Yesterday, Tennessee passed the Construction Industry Payment Protection Act (CIPPA) (SB2681/HB2706), which brings broad amendments to Tennessee’s lien laws, the Truth in Construction Act, the Prompt Pay Act, and Construction Defect statutes. Despite a shortened session that focused primarily on the budget and COVID-19 related bills, the legislature took time to pass amendments sought by a unified coalition across the industry. The amendments were necessary to provide clarity to, and uniformity between, the laws affecting construction and the relationships between owners, lenders, general contractors, subcontractors, and suppliers.
As we discussed last spring, Senator Jack Johnson and Representative Ron Gant introduced a bill in 2019 that would have made numerous changes to the construction statutes. One provision of that bill invalidated and prohibited contingent payment clauses in construction contracts and was opposed by a number of industry groups. However, as is frequently seen on projects through the state, the industry came together and formed a coalition to discuss amendments that would benefit the industry as a whole. Representatives of general contractor and subcontractor trade organizations, along with input from the American Institute of Architects, Tennessee Society of Professional Engineers, and American Council of Engineering Companies, led the charge to craft a bill that brought internal consistency between the statutes and clarified the rights of contractors, architects, engineers to payment.
In addition to clarifying the right to payment, the statute adds a stop work procedure and allows contractors and designers to demand adequate assurances of payment when they are not paid. Additionally, CIPPA removed a provision of the Prompt Pay Act that exempted banks from its application, which previously left contractors without a remedy to recover retainage and other sums held in trust by the lender. This legislation also explicitly makes the construction statute of response applicable in arbitration, closing a loophole in the prior law. Finally, the act provides that limitations of liability in the construction context do not violate public policy, a significant hurdle to the enforcement of these provisions.
I was fortunate to be invited to serve as a legal advisor to the coalition and assisted in drafting the amendments. Over the next few weeks, we will discuss how the amendments protect contractors and provide security for those amounts due contractors as payment for the labor, materials, and services due on a construction project. In the interim, a white paper discussing the changes may be found here.
Photo: Karen Mardahl