paid, often their only recourse is to file a mechanic's lien on the home. What happens when a lien is filed against your property? A lien can result in a range of problems: Foreclosure, if the homeowner doesn't pay off the lien or cannot afford to do so Double payment for the same job--if the homeowner pays the prime contractor--and then has to pay the sub or supplier who wasn't paid by the prime A cloud on the title of the property, which can affect the homeowner's ability to borrow against, refinance, or sell the property (Source: Utah did not want to remove the protection that lien laws offer above and beyond regular contract law. However, the state did want to allow owners to have more transparency regarding who is working on a given construction project. With the passage of House Bill 136 and the subsequent 2

3 creation of the State Construction Registry, property owners can now know which subcontractors and suppliers have provided labor and material on their project and work directly with them to make sure they are paid. During the 2004 Utah legislative session, House Bill (HB) 136, Electronic Filing of Preliminary Lien Documents, was passed and put into law. The new legislation modified the Mechanics Lien statute and called for the development of a standardized, online system for filing and managing the three types of construction project notices for the state of Utah: Notices of commencement Preliminary notices Notices of completion This new, standardized, online system, called the State Construction Registry (SCR), launched May 1, 2005 for commercial construction projects and November 1, 2005 for residential construction projects. With the passage of House Bill 136, the requirements for filing preliminary notices have changed, and the new process for preliminary notices alters the way lien rights are administered. Now, subcontractors and suppliers must file preliminary notices through the SCR in order to preserve their lien rights in the event that they do not receive payment for their services and/or materials. House Bill 136 represents completely new legislation; no other state has attempted to centralize the construction industry in this way. Furthermore, the statute creates a service that is completely run by a third-party vendor. DOPL oversees the SCR for the State, but functionally there is no state agency which currently oversees the construction industry; thus the state of Utah has outsourced the entire process to a third party vendor. These changes to Utah s Mechanics Lien statute in conjunction with the creation of the State Construction Registry allowed for more people to see who is working on any given project and, more importantly, who has lien rights. The following information is available online in the State Construction Registry: Provides general contractors and property owners complete project knowledge and access to complete project participant information Enables general contractors and property owners to protect themselves from unnecessary risk and ensure that all contracting parties receive payment Provides subcontractors and suppliers a standard process for preserving lien rights and thus ensure timely payment for services rendered The SCR is easier and quicker than the old system and provides more transparency. 12. Describe the specific activities and operations of the program in chronological order. The following diagram and step-by-step instructions illustrate how the SCR works. Please see Step-by-Step: 1. General contractor applies for a building permit with the permitting office in the jurisdiction of authority. The State Construction Registry receives electronic building permit information from each jurisdiction s building permit office and generates notice of commencement (for public projects, general contractors will have to file the notice of commencement in the SCR themselves) 3

4 2. Subcontractors and suppliers may login to the State Construction Registry to view project information and to submit preliminary notices to preserve lien rights 3. Property owners may login to the State Construction Registry to view all project participants and preliminary notices. They may also sign up to receive automatic notification of new preliminary notices and the notice of completion. 4. When a general contractor files a notice of completion, the State Construction Registry will automatically notify all project participants (includes subcontractors and suppliers) of the filing 13. Why is the program a new and creative approach or method? The State Construction Registry represents innovation in the three key ways: SCR creates a standardized process for creating a public notice which provides transparency to all interested parties and preserves lien rights for the filer. Prior to the HB 136 and the creation of the State Construction Registry, the lien process was not visible to property owners until after a lien had been filed. Now, Utah s new lien regulations require project participants to file a preliminary notice within 20 days of commencement of work, or delivery of materials, to preserve their right to lien the property if they aren t paid. A preliminary notice alerts property owners (and others) of a party s involvement in the project and their expectation of payment. Previously, preliminary notice process was optional and required participating parties to send certified letters to property owners and general contractors in order to preserve lien rights. Sending multiple certified letters for every project is time-consuming and costly. Thus, the SCR system streamlines the newly mandated process by providing a simple and quick filing solution in a single web-based form. Most significantly, however, this standardized process is creative and innovative because it marks the first time a state has addressed issues with lien laws in this manner: Utah is the first state to solve the issue of transparency on a construction project with an online project bulletin board. SCR centralizes construction project information directly on the Internet The state of Utah implemented SCR so that industry participants could take advantage of Internet technology and its ability to improve communication, streamline filings, and facilitate access to large volumes of data. Filings and participant information are no longer confined to filing cabinets spread across the state, and project information is now easily accessible 24 hours a day, 7 days a week. Again, this is the first time a state has created such universal access to construction project information. Utah completely outsourced the initiative Prior to the launch of the SCR, no state agency oversaw construction notices. Now, the SCR system allows for the oversight of construction notices with minimal agency involvement. A third party handles the management and administration of the entire program, both the online and offline components. Additionally, the SCR was developed under a self-funded arrangement without the appropriation of tax dollars. 4

