We recently noted that North Carolina mechanics lien law may be changing again, by “clarifying” the requirements surrounding the Notice to Lien Agent. That is not the only potential modification to North Carolina bond and mechanics lien law, to be introduced, however. House Bill 1101 modifies and clarifies the law surrounding when a project requires contractors to secure a bond, and would provide more protection to the potential bond claimants.

Current Bond Requirements

N.C.G.S. Sec. 44A-26 sets forth the requirements outlining which North Carolina projects require contractors to provide a bond, and to which specific contractors the requirements pertain. As the law currently stands, a bond is mandated on public projects in North Carolina “when the total amount of construction contracts awarded for any one project exceeds three hundred thousand dollars ($300,000).” On those projects, a bond is required from “any contractor or construction manager at risk with a contract more than fifty thousand dollars ($50,000). The $300,000 figure may be raised to $500,000 for contracts awarded by North Carolina “State departments, State agencies, and The University of North Carolina and its constituent institutions”.

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As the law currently reads, the bond is “required by the contracting body”. While this makes sense, it opens the door a little bit and provides some wiggle room for certain projects and contractors to attempt to avoid the bonding requirements. A “contracting body” is specifically defined by North Carolina law as a “department, agency, or political subdivision of the State of North Carolina which has authority to enter into construction contracts”. When a construction project occurs on public property that is leased, there may be no “contracting body” requiring a bond. HB 1101 provides clarification, and modifies the statute to expressly consider these leased projects.

Proposed Revisions in HB 1101

The proposed revisions set forth by HB 1101 clear up the potential problem posed by projects on leased property that would other wise be subject to the bonding requirements of N.C.G.S. Sec. 44A-26. The changes specifically state that:

No lease or other contract provision shall be effective to exempt, from the requirements of this Article, a project otherwise subject to the [bonding requirements], and any contract provision that purports to do so is void and unenforceable as against public policy.

Further, the revised statute goes on to state that any person who leases property from a contracting body is mandated to require bonds just as a contracting body would, provided that the contracting body required the project, and the project would have mandated that the contracting body require a bond.

These changes would be effective on October 1, 2014 and apply to leases or other contracts entered into on or after that date.