eNews May 10, 2018
In the News
May 10, 2018
New Law Will Benefit Iowa Suppliers
Mechanic’s lien and bond laws across the U.S. are often difficult to interpret and can many times lead you to your attorney’s office for clarification. It is also not uncommon that, due to the length of the state statutes, parts of the law are forgotten or unknown. Some of the laws currently in place have been unchanged for decades if not centuries. Such is the case in Iowa, which is updating its code to reflect the changing times.
Gov. Kim Reynolds signed into law Senate File 2229 in April, which takes effect July 1. This change repeals Section 572.3 of the Iowa Code (Anti-Collateral Provision). Under current law, “No person shall be entitled to a mechanic’s lien who, at the time of making a contract for furnishing material or performing labor, or during the progress of the work, shall take any collateral security on such contract.” According to a white paper from Davis Brown Law Firm in Iowa, the Anti-Collateral Provision was put in place in 1851.
“This change is a much overdue correction to an archaic rule,” said Kevin Seltzer of Seltzer & Seltzer LC near St. Louis. The new law is fairer for material suppliers working on construction projects in Iowa, he added. “Typically, rules are changed for insurance companies and big developers, so it’s nice to see those on the other side of the construction project being helped out.”
It is not enough that creditors know their customer, they must also know their rights and the laws governing them. The Iowa law stated that a lien claimant has no right to lien on a commercial or residential project if they have a personal guarantee or other collateral security in their credit application or contract. “When the Anti-Collateral Provision is raised against the lien claimant, it has drastic consequences as the claimant loses its mechanic’s liens rights, generally without the claimant even realizing that a contractual provision relating to collateral could have such a consequence,” noted the white paper.
This type of provision is rare in the U.S. Georgia, New Jersey and Pennsylvania still have similar anti-collateral provisions, according to Davis Brown. The provision has “been subject to little scrutiny by Iowa courts,” but it did make its way to the Supreme Court of Iowa nearly 100 years ago in Perfection Tire & Rubber Co. v. Kellogg-Mackay Equipment Co., stated the white paper. Even in 1922, the state’s high court called the Iowa statute “peculiar” since surrounding states did not have the same provision.
While unique, it is important to remember that it is still the law, at least for a couple more weeks.
—Michael Miller, managing editor
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Fast-Approaching GDPR: US, UK Compliance is Almost Split
Businesses in the United States and United Kingdom are scrambling to comply with the upcoming Global Data Protection Regulation (GDPR) that will take effect in two weeks. GDPR will give European citizens complete control of their businesses’ personal storage and processing data. Data controllers and processors who do not comply will face “stiff fines” after the May 25 deadline, noted the regulation’s website.
According to the latest GDPR compliance survey, almost half of U.S. and U.K. businesses say they won’t be compliant by the deadline. The survey, released on April 30, was sponsored by international law firm McDermott Will & Emery and conducted by independent data protection researcher Ponemon Institute. More than 1,000 companies participated in The Race to GDPR report, 90% of whom said they will be subject to the new regulation.
“Companies are required to comply with GDPR if they offer goods or services or track data subjects in the EU,” the report stated.
After businesses were asked when they expected to be in compliance with GDPR, 40% of respondents said they would be ready after the deadline—this fell just below the 42% who reported compliance by May 25. The remaining respondents said they were already compliant (10%) or were unsure when they would be compliant (8%). Among the nine industries that participated in the study, financial services was the most prepared at about 63%, while retail was on the lower end of the spectrum at almost 43%.
“Smaller companies and very large companies see themselves as less likely to be in compliance with GDPR by the effective date than do mid-size companies,” the report stated. “… Companies are concerned about the risk of noncompliance with certain GDPR obligations.”
At the height of their concerns are the financial ramifications. The GDPR website clarifies fines at the lower and upper levels, which are determined by the nature of the infringement. At the lower level, companies can be fined up to 10 million euros or 2% of the worldwide annual revenue of the prior financial year, whichever is higher. This pertains to infringements of controllers and processors as well as the certification and monitoring bodies.
Fines of up to 20 million euros or 4% of the worldwide annual revenue of the prior financial year, again, whichever is higher, comes at the upper level with additional infringements of basic principles for processing and data subjects’ rights. The Race to GDPR showed 72% of respondents were most concerned with these penalties, followed by 43% who are worried about new data breach reporting obligations. Only 13% expressed no concerns.
Failure to comply would impact organizations’ global business, according to 71% of respondents, with 92% saying they have appointed a data protection officer (DPO). Under the GDPR obligations, the DPO is required by “controllers and processors whose core activities consist of processing operations that require regular and systematic monitoring of data subjects on a large scale or of special categories of data or data relating to criminal convictions and offenses.”
Other obligations include the following:
- Notification if there’s a personal data breach
- A subject’s right to access personal data
- A subject’s right to be forgotten
- Data portability
- Privacy by design
To learn more about GDPR, go to www.gdpreu.org.
