The Committee on Government Affairs was called to order at 8:15 a.m., on Tuesday, April 27, 1999. Chairman Douglas Bache presided in Room 3143 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List. All Exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Mr. Douglas Bache, Chairman

Mr. John Jay Lee, Vice Chairman

Ms. Merle Berman

Mrs. Vivian Freeman

Ms. Dawn Gibbons

Mr. David Humke

Mr. Harry Mortenson

Mr. Roy Neighbors

Ms. Bonnie Parnell

Ms. Gene Segerblom

Mr. Kelly Thomas

Ms. Sandra Tiffany

Ms. Kathy Von Tobel

Mr. Wendell Williams

STAFF MEMBERS PRESENT:

OTHERS PRESENT:

Chairman Bache called the meeting to order at 8:15 a.m. and opened the hearing on Senate Bill 369.

Steve Ghiglieri, Chief of Business Finance and Planning, Director’s Office, Department of Business and Industry, described part of his duties as being responsible for the state’s industrial development revenue bond program. S.B. 369 proposed certain changes in the law pertaining to the issuance of IDBs (Industrial Development Bonds) by the director. The bill would allow the director to better utilize the industrial development bond program to meet the various development goals of the state without imposing additional risk upon the state as an issuer.

Several of the bill’s provisions would make the bond program much more attractive to companies, Mr. Ghiglieri explained. The bond program would be more user-friendly and customer focused. That would be accomplished, in part, by reducing some of the unnecessary red tape associated with the program, thus making the bond process more streamlined, understandable, and cost effective from companies’ perspectives.

The bill would also make it possible to finance a wider array of qualified projects, allowing that important financing and development to benefit more organizations, including, in large part, the smaller contractors who dominated the manufacturing landscape in Nevada. Mr. Ghiglieri distributed a packet of information (Exhibit C) to the committee which included an outline of the bill along with several letters of support. He included a table (following page 7 of Exhibit C) of data that showed the distribution of manufacturing by the number of people Nevada manufacturers employed. The manufacturing arena was largely dominated by the smaller companies, and such was the case throughout the nation. S.B. 369 would allow the state’s revenue bond program to be more cost effective.

Nevada would be provided with a better opportunity to enlarge and improve on the state industrial development revenue bond program and make it more competitive with similar programs in other states. The provisions of the bill would create better opportunities to help attract, retain, and support quality businesses and other organizations, thus aiding in the promotion of various diversification and development goals.

He described the nature of revenue bonds in some detail. The Federal Tax Code, subject to numerous limitations, permitted the state to issue revenue bonds for a limited number of private activities for which the interest on the bonds was not subject to federal income tax. Foremost among those were projects such as manufacturing and affordable housing projects. Mr. Ghiglieri did explain there were certain exempt facilities such as public utilities and solid waste disposal facilities which S.B. 369 did not encompass.

The primary benefit of financing offered through the state could provide a borrower with the lower cost of capital due to the non-taxability of the interest on the bonds. With a revenue bond, the state was simply the middleman or conduit in what was largely a private loan transaction. No state money was actually lent, Mr. Ghiglieri said. All bond proceeds lent to the private entity by the state came from private sector sources such as banks, investment companies, or other bond market participants who purchased the bonds. It was important that the purchaser of revenue bonds understand there was no pledge or financial obligation to repay the bonds by the state or any other governmental entity within the state. Payment under the bonds was made solely from revenues derived from the project, or other private guarantees or enhancements backing the bonds, such as a letter of credit from a bank.

Mr. Ghiglieri walked the committee through the bill.

Section 2 provided for the director to issue industrial development revenue bonds up to $2.5 million for equipment only; the financing would be pursuant to guidelines established by the Board of Finance. Mr. Ghiglieri described the section as the primary provision which allowed the state to serve smaller companies.

Section 3 provided for the confidentiality of certain records submitted by obligors when they applied for an industrial development revenue bond; the lack of confidentiality of certain records had been a major deterrent to companies who tried to use the program.

Section 4 was a technical change. Section 5 expanded and clarified the scope of the definition of a corporation for public benefit, and mirrored Nevada Revised Statutes (NRS) Chapter 82 that provided for nonprofit corporations.

Section 6 clarified the prohibition on the financing of a facility from that of a "substantial competition" standard to a standard of a prohibition on the financing of a facility that would result in the "abandonment or closure" of an existing facility of a like nature. The current provision was vague, Mr. Ghiglieri commented. The modifications made to section 6 set a clear standard to any applicant.

Technical amendments to the prerequisites of financing a project were added in sections 7 and 8. Some of the changes were necessary to facilitate other proposed amendments and were not in themselves substantive; however, he said, there were three definitely substantive proposals. (1) It was proposed to eliminate the finding of NRS 349.580(e) which was largely redundant in terms of other findings which had to be made; it was difficult to interpret and apply. (2) Acceptance of the 5-year operating history requirement for the financing of a project was the second proposal. And finally, (3) there was a modification to NRS 349.590(4) which was associated with the modification of section 6.

Section 9 provided the director with the expanded ability to adopt regulations pursuant to the program as deemed necessary. Section 10 empowered the director to directly refund revenue bonds which had been issued not only by the director but also those issued by cities and counties. That expanded authority would be a service to cities and counties, as well as benefit the obligor with the option to seek refinancing or refunding of the bond.

