1.        Require every project in the state to be identified on the State Construction Registry (“SCR”) by either a building permit number or a property tax ID parcel number.  These unique numbers are designated to be the “project identifier.”

2.       Require subcontractors and suppliers to post preliminary notices  containing the project identifier on all private projects, even when there is no Notice of Commencement to attach the preliminary notice to.  In such instances, the subcontractor or supplier is charged with the responsibility of investigating to determine the project identifier and to then include that information in its preliminary notice. 

3.       Provide that any subcontractor who fails to post a preliminary notice containing the project identifier will lose its mechanic's lien rights (and hence its ability to be paid in many instances), even when the parties holding the construction funds (ie. the owner, lender, general contractor) have not registered to receive the preliminary notice on the SCR, and even when no Notice of Commencement exists on the SCR.

The bill is detrimental for the following reasons:

1.       Requiring subcontractors and suppliers to research and post the project identifier is the most inefficient thing the state can do, as these are the only parties in the construction process who don’t already possess such information.  Subcontractors and suppliers will have to spend significant time and money researching the building permit and tax ID number.  This will be burdensome to large suppliers, who will likely have to employ people just for this purpose, due to their volume of business.  Some small subcontractors, on the other hand, will undoubtedly find the process too difficult and will proceed without filing preliminary notices, which will make the SCR less complete, rather than more complete.  It will also create an additional and unnecessary burden on cities and counties that are issuing building permits such that they will be forced to employ personnel to handle these increased requests for building permit information that has already been provided to the owner or general contractor.  The increased burden will put added pressure on the budgets of the cities and counties issuing building permits, thereby accelerating the need to increase taxes or cut current funding.

2.       Owners and Contractors already have documentation in their possession containing either the building permit number or the tax ID number for the property.  They can much more efficiently enter this information and should be required to do so.  Requiring them to sign up and enter this information will not only make the SCR more complete in an efficient way, but it will also ensure that, when preliminary notices are posted by subcontractors, the notices will actually be sent to those persons who need to see the preliminary notices (ie. the owner and/or general contractor).  Until the owner or general contractor register on the project with the SCR and supply their e-mail addresses, they will not receive copies of any of the preliminary notices posted by subcontractors and suppliers.  This does not facilitate the payment of subcontractors and suppliers without the need for liens and lawsuits, as intended by the enactment of the SCR.

3.       The effect of this bill is, in essence, to place the burden of creating the Notice of Commencement on the subcontractor and supplier.  When a subcontractor submits a preliminary notice with a project identifier that is not already in the SCR’s database, the SCR will presumably create a project for that identifier, using the preliminary notice as a Notice of Commencement.  This is a significant departure from traditional law, which has always provided that the subcontractor did not need to post a preliminary notice until a valid Notice of Commencement was filed by others.  Before the enactment of the SCR, notices of commencement were filed with the county recorder’s office.  It was the general contractor’s responsibility to record the Notice of Commencement (which was appropriate, since he was the only party with all the project information) and the subcontractors didn’t have to serve preliminary notices until the Notice of Commencement was recorded.  The filing of the Notice of Commencement was the contractor’s way of informing the subcontractors on the project that he wanted them to identify themselves.  To now require the subcontractor to create the notice of commencement is unprecedented in Utah.

4.       The effect of this bill is actually to put more money into the hands of title companies at the expense of small business by stripping subcontractors of their lien rights, and hence their ability to be paid in many instances.  Title companies do not like mechanics liens, as they often end up having to pay mechanics lien claims.  Title companies are paid an additional premium to insure against mechanics liens.  If they can eliminate a large portion of mechanics liens, they can keep the premium and pay fewer claims, resulting in more profit.   In my opinion, this bill is more about finding a way to invalidate more mechanics liens than it is about making the SCR more effective and usable.  If we wanted to make the SCR more usable and effective, we would be trying to find ways to involve the people at the top of the construction chain (ie. owners and general contractors) in the SCR registration process so they would see who was working on the project and get them paid without litigation.  Owners and general contractors are in the best position to accurately enter the project information so that everyone can find the correct project.  Until this happens, it seems we are just trying to find ways to place the risk of loss on the small business owner, for the benefit of the project’s owner/contractor/insurer.