Chasing Out-of-state Work May Cost Unsuspecting Contractors

Many Idaho contractors are seeking work in other states as a result of the current local construction market and opportunities in other areas. Energy related construction in states like North Dakota has attracted contractors from all over the country. Although these states offer substantial business opportunities, Idaho contractors should be aware of potential problems that can arise when performing work in other states.

Typical statutory and regulatory schemes that impact contractors include licensing and registration requirements; registration requirements for foreign companies to do business in-state; insurance, bonding, and workers’ compensation requirements; sales and use tax at a state and local level; prevailing wage and local preference labor requirements; and ability to recover amounts owed pursuant to mechanic’s liens, payment bonds, and stop notices. Because these requirements vary from state-to-state, contractors should become familiar with local laws before seeking out-of-state work.

Due to its booming construction market, North Dakota provides a good example of some potential issues awaiting Idaho contractors when performing interstate work. The following differences between Idaho and North Dakota law illustrate only some of the relevant issues that exist between the laws of each state.

As with Idaho’s contractor registration requirement, North Dakota requires that all contractors working in the state obtain a contractor’s license before engaging in the business of a contractor on any project exceeding $2,000.00 in value. In Idaho, certain contractors, such as licensed electricians and plumbers, are exempt from contractor registration when engaging in their licensed trade. In contrast, North Dakota requires that licensed trade contractors obtain both a contractor’s license and their respective trade license. Additionally, North Dakota’s licensing statute provides four license categories based on contract value and contractors cannot perform work on contracts exceeding the value of the license. Idaho has no such requirement for private construction projects. Idaho contractors should be aware of these and similar technical nuances to ensure compliance with North Dakota’s licensing requirements.

The potential penalties for North Dakota’s licensing requirements also differ from Idaho. In both states, performing work without the proper registration or license may result in a misdemeanor. In North Dakota, however, engaging in work without the proper license subjects a contractor to North Dakota’s consumer protection laws. Thus, in the event of a lawsuit, failure to comply with the licensing requirements could subject a contractor to liability up to three times actual damages and the party bringing the action would be entitled to recover all attorneys’ fees and costs. Clearly, failure to comply with North Dakota’s licensing requirements could become a costly error.

In addition to contractor licensing, the differences between the lien laws in Idaho and North Dakota illustrate the need for care before expanding business outside of Idaho’s borders. These differences are both technical and substantive in nature.

Idaho and North Dakota both require that a contractor record its claim of lien within ninety (90) days after completing work. Unlike Idaho, North Dakota also requires that a contractor give the owner of real property written notice of its intent to record a lien claim at least ten (10) days before recordation. Without knowledge of this requirement, an Idaho contractor would be precluded from timely recording its claim of lien by attempting to file within the last ten (10) days. A claim of lien filed in North Dakota must also contain the dates of the contractor’s first and last day of work on the project site. This requirement is absent from Idaho’s lien statute.

In addition to technical differences between the lien laws in Idaho and North Dakota, construction lenders and property owners are afforded far greater rights under North Dakota’s laws. Unlike Idaho, a mortgage securing a construction loan in North Dakota has priority over a mechanic’s lien even when it is recorded after visible work begins on the improvement. During periods of depressed property values, this could potentially render a contractor’s lien right valueless. Further, in contrast to Idaho’s lien laws, which provide costs and attorneys’ fees to successful lien claimants, North Dakota law requires that a court award an owner costs and reasonable attorneys’ fees for successfully contesting the validity or accuracy of a lien claim.

When working in states like North Dakota, which favor the interests of lenders and owners, Idaho contractors should more aggressively negotiate contractual payment provisions, require strict compliance with such provisions, and seek further security when possible.

While these are only some of the differences between Idaho and North Dakota laws, they indicate the potential cost of performing work in other states without sufficient knowledge. Make sure you consult with your attorney and have him or her investigate the local laws pertinent to your company’s business before seeking work in another state.

(Published in the Idaho Business Review, October 2012)

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