—Andrew Michaels, editorial associate
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US Files Claim for Subcontractor Under Miller Act
The United States is assisting one subcontractor in a fight for payment against a construction services giant. A breach of contract lawsuit was filed by the U.S. on behalf of Insight Environmental Engineering & Construction against Aecom Technical Services, Federal Insurance Co. and 10 other defendants. According to the Northern California Record, the complaint was filed April 24 in the U.S. District Court for the Eastern District of California.
Insight was subcontracted for slightly more than $4 million for remediation work at a landfill site and Edwards Air Force Base. According to the complaint, Aecom added extra work and change orders to increase the subcontract to nearly $4.3 million. The U.S. claims Aecom owes Insight more than $570,000, stated the Northern California Record.
Insight completed its work in June 2017, but 90 days had gone by without payment from Aecom. The U.S. also claimed Insight is due attorneys’ fees and litigation costs. Federal Insurance has also not fulfilled its obligation under the surety bond.
According to the Northern California Record, the lawsuit stated, “Insight performed all the work and labor for, and furnished all necessary labor, services, materials and equipment to be performed, used or consumed in the project under its subcontract, and all such work was actually performed, used or consumed on the project. … Aecom breached the subcontract in that it has failed and refused to pay Insight in full for all work it provided to the project, despite demand therefor.”
While no preliminary notice is required by subcontractors and material suppliers under the Miller Act for federal projects, NACM’s Secured Transaction Services (STS) suggests serving notices 45 days from last furnishing to prompt payment. For first-tier subcontractors still waiting for payment, no bond claim notice is required either before filing suit in U.S. District Court.
However, second-tier subcontractors and suppliers must give notice to the prime contractor of a bond claim within 90 days of last furnishing or supplying. First- and second-tier subcontractors and suppliers have one year after last furnishing or supplying to file suit. This is why knowing where you stand within the construction contract is so important.
While it is simply explained, if you do not file a notice within the 90 days because you believe you are a first-tier subcontractor, you may be fighting an uphill battle for payment when it is revealed you are really a second-tier subcontractor, who has now missed the bond claim notice deadline.
—Michael Miller, managing editor
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Corporates Hesitate to Spend as Tariffs Loom
Corporates are reaping the benefits of the U.S. administration’s tax reform passed at the end of 2017, but according to many businesses nationwide, that doesn’t necessarily mean they’re willing to spend the extra cash. Instead, a study by the Association for Financial Professionals (AFP) reported hesitancy among these businesses that was related to concerns over possible trade wars and the geopolitical repercussions that could follow.
The Washington, DC-based organization’s latest Corporate Cash Indicators (CCI) report, released April 30, collected responses from 170 senior treasury and finance executives from across the country during the first quarter of 2018. The report showed a significant increase in corporate cash, with 44% of corporates having larger cash and short-term investment balances compared to 2017’s fourth quarter. About a quarter of respondents reduced their cash holdings during this time.
“Entering the first quarter, business leaders were displaying some signs of willingness to deploy their cash,” AFP said in its CCI report. “However, it appears they did the opposite and increased their cash significantly as the quarter-to-quarter index reading increased three points.” The organization’s website noted that lower readings indicate more business confidence, while higher readings indicate pessimism.
The report also said that organizations were divided when it came to their ambitions, such as whether to boost or reduce their cash and short-term investment balances during this year’s second quarter. Investment selections are becoming “more aggressive” after the past quarter, reaching the highest reading since the study’s fruition in January 2011.
Future corporate spending depends on a few factors, one of which includes the outcome of a potential trade war between the U.S. and China. On May 6, Business Insider reported that the ongoing tariff debacle—beginning with the U.S. administration’s tariffs on solar panel and washing machine imports in January—hasn’t improved after last week’s meeting between U.S. and Chinese government officials. In the article, JPMorgan Chief China Economist Haibin Zhu said negotiations will be “bumpy” because of a large gap between U.S. demands and China’s offers.
A separate Business Insider article published on May 1 highlighted how tariffs are already affecting U.S. businesses in the manufacturing sector, following the decline in the Institute of Supply Management’s April manufacturing survey.
“The trade by itself doesn’t really move the needle in terms of the macro,” said S&P Global Ratings Chief Economist Paul Gruenwald in a statement with CNBC. “But what we’re worried about is [if] the trade spat drags on … consumers stop spending so much, firms stop investing, confidence goes down, and we go to a less good growth path.”
This analysis was reinforced by NACM’s April Credit Managers’ Index (CMI) after the manufacturing sector took a hit. NACM Economist Chris Kuehl, Ph.D., said markets are getting nervous as tariff talks continue unresolved.
“The announced steel and aluminum tariffs have hit costs very hard,” Kuehl said. “Even with all the exemptions that have been subsequently announced, there is concern that prices will continue to escalate. … Nearly every manufacturer has been reporting that logistics costs are going way up.”
At this point, Kuehl added, manufacturers are taking the time to address these issues and figure out how to proceed. Only time will tell what happens with corporate investments.
—Andrew Michaels, editorial associate
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