Sections 11 and 12 were technical provisions.

Assemblywoman Gibbons inquired who assisted in the drafting of the legislation.

Bond counsel, Orrick, Herrington & Sutcliff, defined most of the legislation, Mr. Ghiglieri replied. Much assistance was given by Robert L. Barengo, attorney, who served as bond counsel to the director’s office. There were private sector individuals and companies who lent assistance, most notably John Chrissinger, a bond facilitator for C-H Capital.

Ms. Gibbons wondered if the bill would eliminate much of the "red tape" paperwork through which applicants had to go.

Some of the paperwork of the program was self-imposed, Mr. Ghiglieri said, and could be addressed without statutory changes. However, the process of obtaining the confidentiality information, as provided in the suggested amendments, would be streamlined. Certain information would always be needed; however, the way the law was currently written, an incredible amount of paperwork was required in order to obtain definitive information.

Ms. Gibbons asked which other states were better at promoting sales of industrial revenue bonds. "Who is our competitor?" she wondered.

All states and many local governments within states could issue bonds so long as the law provided for such issuance, Mr. Ghiglieri answered. Letters attached to the suggested amendments (Exhibit C) were from companies from other states which had actually gone through Nevada’s bond process. In his opinion, Oregon and California regulations were less burdensome than those in Nevada.

If one of the small companies that participated in the program was to foreclose, how would Nevada’s bond rating be affected, Assemblywoman Segerblom asked.

"It should not [be affected]," Mr. Ghiglieri responded. "I believe our bond rating is "AA"."

Ms. Segerblom wondered if the small companies received some sort of "tax break" from the state. Only if they qualified for other programs, Mr. Ghiglieri said, and only if they applied separately for other tax relief that might be available to them.

Chairman Bache asked if Mr. Ghiglieri had reviewed the proposed legislation with others.

Mr. Ghiglieri said John L. Swenseid [representing the City of Las Vegas] had brought an amendment to his attention, and was included in Exhibit C on pages 4 through 7. Essentially, it was law clarification. On page 2, line 10, of S.B. 369 the language, "…without the prior consent of the obligor," was added. With the provisions already in place in the statutes, the amendment would require a company to indicate, in writing, that a document was confidential. In that way, the burden was placed on the company and not the administrator. It also provided the ability for the obligor to subsequently remove the request if needed.

The amendment language also removed the requirement that the project location be considered confidential. Federal law already required a project location be disclosed prior to the posting of a notice. There were other ways of addressing that requirement in the initial application, Mr. Ghiglieri said, and by deleting the requirement, the entire process was simplified.

"If the project, for whatever reason, goes belly-up or the revenue is not there to pay it from the revenue bonds, where does it go from there?" Mr. Bache asked.

There were certain ways the bonds could be issued, Mr. Ghiglieri said. One was for bonds to be enhanced. The bonds could be sold in a market subject to the backing of a letter of credit from a rated bank. If the revenues from a project were not sufficient to pay the bonds, then a trustee would be established and the letter of credit bank would be responsible for paying off the bonds. In some instances, direct placements with sophisticated investors could be effected. The bonds could be placed with the bank, clearly noted in the statements. The purchaser of the bonds would clearly understand that the state did not stand behind the bonds as a moral or legal obligation to finance them.

John Chrissinger, President of C-H Capital, Inc., explained that his company had put together approximately 95 percent of the industrial development bonds within the state since 1989, and strongly supported S.B. 369. Since the Federal Government was over-arching every state in the country, he said, each state imposed its own specific laws in accordance with the federal regulations. Nevada was one of the very few states in the nation that had a competition question, which read, in effect, that the state could not finance a project that would offer substantial competition to an existing entity for the same interstate market. The statute had caused considerable problems and paperwork, and the amendment language would make the standard more definable and easier with which to work.

Chairman Bache entertained a motion to amend and rerefer S.B. 369 back to the committee so members could see a clean copy of the bill with its proposed amendments.

Madelyn Shipman, Assistant District Attorney, Washoe County, explained the bill had been so watered down that in its present form all it would do would be to add the word "remodel" to the things that could be done by lease/purchase.

Cheryl Blomstrom, Director, State Governmental Affairs, Associated General Contractors of America, Inc. testified in support of the bill in its amended form.

Jesse C. Paulk, Director, Las Vegas Chapter Associated General Contractors of America, Inc., stated for the record, they were in support of the bill.

Chairman Bache asked for a motion.

ASSEMBLYMAN THOMAS MOVED TO DO PASS S.B. 407.

ASSEMBLYWOMAN PARNELL SECONDED THE MOTION.

THE MOTION CARRIED UNANIMOUSLY.

Max Christiansen, Director, Air Conditioning and Sheet Metal Contractors Association of Southern Nevada, indicated support and sponsorship of the bill. Statewide, S.B. 144 was supported by the entire construction industry, electrical, plumbing, and mechanical contractors, both union and nonunion. The bill was designed to keep cash flow moving, which had been an ongoing problem on most public works projects, he said.

Cheryl Blomstrom, who also represented the Nevada Association of Mechanical Contractors, commented the industry had worked for over 2 years on the legislation and felt it met every group’s needs: public entities, her group, and the various contracting and subcontracting agencies.

