In the News

August 8, 2019

Changes to Construction Laws Passed in Indiana

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Secure Your Credit Department Before Using Real-Time Payments

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District Court: Miller Act Outranks Arbitration

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Creative Legislative Solutions to Bond Off Mechanic’s Liens

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Changes to Construction Laws Passed in Indiana

The 2019 Indiana legislative session brought several changes to the construction industry, namely in the realm of anti-indemnity, bonds, management and environmental regulations. With the passage of the four acts, creditors working in the construction industry will need to think differently about how to file claims against bond procedures and about customer payments.

Indemnification in the state of Indiana will be loosened under Senate Enrolled Act 230, which makes indemnification between the general contractor and the property owner—should the subcontractor get injured on the job—more difficult. Construction or design contracts are still not required to have an indemnity clause, should a worker get hurt on the job, be a victim of fraud, etc.

With less acceptance of indemnification, the afflicted party should then be able to sue all parties involved, incurring more costs, meaning less available money in the accounts of customers who need to pay creditors.

“Indemnification is allowed, and they’re trying to push that away,” said Chris Ring of NACM’s Secured Transaction Services. “If there’s an indemnification clause involved, that indemnifies the general contractor and property owner, depending on how far the indemnification goes down. Then it’s that worker’s ability to get money for their cause.”

Public–private partnership (P3) project regulations on how bonds are handled and required in the state were modified. Prior to enactment of House Enrolled Act 1374 on June 30, bonds on P3s were not required. The new statute mirrors the Little Miller Act in Indiana, shifting the burden away from creditors who may need a bond claim but are unable to obtain one.

A payment performance bond must now be in place on any P3 job that falls under the bill of operate transfer criteria, which loosely translates to most construction projects.

“Now the assurance is there,” Ring said. “The general contractor had the option before to put the bond in place, or not. If they didn’t put a bond in place, then it was OK because they had the option. Now they have to place a bond.”

Acts 230 and 1374 both bar the most direct consequences on construction creditors, but Acts 1214 and 1266 also affect creditors, albeit more indirectly. 

Act 1214 officially enforces an off-the-books rule prevalent in Indiana construction projects relating to the construction manager as a contractor. Prior to this act, the general contractor had the option to prequalify that a subcontractor was qualified to do the work. Now, pre-qualifications are mandatory, which means subcontractors have “a more rigorous hill to climb, potentially, before they’re allowed to set foot on a project,” Ring said.

Act 1266 loosens environmental restrictions on construction projects related to erosion and sediment control. Instead of builders being beholden to environmental permits related to erosion and sediment control, builders can now choose to either cut costs on projects or take precautions to lessen the impact of the projects on the communities where the projects are located.

⁠—Christie Citranglo, editorial associate

Secure Your Credit Department Before Using Real-Time Payments

Real-time payments (RTPs) make way for real-time concerns, especially in the credit department. At first glance, the idea of receiving instantaneous payment from a customer seems like wishful thinking on behalf of credit managers, some of whom have dedicated years of their time chasing after late payments. Faster payments aren’t necessarily a bad idea, but payment service providers (PSPs) and financial institutions alike are encouraging business-to-business credit professionals to educate themselves on the proper security measures before they implement RTP technology.

As businesses consider RTP implementation, it is essential for all parties, including credit managers, to understand faster payments can make it increasingly difficult to catch fraudulent transactions. Think of it this way: In the world of Looney Tunes, Wile E. Coyote dedicates all of his time toward catching the Road Runner. Because the Road Runner is so fast, Wile E. Coyote has only a limited amount of time to plan and build his traps in an attempt to catch his foe. For credit managers, Wile E. Coyote is the business’ RTP security software and the Road Runner is a fraudulent transaction.

“Security will remain a key requirement for growth as real-time and instant payments proliferate across Europe and other markets,” the PYMNTS.com May 2019 “Smarter Payments Tracker” report states. “As fraudsters become bolder and begin looking for larger paydays, though, keeping 20-second transactions safe and secure could be more difficult than it seems.”

With RTPs now possible, PSPs are taking the initiative to combat fraudulent activity. For example, Nucleus Software, a lending and transaction banking software provider, recently updated one of its software programs that specifically handles RTP fraud. According to the company’s press release, a new version of its transaction banking solution, FinnAxia 6.5, was launched July 24 and uses “real-time [artificial intelligence]-enabled anomaly detection capability, which enables financial institutions to detect fraudulent and duplicate transactions early and proactively act on them.”

The updates also include a real-time tracking feature for transactions. In the press release, Nucleus Software CEO Ravi Pratap Singh said technology such as FinnAxia 6.5 is important in a day and age when corporate customers expect “instant access to transaction information.”

The Federal Reserve is also climbing onboard the RTP train to secure such speedy transactions. Earlier this week, the Fed announced its plans to speed up the business payment process with its FedNow Service that will “enable the near-instantaneous transfer of funds day and night, weekend and weekdays…” The service is expected for release in 2023 or 2024 and will not only improve payment speed, but also securely.

“With a Federal Reserve real-time retail payment infrastructure, the funds would be available immediately—to pay utility bills or split the rent with roommates, or for small business owners to pay their suppliers,” Federal Reserve Board Governor Lael Brainard said in a press release on Aug. 5. “Similarly, getting immediate access to funds from a sale in order to pay for supplies can be a game changer for small businesses, potentially avoiding the need for costly short-term financing.”

Available to all banks, the press release states, the service “would increase competition, decrease market concentration, and provide a neutral platform for innovation.”

—Andrew Michaels, editorial associate