Tennessee Legislative Updates in the Construction Industry

June 27, 2019
Firm Publication

With the close of the latest Tennessee legislative session, this Construction Law Alert discusses newly enacted statutes and significant legal issues affecting the construction industry in Tennessee. The goal is to provide updates throughout the year on the statutes, court decisions and other legal developments impacting the construction industry in the state and beyond. Watch for future installments as news develops.

Repealing Owners’ Remedies for Invalid Liens

Effective April 5, 2019, Governor Lee signed Public Chapter 142, which repealed Tenn. Code Ann. § 66-21-108.  Section 108 provided that if an owner successfully challenged the validity of a lien, they could recover their attorney’s fees, reasonable costs incurred in the challenge, up to $100,000 in liquidated damages, and any actual damages.  This created a significant risk of liability for general contractors and subcontractors in the event their recorded mechanic’s or materialmen’s liens were later found to be invalid.  Since its enactment in May 2018, Section 108 faced substantial pushback from the construction industry, and the Tennessee legislature acted quickly in response to its concerns.

Continuing Education for Residential Contractors

Effective January 1, 2020, new provisions to Tenn. Code. Ann. § 62-6-112, addressing contractor license classifications, will go into effect.  The newly added provisions require general contractors engaged in residential construction and licensed on or after January 1, 2009, to complete eight hours of continuing education every two years.  The state board for licensing contractors is required to approve the continuing education and must offer options both online and in person.  Significantly, active membership in a trade association, if proof of such membership is filed with the board, constitutes four hours of continuing education annually, and could cover the biannual requirement.

Electrical Inspectors Now Required to be Certified

Under newly enacted Public Chapter 224, municipal, county, or state-employed electrical inspectors entering employment after January 1, 2020, will have to be certified by the Tennessee State Fire Marshal.  Going forward, all electrical inspectors, regardless of their date of employment, will have to recertify every three years.  Under the prior statute, only plumbing and mechanical inspectors had to be certified.  The Tennessee legislature also expanded the allowable certifying organizations for electrical, plumbing and mechanical inspectors from only the ICC or National Fire Protection Association to any nationally or internationally recognized certifying organization.

Utility Districts and Authorities Can Now Retain Construction Managers

In Public Chapter 225, the Tennessee general assembly expanded the use of construction managers on public contracts.  Previously, the use of construction managers was limited to a county, city, metropolitan government, or town.  Under the revised law, utility districts and utility authorities are also authorized to contract with construction managers for new projects or additions to existing facilities.

Senate Defers Bill Significantly Enhancing Subcontractor Lien and Payment Rights

The Tennessee Senate Commerce and Labor Committee deferred further action on a bill that would increase the time for subcontractors and suppliers to record and enforce mechanic’s and materialmen’s liens from 90 days to 12 months. The same increase would apply to the time within which subcontractors and suppliers must serve a notice of nonpayment on the owner and prime contractor. With respect to release of retainage, the bill would decrease the time owners have to release retainage to prime contractors from 90 days to 30 days after project completion (generally speaking) and require prime contractors and subcontractors to pay that retainage downstream within 10 days of receipt. Perhaps most significantly, the bill would prohibit the use the “pay-if-paid” provisions in contracts between prime contractors and subcontractors. These commonly used provisions make payment from the owner a condition precedent to the prime contractor’s obligation to pay its subcontractors and suppliers. The Senate will take the bill up again during the 2020 session.

If you have any questions about how these statutes will impact your company, please contact one of the authors or any member of the firm’s Construction Contracts & Litigation Practice Group.