Renny Ashleman, Nevada Government Relations, explained a consensus had been reached on the intent of the bill, and he referred the committee to Exhibit D to assist in the interpretation of the bill.

As a whole, the bill was designed to ensure prompt payment for contractors and subcontractors on public projects. A majority of states already had such legislation, and the proponents of the bill felt it was needed and would reduce overall government contract costs.

S.B. 144 amended Chapter 338 of the Nevada Revised Statutes, the chapter which governed public works projects, Mr. Ashleman continued. He proceeded to walk the committee through the proposed amendments.

Sections 1 through 12 were simply self-explanatory definitions of the purpose of the act. Section 12.3 allowed submission of a progress bill on a monthly basis by a contractor. In contract work, as the work progressed, interim bills were submitted which were termed "progress bills." The amendment language would allow those bills to be submitted monthly or more frequently should the contract so provide. It was intended the public body enter its contracts and require submission of invoices by a certain date so it would have time to meet and authorize payments.

Section 12.5 removed the Nevada Department of Transportation (NDOT) from the bill. NDOT regulations were already covered under NRS Chapter 408, Mr. Ashleman said. NDOT’s methods of payment and resolution of disputes was quite different from those of other public bodies. NDOT had requested they be omitted from the legislation of S.B. 144.

Section 13 required the payment of interest on retention. Retention was the amount of money held back from a public contract by a contractor until the end of the contract. It was to make certain everything was "fixed and working the way it was expected to be" at the time the contract was entered.

Circumstances that triggered the payment of retention were addressed in section 14. Those circumstances were the occupation of all or part of a public work or the filing of a notice of completion. If part of the public work was occupied, retention was paid pro rata on the occupied part. Some clarifying language was offered, Mr. Ashleman explained, because he felt it to be a bit ambiguous.

The heart of the bill was addressed in section 15 and made several provisions:

1. A public body was allowed to withhold money to pay expenses it reasonably expected to incur as a result of the failure of the contractor to comply with the contract or the applicable building code, law, or regulation. The contract was to include all accompanying documents.
2. The public body was required, within 20 days after receiving a bill for progress payment or retainage, give a detailed notice of any portion it would not pay. The notice was to include a specific explanation which provision of the contract or any related documents, or the applicable building code law or regulation with which the contractor had failed to comply. It was not the duty of the public body to tell the contractor how to fix the problem, however. The public body was required only to indicate what was not in compliance.
3. Once the public body received notice that an item was fixed, payment was required within 30 days of the next progress or retainage bill. The public body was free to object to the correction and could require further correction and withhold a reasonable amount for that correction. It was to pay the amount of any improvement to which it did not object.

Section 18 specified if the public body did not pay in a timely manner or objected in some fashion, it was to pay the entire amount plus interest from the 30^th day, and the interest was mandated by NRS 338.160.

Section 19 was designed to assist subcontractors and suppliers in situations where the public body had paid the main contractor, but the contractor claimed he had not been paid. The language required that within 5 working days a public body tell a subcontractor or supplier whether it had paid, how much it had paid, and if not paid, the amount withheld. During investigations of such matters, Mr. Ashleman explained, often contractors or subcontractors to sub-subcontractors were stating they had not been paid, when in fact they were "living on the money."

Section 20 applied the same rules of payment to the contractor/subcontractor relationship that governed the public body payments, except the timeframe was shortened to 10 days. That was done because the contractor was not required to inspect the work and file objections.

Sections 21 and 22 mirrored sections 18 and 19, but applied to the contractor and the subcontractor. Sections 23 through 27 carried out the same mirroring or stepdown provisions for the sub-subcontractors and their suppliers.

Section 27.3 limited releases and waivers to those where actual payment was made. It created an additional release of liens and waivers. It took care of situations where the checks "bounced", and limited payments to the invoice matter and the progress payment or retainage of the current contract. The payment was thus prevented from being leveraged in a different dispute.

Mr. Ashleman described section 27.5 as another highly critical section. Public bodies generally had arbitration clauses which were important in contractual work because it was a highly specialized area and the disputes could be extremely complicated. The public bodies desired to preserve their arbitration right and their right as owners, and as a governmental body, to be free from second-guessing by the courts on correction notices on a job in progress. It allowed a writ of mandamus [a writ issued by a superior court ordering a public official or body or lower court to perform a specified duty] only if the governmental body had failed to pay an undisputed amount or had failed to explain its nonpayment or to give requested information in a timely manner.

If one of the above happened, the court might award the appropriate amount, costs, and attorneys’ fees. So long as the dispute was confined to sections 14 through 19, the court might issue an alternate writ of mandate on nondiscretionary acts. It was intended to force the public body to take the actions mandated by law as far as timely payment, notice of objection, or response to written requests for information were concerned. All other matters were to be litigated or arbitrated in the usual manner.

The section also provided the public body might, by contract, provide for the payment of attorneys’ fees.

Mr. Ashleman described section 28 as allowing the subcontractor or supplier to ask for an order to show cause why they could not be paid the amount they believed to be appropriate. The order to show cause had short deadlines and was intended to force prompt payment between the contractor and his subcontractors and suppliers. The contractor was thus protected if the public body did not pay him. Other civil actions were consolidated and other rights and remedies provided by law were preserved.

