Lawmakers who are still gearing up for the real business of the 83rd Texas Legislature got an earful from construction executives from around the state on TCA’s lobby day. The Texas Construction Association’s members have several legislative priorities, including a fair solution to the problem of misclassification or payroll fraud.
Raymond Risk, CEO of the group, told Construction Citizen that they hope the legislature will address misclassification in a balanced way. He and others are encouraged by the fact that the Texas Workforce Commission voted to support legislation that would impose fines on payroll fraud committed on government contracts. There are some within the industry who think any new law should be broader than that. There are others who want to see no new regulations passed whatsoever.
Risk said many TCA members have complained that they’re being significantly underbid by unscrupulous companies that essentially pretend their employees are subcontractors – something they do intentionally to avoid payroll taxes. He pointed to the UT research unveiled last week that shows more than 40% of construction workers in Texas are misclassified.
“Those that don’t properly classify their workers are at a large advantage when they’re bidding if they don’t have to pay taxes for the people on their project,” Risk said. “We want to encourage them to comply with the law and maybe they need a little more stimulus to get them to do so.”
Consolidated Insurance Program Standards (CIPs). Known typically as Owner Controlled or Contractor Controlled Insurance Programs, the use of these “Wrap-Up” programs is widely used by the industry in Texas. While possibly a money saver for the Owner, the CIPs are plagued by poor administration, gaps in coverage or lack of coverage, insufficient limits, questionable safety and back to work programs, and auditing practices that cause subcontractor's retainage to be withheld even longer than usual. In many cases, the exposure a subcontractor faces working on a CIP is unknown. In 2009, the indemnity bill that passed included language that requires a three-year minimum coverage in a CIP for completed operations. The Legislature should establish minimum standards for CIPS.
Lender Notice of Default. A lender should be required to give subcontractors and prime contractors notice of an owner's default on a construction loan. This notice will allow for work to be suspended until the default is cured. This will reduce the construction team’s exposure to enriching a lender without hope of getting paid.
Lien Law Reform. Texas has the most complicated lien laws of any of the 50 states. During the current legislative interim, the House Business & Industry Committee will review specific problematic provisions in the lien laws and will make recommendations to the Texas Legislature regarding needed changes to the lien laws for consideration in the 2013 Session.
Retainage Trust Fund. An owner should be required to set aside in a separate escrow or trust account the retainage amount not paid each month for construction costs during the life of a project to ensure that contractors and subcontractors would be paid the retainage to which they are entitled.
One of the men who attended the TCA’s lobby day luncheon said he was a teacher and a plumber – “Man, these folks have no idea what we’re up against,” he said. “The schools do not put the right focus on the skilled trades whatsoever. I'm hoping that changes." That man and others made the rounds at the capitol, sitting down with their elected representatives to make sure they’ve heard their concerns. Before they did, Raymond Risk had words of advice: “just make sure that they (the lawmakers) know that they’re here in Austin to represent you and your business. If you live in their district: great. If you don’t, but your business is in their district, that’s great, too.”
“Don’t just go by the talking points we’ve put together for you, these people need to hear your personal stories. Make sure they understand that the decisions they make at the capitol affect how you do business on a daily basis,” Risk said.