5 14. What were the program s start-up costs? (Provide details about specific purchases for this program, staffing needs and other financial expenditures, as well as existing materials, technology and staff already in place.) Initially cost estimates included the following project aspects: System Specification & Design User Interface Design Development Project Management Industry Training & Education Customer Support Ongoing Maintenance and Development Hardware & Hosting The costs associated with training & education required special attention. The SCR system would be completely new to the industry and would necessitate significant time and resources to educate the various stakeholder groups (general and sub contractors, suppliers, lenders, property owners, etc). Users not only needed instructions on how to use the system; they also had to be informed that they had to use the system if they wanted to preserve their lien rights. Furthermore, the critical time before, during, and after implementation would require significant customer support, and HB 136 specified that the third party (and not The Utah State Division of Occupational and Professional Licensing) was responsible for fielding industry questions and concerns. In addition to initial development, the following personnel would be needed ongoing: Developer User Interface Developer Project Manager Marketing & Training Associate Customer Support 1 FTE with overflow backup It is estimated that the program start-up costs (including dedicated personnel for 6 months prior to the launch and for 3-6 months after the launch) fell between $275,000 - $300,000. Because of the nature of the public/private partnership between the third party and the state of Utah, costs were kept well below market value. By assessing a filing fee to system users, the third party vendor covered the entire cost of the State Construction Registry without charging the state. 15. What are the program s annual operational costs? The State Construction Registry costs the state of Utah nothing. 16. How is the program funded? The third party absorbed the initial start up costs for the SCR in exchange for assessing transaction fees. To set pricing, reports and statistics on the number of construction projects in Utah were reviewed and research was conducted with local companies to determine filing volume estimations. Using these estimates, a transaction fee was established (pricing information is available at and the decision was made to take on the project at no cost to the state. The Utah State Division of Occupational and Professional Licensing (DOPL) oversees the system, but DOPL s investment in terms of time and resources is manageable. 5

6 The State Construction Registry centralizes industry filings and has dramatically improved project communication and participant disclosure. The SCR system has transformed the construction industry and has set a standard for other states to follow all at no cost to Utah and well below the cost of a simple certified mailing. 17. Did this program require the passage of legislation, executive order or regulations? If YES, please indicate the citation number. Yes. House Bill 136, which passed in 2004, contained the initial changes to the Mechanic's Lien Code. This bill called for the development of the SCR system and outlined the foundation of the new notification process and requirements. House Bill 136 can be read in its entirety at: Adjustments and improvements to the process and requirements were made in House Bill 105 (2005) and House Bill 160 (2006). House Bill 105 can be accessed at: House Bill 160 can be accessed at: What equipment, technology and software are used to operate and administer this program? The SCR website was written using the java language and stores the information in a MySQL database. The website is located in two datacenters, one in Salt Lake City and a failover site in Colorado. 19. To the best of your knowledge, did this program originate in your state? If YES, please indicate the innovator s name, present address, telephone number and address. Yes, the State Construction Registry originated in Utah, growing out of many discussions between construction industry leaders over an extended period of time. Representative Mike Morley of the Utah House of Representatives initiated the legislation that created SCR, and Darrel Bostwick, a leading lien attorney, helped author the legislation. Representative Morley s contact information is (801) ; mikemorley@utah.gov and Darrel Bostwick can be reached at darrel@bostwickprice.com and at (801) Are you aware of similar programs in other states? If YES, which ones and how does this program differ? Other states are working to implement similar Construction Registries, using Utah as a model. Although the technology transfers easily from state to state, each state has different lien laws, meaning each registry may work slightly differently. 21. Has the program been fully implemented? If NO, what actions remain to be taken? Yes, Utah s State Construction Registry has been fully implemented. 22. Briefly evaluate (pro and con) the program s effectiveness in addressing the defined problem[s] or issue[s]. Provide tangible examples. The Utah State Bar recently acknowledged the effectiveness of HB 136 and SCR in a journal article: One of the many benefits of this new law should be revealed in the near future when contractors, subcontractors, and suppliers see an increase in timely payments, while lenders, sureties, and the general public enjoy protection from and a reduction of unjustifiable liens and fraud. However, benefits of this new law do not stop here. Future benefits may include enhancements to the State Construction Registry such that it will become a useful tool in preventing "unlicensed or uninsured" 6