Section 30 stated how notices were to be served and prohibited waiver of those provisions of the law. Section 31 was omitted. Sections 32 and 33 allowed a court or arbitrator to hear cases in a regular manner and to award costs and attorneys’ fees.

Section 34 was technical. Section 35 required payment within 30 days or sooner, if agreed, and further required that supplies, materials, and equipment that were identified in the contract and delivered as specified that were specially made or in short supply, be paid in 30 days. The section protected one of the most common problems in the construction industry for subcontractors and suppliers, Mr. Ashleman explained.

Section 36 applied the language of section 35 to suppliers and subcontractors. Section 37 was the retainage between the contractor and the subcontractor.

Section 38 made it clear subcontractors and suppliers did not obtain any relationship with the public body as a result of the contract, and that no third-party liability was created on their behalf. Subsection 2 preserved the right of arbitration except for the narrow right of mandate as previously discussed. It preserved the right to sue for prompt payment.

Mr. Ashleman entertained questions from the committee.

Assemblyman Humke was interested in section 28, which set the rules for the motion for an order to show cause in recontempt. The language seemed to him to be from the Nevada Rules of Civil Procedure or even local court rules. Since the bill was statutory language, Mr. Humke wondered why the legislature should write such language for the courts when it was normally in their rules.

Mr. Ashleman agreed Mr. Humke’s question was a good one. The date and timing were somewhat altered, he explained, and special days and timing were given to reply. He cited as an example that NDOT could get a special trial hearing within 2 years on any disputed matter on eminent domain. In cases of subcontractors and suppliers, if prompt and quick relief was not forthcoming, companies could fail. "We want to encourage people to get into the business as a supplier or a subcontractor because we want to broaden this pool of people," Mr. Ashleman emphasized.

Mr. Humke had further questions on section 28, specifically subsections 3 and 4. A great deal of specificity as to the timing of the motion for an order to show cause was in the language, he said. He asked Mr. Ashleman if there was a problem for contractors and public bodies to go to court to even entertain the motion for order to show cause. Mr. Ashleman concurred. There was indeed a problem of prompt hearings, and it was exactly why S.B. 144 was proposed, he said.

Default rules were set out with great specificity, Mr. Humke stated. He referred to Mr. Ashleman’s testimony that the courts generally did not like those cases because they frankly "…don’t understand them. Is that the rationale for the specificity in the default rules?" he asked.

Mr. Ashleman agreed. The cases were complex and many hours of instruction were needed to sit on an arbitration panel. The bill was not intended in any way to interfere with the courts’ powers. It was a very specialized and complex area.

Assemblyman Humke asked how Mr. Ashleman rectified his position in section 28 with the court’s docket. The language basically said those arbitration cases "went to the head of the line" because they were considered emergency matters. "How do you justify that?" he queried.

The justification part of the bill was how those cases were governed overall, Mr. Ashleman replied. They were almost always decided by arbitration at the end. "What we’re telling the courts here is keep it simple; don’t get into the overall dispute." The crux of the decision was simply, "Did you write the check?"

Mr. Humke observed the construction industry in Nevada had a fairly detailed system of arbitration of building contractor disputes. The language in section 28, he said, appeared to provide for an interim emergency hearing which could later be resolved in arbitration. He wondered if a good example was a motion for an order to show cause where the ruling was overturned by the arbitrator and later ratified by a court.

Mr. Ashleman agreed it was indeed a good example, and explained it was one of the main reasons why retention was required in those cases so emergencies could be handled.

Assemblywoman Segerblom asked if a subcontractor would have to hire an attorney and make a court appearance in order to get an arbitrator.

A court appearance would not be necessary in order for a subcontractor to get an arbitrator, Mr. Ashleman replied. The arbitrator would normally be provided by the contract. An attorney would be necessary only if the subcontractor had not been paid and there was no obvious reason why he had not been paid. He could also wait and go through arbitration with or without an attorney.

Ms. Segerblom wondered if a subcontractor could collect interest when he was not paid on time. Mr. Ashleman responded affirmatively. It was only for public works projects, not for the private sector, he elaborated. There was a certain amount of resentment by the public entities they were being subjected to those constraints and the private sector was not affected. "That is up to the proponents of the bill," he said. "We did not think it was our place to subject the private [sector] to [those constraints]."

Assemblywoman Freeman asked for an example of a poorly-funded project.

Mr. Ashleman did not know of many examples of poorly-funded projects, but he felt there were many examples where the parties had lack of communication as to why various amounts were or were not being paid. There was a tendency on the part of public bodies to withhold payment on an entire project, not just the portion of the project in question. He gave an example. A subcontractor delivered a load of sand in January for a pavement project. The subcontractor might not realize he would not be paid until March or April when that pavement was installed, inspected, and signed off. Again, lack of communication and understanding would be the problem.

"The funding is there, but it is the way it is handled that is often the problem?" Mrs. Freeman queried.

Most of the time it was the main difficulty, Mr. Ashleman answered. Big cost overruns were seldom to blame. To his knowledge no [contractor] had ever not been paid due to the lack of funding.

