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It was a very eventful legislative session this year and ASA of Arizona was hard at work pursuing changes in State Statute to bring proportional liability to private construction contracts for the well-being and protection of our members’ businesses.
There was much activity, amendment, and misinformation circulated about SB 1271 as it worked through the Arizona Senate and House of Representatives. In the end, SB 1271 was signed into law by Gov. Ducey to form a statutory study committee.
ASA leaders and Arizonans for Fair Contracting feel it is critical to share information to clarify what has become of SB 1271 and what the study committee’s task is. The following is a detailed explanation prepared by our lobbyist team at DeMenna & Associates.
As you read I want you to remember that the work the study committee will address has no carve outs. The review of the issue is comprehensive and applies to all private construction contracts, commercial and residential.
SB 1271 – The Construction Liability Apportionment Study Committee (CLASC)
The 53rd Legislature, 2nd Regular Session adjourned Sine Die at 12:26 AM on May 4, 2018.
In total, the Legislature sent Governor Ducey 369 bills, of which the Governor signed 285. Unless otherwise noted, bills signed by the Governor become effective on August 3, 2018.
SB 1271 (now Laws 2018, Chapter 336) was signed by Governor Ducey on May 16, 2018, and is also effective on August 3, 2018.
In its original form, SB 1271 sought to put an end to overreaching indemnity clauses that hold contractors responsible for the negligence of others. Existing law, which has been on the books for over 20 years, prohibits this unfair practice in public projects, and SB 1271 would have mirrored that law in private projects.
The introduced version of SB 1271 included a legislative intent clause that clearly explained the objective of the bill:
The legislature finds that:
- Financial responsibility is a significant motive in preventing accidental losses and that the ideal system is one in which general contractors and subcontractors are all held financially responsible for the accidental losses they cause.
- Construction workplace injuries and fatalities represent a disproportionately high share among the workforce and, as a result, contractual terms that shift loss in the construction industry have a much greater potential to cause significant harm.
- In recent years, construction businesses have begun to use contract provisions to either shift the financial responsibility for their negligence to others or prevent the responsible party from being determined. The legislature also finds that this system can result in the assignment of responsibility to innocent parties while the negligent parties are often not held accountable, and that this often leads to the misallocation of valuable and limited resources and ultimately generates increased costs that add little or no value to the consumer or the end product. The misallocation contributes to both a shortage in the contractor workforce and cost‑prohibitive insurance policies, which could cause unnecessarily inflated housing prices in this state.
As a result of the findings listed in subsection A of this section and for additional reasons, it is the intent of the legislature to extend the provisions governing proportional liability in public contracting to private contracting. This will ensure fairness in construction contracting between general contractors and subcontractors and will create an economic climate that promotes safety in construction, fosters the availability and affordability of insurance and reduces the legal costs associated with construction claims.
SB 1271, however, was opposed by several organizations, including the Homebuilders Association of Central Arizona, Arizona Public Service Company, the Phoenix Chamber of Commerce, and the Intel Corporation.
In light of this opposition, the bill’s sponsor, Senator Karen Fann, and proponents of SB 1271 agreed to amend the bill to form the Construction Liability Apportionment Study Committee (CLASC).
The CLASC will be comprised of six legislators – three members of the Arizona State Senate and three members of the Arizona House of Representatives. The CLASC will hold public hearings over the summer, and is statutorily required to produce recommendations to the Governor, the President of the Senate and the Speaker of the House to address the following:
- The use of an indemnity provision in construction contracts;
- The allocation of liability based on degrees of fault;
- The assignment of financial responsibility to negligent parties;
- The opportunity to address and remedy alleged construction defects prior to litigation;
- The frequency of construction defect litigation; and
- The affordability of insurance costs associated with construction claims.
SB 1271 also allows the CLASC to conduct fact-finding tours and take testimony from those who can assist the CLASC in producing its recommendations. The CLASC’s final recommendations must be submitted by December 15, 2018.
Through the CLASC’s efforts, Senator Karen Fann and proponents of SB 1271 will work to identify consensus solutions that will benefit Arizona contractors, large and small.
By closely studying the issues and working with stakeholders to solve these problems, we are confident that the CLASC will produce the recommendations necessary to help ensure fairness between general contractors and subcontractors, create an economic climate that promotes safety, foster the availability and affordability of insurance, and reduce frivolous construction claims.
We invite you to share this overview of CLASC with your industry colleagues and urge anyone who has not already done so to sign up as a supporter of Arizonans for Fair Contracting at www.azfaircontracting.com. We will continue to provide you with updates on the CLASC’s progress over the coming months. If you have any questions regarding the CLASC, please do not hesitate to contact our office at (602) 274-8979.
Your continued support of ASA and industry efforts on behalf of all trade contractors is greatly appreciated.