7 contractors from obtaining building permits, thus, reducing "poor construction practices and construction fraud." This new law is only the first step of better things to come. (Source: Given that the State Construction Registry was created to increase construction project visibility so that property owners can avoid liens and sub-contractors and suppliers can make their presence known on a project (thereby ensuring payment), the biggest indication of SCR s success is the fact that only a handful of liens have been filed on projects listed in the SCR since the program s full launch in November What this means is that property owners are avoiding unwanted liens and/or foreclosures and sub-contractors and suppliers are getting paid in a timely manner. Additionally, the cities and counties have a very high level of involvement with the SCR by automatically sending in their building permits. This is especially true in areas with high growth rates such as Salt Lake County, Utah County, Davis County and Washington County. It is too soon to estimate how many liens SCR may have prevented. The largest con is that subcontractors and suppliers who want to protect their lien rights are required to be more organized and spend more time upfront stating that they are part of a project. It is estimated that these users spend three to five minutes per filing. 23. How has the program grown and/or changed since its inception? General contactors, sub-contractors, and suppliers do not have to use the State Construction Registry; however, failure to file notices through SCR automatically denies project participants the right to lien a property. In other words, if contractors and suppliers want to preserve their lien rights, they must file notices through SCR. Each month, the number of suppliers, general and subcontractors choosing to use SCR grows. Moreover, in response to feedback from the construction industry, DOPL, in conjunction with the third party developer, has enhanced the features of the State Construction Registry to make locating a project easier. During the first six months after SCR s initial launch (May to November 2005), the cities and counties submitted about 1500 building permits each month. During the last six months (October 2006 to March 2007), the cities and counties have been submitting 4,200 building permits to the SCR each month. Additionally, the Preliminary Notices filed by subcontractors and suppliers has grown from 172 in the first month to 12,000 notices filed each month. These numbers indicate that more and more municipalities and sub-contractors/suppliers come into compliance with HB 136 every month. Simply stated, as more construction projects get added to SCR and more subcontractors/suppliers use the system to make their presence known, the number of potential liens filed against unsuspecting property owners drops. 24. What limitations or obstacles might other states expect to encounter if they attempt to adopt this program? Lien laws vary state to state, which means the exact filing procedures that drive the SCR in Utah won t necessarily be the same in, say, Montana or Mississippi. Crafting legislation that modifies lien laws and filing procedures for construction projects will be the most delicate part of implementing SCR in another state. The technology behind SCR easily transfers from state to state. 7

8 2007 Innovations Awards Program Program Categories and Subcategories Use these as guidelines to determine the appropriate Program Category for your state s submission and list that program category on page one of this application. Choose only one. Infrastructure and Economic Development Business/Commerce Economic Development Transportation Government Operations Administration Elections Public Information Revenue Health & Human Services Aging Children & Families Health Services Housing Human Services Human Resources/Education Education Labor Management Personnel Training and Development Workforce Development Natural Resources Agriculture Energy Environment Environmental Protection Natural Resources Parks & Recreation Water Resources Public Safety/Corrections Corrections Courts Criminal Justice Drugs Emergency Management Public Safety Save in.doc or rtf. Return completed application electronically to innovations@csg.org or mail to: CSG Innovations Awards 2007 The Council of State Governments 2760 Research Park Drive, P.O. Box Lexington, KY Contact: Nancy J. Vickers, National Program Associate Phone: Fax: Attn: Innovations Awards Program The Council of State Governments nvickers@csg.org This application is also available at in the Programs section. Deadline: April 2,