Mrs. Freeman asked for an explanation of the 10 percent retention and its purpose.

Until a project was totally completed, Mr. Ashleman explained, parties were constantly involved in change orders. It was used as a practical matter. Costs were not tallied totally until a job was completed.

Mrs. Freeman wondered if S.B. 144 was one of many bills before the legislature related to the same issues.

The Assembly Committee on Transportation was currently hearing a bill that involved the Nevada Department of Transportation (NDOT), Mr. Ashleman said. NDOT paid contractors more frequently than other public bodies, and held less retention due to the nature of their projects. And unlike other public bodies, NDOT was willing to mediate between subcontractors and contractors.

Max Christiansen explained the legislation had been around for some time and the need for it had been there for years. The entire construction industry was fully behind passage of S.B. 144. Subcontractors and sub-subcontractors were meeting weekly payrolls, he said. When a subcontractor submitted a request for a draw and the request was held up because something else was wrong with the building that was part of the general contract, all payment was withheld, not just the portion that was wrong. Sub-subcontractors frequently lacked the cashflow to handle withheld payments, and many times they were forced to seek bank loans in order to meet payrolls and expenses.

Assemblywoman Parnell asked if all parties were comfortable with the payment timelines specified in the bill. She observed the timelines seemed very short, and was curious as to whether the timelines in the NDOT bill were parallel.

Payment timelines specified in the NDOT bill were shorter, Mr. Ashleman said. The conclusion was reached it was unrealistic to expect contractors to wait longer than 30 days for payment. It was evident to him the public bodies were "not exactly thrilled" with S.B. 144, but looking at other states, the 30 day payment mandate was not particularly onerous.

Ms. Parnell was curious about the timelines set forth in the bill. In section 15 a "public body shall, within 20 days after it receives a progress bill … give written notice … of any amount that will be withheld." In section 20 the time was shortened to 10 days.

Mr. Ashleman relied the times were shorter because "checks were already cut and in the hands [of the contractors]." The decision as to whether the work was adequate had already been made. "Practical people, probably over a few days, were not going to hire an attorney and run to court if they knew a check was coming," he observed.

Assemblyman Lee had questions regarding the retention portion specified in section 13. A notice of completion usually "kicked in" the retention, he said. "Are you stating from the moment the groundwork is completed and you have billed, you will now begin the retention clock?" he asked. Mr. Ashleman replied affirmatively. Interest was paid on retention from the day it was withheld.

Mr. Lee asked about the joint check provision. The concept had been discussed from the standpoint of the public bodies, Mr. Ashleman answered, and he expected, from the standpoint of the contractors, nothing would keep them from joint checking where necessary. However, he concluded, it probably was not the best solution.

Would the "time clock" be pushed back at the conclusion of a job and additional requests were made of the contractor, Mr. Lee wondered.

Additional requests were fairly common in arbitration, Mr. Ashleman said. If the contract was clear that additional requests were not conditions on the retention, some protection would be afforded. If not, arbitration was an option.

There was no penalty imposed in section 15, subsection 2, where it stated, "A public body shall withhold 20 days after it receives a progress bill…" Mr. Lee said. Normally there were always triggers for liquidated damages, but he could see none in the bill. Many times a subcontractor was on a job but the general contractor refused to submit a progress payment indicating it was not big enough or for other reasons. Mr. Lee wondered about slow or missed progress payments from the contractor to the public body to protect the subcontractor. He felt the general contractor should be responsible for the slow or missed progress payments.

Richard Peel, attorney, Gregory, Spangler & Brown, represented the various trade organizations who sponsored the bill, and pointed out there were two different provisions in the statute that would protect subcontractors for failure to pay. The public body’s payment to the contractor was set forth in section 18. And on page 4, line 10, it stated, "…the public body shall pay to the contractor, in addition to the entire amount of the progress bill or retainage bill or any unpaid portions thereof, interest from the 30^th day on the amount delayed…". What was provided, Mr. Peel said, was that the full amount of the progress bill would be paid if the public body did not pay in a timely manner or give notice of withholding. Also included would be the interest accrued on the progress bill. The other alternative would be for the contractor to go to court and get a writ of mandate from the court directing the public body to pay the money that had been wrongfully withheld.

Mr. Peel continued his explanation. In section 27.5 was discussed what the courts could award. On line 20 it said, "If the court determined the public body has violated the provisions of NRS 338.160 or sections 14 to 19 inclusive, …the court may order the public body to pay the contractor: (a) The entire amount that was withheld by the public body or portions thereof; (b) Interest on the amount that was withheld…; (c) the reasonable cost incurred by the contractor, including, without limitation, his attorneys’ fees…"

That was the tool given to contractors to obtain their money, Mr. Peel said. The same tool was provided to subcontractors and suppliers who were not paid. They had a similar mechanism where if they were not paid, they could go to court and seek an order to show cause. The court would then order the contractor to pay all or a portion of the progress bill plus interest and attorneys’ fees. Those mechanisms were provided in S.B. 144 and not in current NRS 338.160, 165 and 170.

Mr. Lee referred to Exhibit D where it said, "The public body, of course, is free to object to the correction and require further correction and withhold a reasonable amount for that correction." He asked Mr. Ashleman for a clarification of the term "reasonable."

The intent of S.B. 144 was very specific, Mr. Ashleman said. A good faith estimate had to be made of the amount needed to make a correction. Ultimately, he opined, "reasonable" would be in the eye of the beholder. The real problem in the industry was that contractors were simply not making estimates. The payments were being held back until problems were fixed.

Assemblywoman Tiffany remarked the language of S.B. 144 was a fairly big policy change for processing payments, and asked about a fiscal note for the Public Works Department. Would there be the need for more staff, she wondered. Would there be computer and software problems. And what would be the impacts of the courts.

Ten or 12 purchasing agents were present during the formulation of the bill and its amendments, Mr. Ashleman replied. There would be extra work involved. In discussions with project managers in Clark County, the contention was they did not feel there would be too many problems and certainly very little litigation involved. Mr. Ashleman did not feel the legislation would cause hiring of extra staff or costs of implementation. Seminars would be held and information would be circulated through purchasing groups in order to allow parties to adjust.

Ms. Tiffany asked again if there would be any fiscal impact to office staff and to the courts.

If a reliable and factual fiscal impact note could have been generated to show the legislation would do harm to either the state or the counties, Mr. Ashleman replied, it would have been done. "This bill was not popular with our people because, unlike the industry, we did not believe it was needed," he said. "We did not think the problem was big enough that we could give you truthful testimony on an impact on the costs that would cause this bill to be stopped."

"I don’t think we are arguing about the need," Ms. Tiffany said. "We’ve all heard the horror stories and received calls about them. But when we make a policy change like this, you never know what the long-term impact will be, and that is my concern."

Mr. Ashleman agreed with Assemblywoman Tiffany’s assessments. He thought the bill would have possible far-reaching consequences, but it was difficult to determine those consequences at the present time. His general conclusion regarding the smaller contracts was there were very few of them, mostly local entities. "People want good relationships and will [always] find ways around problems," he said.

Assemblywoman Freeman asked if room tax money had ever been defined as public money. Any construction done by convention authorities was certainly, by definition, a public body for the purposes of the bill, Mr. Ashleman replied. In that sense, room tax money could be defined as public money. The convention authorities in their capacity as owners of public works would be covered.

Were schools included as well, Mrs. Freeman inquired. Every public entity with the exception of NDOT was included, Mr. Ashleman replied.

Mrs. Freeman asked how an entity accessed an arbitrator.

Accessing an arbitrator was done by contract, Mr. Ashleman responded. There were many ways that could be done. There was partnering, where daily arbitration took place. Some contracts called for interim arbitration on major disputes. But ordinarily arbitration was done at the end of a job because the parties would want to finalize the contract. S.B. 144 was designed for the latter instance.

Jack Jeffrey, representing the Southern Nevada Building and Construction Trades Council, along with the signatory contractors who sponsored the bill, stressed the necessity of S.B. 144. There had been problems with contractors who had to borrow money and actually declared bankruptcy due to late payment of money owed.

The original bill called for 20-day payments, and there was concern on the part of the governmental entities involved that it was too short a time period. They also argued the bill was not needed because all payments were made within 30 days. Mr. Jeffrey said the Southern Nevada Building and Construction Trades Council had responded if payments were indeed made within 30 days, the bill would not affect the government agencies anyway.

Mr. Ashleman indicated he wished to submit a "clean" copy of his remarks within the next few days.

(Secretary’s note: The witness provided a clean copy of Exhibit D on Thursday, April 29, which was so entered into the record of the proceedings.)

Jesse C. Paulk, Director, Las Vegas Chapter, Associated General Contractors of America, Inc., supported S.B. 144 with the proposed amendments and compromises.

Tom White, Southern Nevada Chapter, National Electrical Contractors Association, supported modifications to the law as agreed upon by the parties involved.

Madelyn Shipman, Assistant District Attorney, Washoe County, submitted proposed amendments to S.B. 144 (Exhibit E) and told the committee much time and effort had been expended in reaching the compromises agreed upon in the amendments.

The changes to section 14 were the result of disagreement to the wording in the beginning of section 15 which stated, "Except as otherwise provided in section 14." Ms. Shipman felt the language belonged in section 14, and explained why. "For example, if we are occupying a building, the complete payment for either all or that portion shall be paid. It does not refer back to section 15, which gives us the right to withhold. Both the amendments are clarifications of what we felt the agreements were between the parties," she said.

Chairman Bache asked Ms. Shipman for clarification.

The words "Except as otherwise provided in section 14" should be deleted, Ms. Shipman insisted. She went on to offer explanation of the proposed changes to section 27.5, which were different from section 28. Section 27.5 applied only to public entities. Mandamus already existed in law as an extraordinary remedy to have a court require a duty to be done by a public agency. The duties in law in those various sections and in the bill were those addressed by the amendments, and what Ms. Shipman was trying to make clear as part of the writ process.

The mandamus provision was repeated because it was important for the overall groups of parties, extending beyond the public bodies to encompass contractors, subcontractors, and sub-subcontractors. The mandamus action was put into the law as a separate provision because, if such a writ was brought, it would be merely and solely for the purpose of requiring the public body to do its duty under the law. The duty required payment within 30 days, or to withhold and provide notice within 20 days. Another duty required detailed notice of the violation for which withholding was being enacted.

Paragraph 1 of the section specified duties that could be enforced through the courts. The second paragraph, as amended, simply stated if the court determined there was a failure to perform those duties, the public body was required to perform the duty within a specified time period.

Contractor damages were addressed in section 14, Ms. Shipman continued. Interest was paid on any amount not paid from the 30-day period forward. Section 28 was not negotiated because it related only to contractors, subcontractors, and sub-subcontractors.

Assemblyman Humke wished confirmation that Ms. Shipman was in favor of the bill. Ms. Shipman replied affirmatively. Mr. Humke had questions about the similarity of sections 27.5 and 28. Section 27.5 protected contractors against the public, and section 28 protected private parties from one another. He wondered if one section was more important than the other. Should a case which involved a public body withholding payment "go to court" faster or at the same rate as two private parties with a dispute, he asked.

Ms. Shipman felt both sections were equally important from a policy standpoint. In answer to a question from Assemblywoman Segerblom, Ms. Shipman assured the committee "everyone" had agreed to the proposed amendments. She felt all parties were in basic agreement.

Chairman Bache suggested the group, consisting of Ms. Blomstrom, Mr. Ashleman, Mr. Christiansen, and others, confirm they concurred with Ms. Shipman’s proposed amendments.

Richard Peel could not assure the committee the group agreed with each and every proposal made by Ms. Shipman. However, he felt the parties needed to "sit down and discuss it a little bit more and try and work through some of that language." He had no problem with the effective date of the bill.

Ms. Blomstrom, Mr. Ashleman, and Mr. Christiansen all agreed to meet with Ms. Shipman and Mr. Peel and return to the committee with recommendations.

Assemblyman Lee remarked the bill covered many issues. He asked if sub-contractor rights could be addressed, and if those rights could be mandated into future contracts so all parties had thorough understanding.

Ms. Blomstrom, who spoke for the Associated General Contractors, assured Mr. Lee she would identify those changes to the group’s members, and assumed other trade organizations would do likewise.

Mr. Lee wondered if public bodies would be expected to put the mandated changes into contracts. "Or are we going to ask that the State of Nevada put [the changes] into contracts so it is understood by all who do business with the state?"

Renny Ashleman replied it was the intent of public entities and the groups he represented to fully inform purchasing agents and others of their obligations should S.B. 144 become law. Most issues would be delineated very carefully in future contracts. He did not feel it necessary to repeat the language of the Nevada Revised statutes in every contract, but did feel the bill would force public bodies toward better disclosure procedures.

John Balentine, President, Public Purchasing Study Commission, supported S.B. 144 with Ms. Shipman’s proposed amendments, and opined that any fiscal impacts would be determined over time.

Warren Hardy, representing the Associated Builders and Contractors of Southern Nevada, indicated his organization supported the bill.

Berlyn Miller, Chairman, Nevada Contractors Association, also supported S.B. 144 and did not feel there would be much court action as a result of the bill.

Richard Lisle, Executive Director, Mechanical Contractors Association of Southern Nevada, reiterated his organization was in support of S.B. 144.

Gary Stockhoff, Engineering Manager, Public Works Department, City of Reno, indicated that at the beginning of the process regarding the proposed bill, the city council was opposed. However, with the amendments and new provisions, the council was willing to work with it for the next 2 years before judging its effects. He reiterated the city of Reno tried to pay contractors in a timely fashion and, in many instances, paid within 10 days.

Eric Raecke, Manager, State of Nevada Public Works Board, told the committee the state normally paid most bills in about 20 days. Over $100 million in public works projects were done each year, he said, and the state had yet to be in court or have any major problems with payments. He personally felt there was reluctance on the part of subcontractors to litigate against contractors who violated the current laws because they possibly felt they would not be awarded another job.

Architects and engineers had proposed a prompt pay bill during the 69^th Legislative Session, Mr. Raecke continued. The proposed legislation was very onerous, but through NRS 338.155, agreement was made that any contract written with an architect or an engineer had to include the terms of payment. If terms were in a contract, the contract was enforceable and could go to court or arbitration.

Section 12.5 of S.B. 144 specifically excluded NDOT, Mr. Raecke commented. NDOT currently worked with very simple laws. He neither opposed nor favored S.B. 144, because "there is nothing here that we do not already do."

Chairman Bache asked Mr. Raecke if he was familiar with Senate Bill 301, the NDOT version of S.B. 144. Mr. Raecke said he would familiarize himself with the provisions of S.B. 301.

Mr. Bache said the Senate hearing on S.B. 301 would be in the afternoon. He had the same concerns as to why NDOT was excluded from S.B. 144 "with their own legislation [in S.B. 301] dealing with prompt payments."

Mr. Raecke felt all public agencies should operate under the same rules. If NDOT was excluded from the provisions of S.B. 144 and S.B. 301 failed passage, NDOT would be an agency which operated under different rules from other public agencies.

Assemblywoman Freeman asked why there were two separate bills, one for NDOT and one for other public agencies. Mr. Raecke did not know, but suggested Mrs. Freeman could ask the sponsors of the individual bills.

Chairman Bache recommended that interested committee members attend the hearing on S.B. 301 in the afternoon.

Hearing no further testimony, Chairman Bache closed the hearing on S.B. 144 and requested the parties involved meet to discuss section 27.5 and resolve their concerns.

Max Christiansen could not understand the disagreement among the parties concerned. Everyone was in complete agreement with S.B. 144 on the Senate side, he said. He claimed he had been blind-sided by all the amendments and discussions at the morning’s hearing, and had understood everyone was 100 percent in accord before the bill reached the Assembly. He needed time to "digest" the amendments and have counsel look at them.

Madelyn Shipman stated for the record, "…prior to getting this bill out of the Senate on the last day of the deadline, I had made comments and had received comments on the final bill draft. I had indicated to Ms. Blomstrom there were some issues relating to clarity that needed to be dealt with. I want to make it clear we indicated we would not do anything to slow up the process at the last minute in the Senate."

Chairman Bache requested all parties involved meet with Committee Counsel Eileen O’Grady and make certain section 27.5 was appropriately drafted.

After indicating the hearing closed on S.B. 144, the Chairman introduced a Bill Draft Request related to Assemblyman Mortenson’s bill.

BDR R-1721 – Urges public bodies to allot equal time for certain testimony at public meetings. (A.C.R. 55)

ASSEMBLYMAN HUMKE MOVED TO INTRODUCE BDR R-1721.

ASSEMBLYMAN LEE SECONDED THE MOTION.

The Chairman remarked the Bill Draft Request was a resolution urging governments to allow equal time for public hearings.

THE MOTION CARRIED UNANIMOUSLY.

Chairman Bache reminded the committee of the joint afternoon meeting to hear S.B. 68 with a subcommittee from the Assembly Committee on Judiciary.

The Chairman announced a work session to consider bills already heard by the committee. He opened the hearing on Senate Bill 274.

Amendments to clarify language in the bill had been discussed, Mr. Bache remarked. The original language stated, "…the city must be divided into 6 wards upon approval of the voters. Thereafter the city council shall increase the number of wards as the council determines necessary." He felt the language could be changed to say, "The number of wards can be increased upon the vote of either the citizens or the council members." By providing the provision to allow a vote to increase the number of wards by either a vote of the people or by the council, future legislation on the matter could be avoided, he said.

Daniel C. Musgrove, representing the City of Las Vegas, remarked the legislation that passed during the 69^th Legislative Session was enabling on the number of wards and that Senator [Bill] Raggio’s accommodation was just to make it mandatory during the current election to increase [the number of wards] to six. The number of wards could then be increased at any time thereafter, or even decreased. Mr. Musgrove felt the amendment unnecessary.

Chairman Bache had concerns. He suggested the language state the number of wards could be increased to six or more by a vote of the people or by a motion of the city council. Even if the council never voted to increase the number of wards, the mechanism would be available to have it a ballot issue in the future.

Mr. Musgrove concurred with the Chairman’s suggestion.

Chairman Bache asked if any members of the committee wished to have their names amended to the bill, and took a show of hands. He entertained a motion.

The Chairman opened the hearing on Senate Bill 14 and distributed a proposed amendment (Exhibit F).

The proposed amendment on S.B. 14 came from Alvin Kramer, Carson City Treasurer, and had been suggested because the bill affected only those entities who were governing bodies of a city or a county with populations of 100,000 or more. The amendment would provide that a city or county with a population of over 50,000, with an investment portfolio of over $50 million, and with the approval of the State Board of Finance be covered under the provisions of the bill. Mr. Bache had no problem with a city over 50,000, which included Carson City (even though Carson City was a consolidated city-county) and Sparks. His concern was that some of the counties approaching populations of 50,000, such as Elko and Douglas, might have problems. However, he felt Mr. Kramer’s amendment a good one and applauded the requirement of the approval of the State Board of Finance as a check and balance. He would prefer the language to include cities of 50,000 or over, but not counties. He entertained a motion

Chairman Bache indicated that S.B. 131 was a bill from the Attorney General’s Office. He asked Committee Counsel Eileen O’Grady if she had researched the question as to whether the county statute would also cover a city.

As written, the legislation would cover the incorporated as well as the unincorporated areas, Ms. O’Grady replied.

Chairman Bache asked for a motion.

S.B. 487 was the lifeline and linkup service bill, Mr. Bache reminded the committee. He asked for a motion.

Chairman Bache asked for discussion. He had given the committee a day to "digest" the bill. Section 11 dealt with cellular service insofar as "911" calls were concerned. The bill would provide for reimbursement for provision of lifeline and linkup service.

Assemblywoman Parnell hoped the 2001 legislature would look at Fred [Schmidt’s] remarks from the day before wherein he stated that in many areas of the state "911" access was not available.

Chairman Bache announced he was having the controller’s proposed amendments to Senate Bill 500 reviewed prior to asking for a vote. He thought the controller’s amendments were the same or similar to those she had submitted on the Senate side. He wanted to find out why the amendments were proposed on the Senate side and why they were rejected.

There being no further business to come before the committee, Chairman Bache adjourned the meeting at 11:15 a.m.

RESPECTFULLY SUBMITTED:

Charlotte Tucker,

Committee Secretary

APPROVED BY:

Assemblyman Douglas Bache, Chairman

DATE: