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A Guide to South Carolina Construction

Law For Trade Contractors and Suppliers

I. Introduction

Construction subcontractors and material suppliers have many common legal problems by virtue of the fact that they lack a direct contractual relationship with the project owner who directs the construction and controls the funds.  In South Carolina, these unique problems are directly affected by certain laws, regulations, and practices.  The purpose of this outline is to make the subcontractor/supplier doing business in South Carolina more aware of those peculiarities, inherent in sate law and practice, which directly affect their businesses.

II. Licensing of Construction Contractors (S.C. Code 40-11-10 et seq.)

By virtue of the Restructuring Act of 1993, the Contractors Licensing Board is now an agency of the Department of Labor, Licensing, and Regulation. (LLR)

All contractors must be licensed prior to bidding and/or contracting directly with owners when the cost of the undertaking exceeds five thousand ($5,000.00) dollars.  Most are licensed as general contractors under the classifications of "building", "highway", "public utility", and "specialty".  Within these classification are numerous sub-classifications based upon the scope of the work to be performed.

Generally a specialty contractor needs no license while working as a subcontractor to a licensed general contractor.  But there is a separate licensing classification for mechanical contractors.  Mechanical contracting licenses fall under the following sub-classifications: air conditioning, heating, packaged equipment, electrical, lighting protection systems, plumbing process piping, and refrigeration.  All mechanical contractors must be licensed when performing work as either a prime or subcontractor when the cost of the undertaking exceeds five thousand ($5,000.00) dollars.  In addition, certain specialty sub-classifications must be separately licensed.  Examples are: bridges, specialty roofing, asphalt paving, and marine.

Under separate licensing statutes also administered by the Contractors Licensing Board, the following specialty contractors are required to be licensed:  fire sprinkler installers and alarm systems businesses.  A licensed electrical contractor is allowed to bid and install burglar and fire alarm systems without a separate license.

Home Builders can be licensed either as Residential Home Builders or as general contractors.  Pursuant to the Residential Specialty Contractors Act, all specialty trade contractors working on residential construction must register with the Board of Residential Builders. (LLR)

A contractor in South Carolina may not bid on work for which a license is required with the intention of obtaining that license prior to commencing work.  The South Carolina Licensing Law makes it a misdemeanor for an unlicensed contractor to bid on work for which a license is required.

III. Mechanic's Liens (S.C. Code 29-5-10, et seq.)

A contractor/subcontractor/supplier may file a mechanic's lien prior to 90 days following the last furnishing of labor or materials.  The lien attached to the owner's interest in the land, but it value is limited to the amount actually owed by the owner on the construction contract.  Within 180 days after the last furnishing, a suit must be brought to enforce the lien, or it will dissolve.

Once the owner receives written notice of the claim of a subcontractor or supplier, he pays the general contractor at his own risk.  If the owner pays the general contractor after receiving written notice, and the subcontractor/supplier then perfects his mechanic's lien by bringing suit within the time prescribed, the owner will not be able to offset the amounts paid to the general contractor after notice.

If the owner has specifically authorized the work of the subcontractor (or materials supplied), he is liable to the full extent of the lien regardless of whether the general contractor has been paid.

Even prior to the lien filing, a second-tier (or lower) subcontractor or supplier can significantly strengthen his lien rights by serving upon the general contractor a "Notice of Furnishing of Labor or Materials" reflecting certain detailed information required by the statute.  This filing is not necessary unless the general contractor has filed a notice of project commencement as prescribed in the statute.  If the contractor has filed a notice of project commencement and the remote provider has not sent a notice of furnishing, the lien rights of the remote provider do not tie into the amount owed to the general contractor by the owner, but are limited to the amount owed by the general to the subcontractor in privity with the remote provider.

Mechanic's liens are subordinate to prior-filed mortgages, but prevail over subsequent advances made by the lender after the liens are filed if the lender has actually been served with the lien.  There is no priority among perfected mechanic's lienors: they share pro-rata if the amount recovered is less than the aggregate of the liens.

The "prevailing party" in a mechanic's lien enforcement action may recover attorney's fees in an amount prescribed by the court.

No lien waiver which has not been substantially paid for is enforceable in South Carolina.

IV. LIENS OF SUBCONTRACTORS AND SUPPLIERS ON CONTRACT PRICE

Money paid to a prime contractor on account of the materials and services of subcontractors and suppliers is impressed with a first lien in favor of those subcontractors and suppliers.  It is unlawful for the prime contractor to use such funds other than to pay the suppliers and subcontractors.  A prime contractor may not withhold funds from a subcontractor on one project for alleged deficiencies on another project.  Diversion of money from a construction job is punishable by fine and imprisonment.  It may also give rise to a civil claim for triple damages un the S.C. Unfair Trade Practices Act.

V. PAYMENT BONDS REQUIRED ON STATE WORK (S.C. CODE 11-35-3030(2))

A prime contractor on state construction must provide a payment bond for the protection of first and second-tier subcontractors and suppliers.  Suit on such bond may be brought directly against the surety in the county or circuit where the contract was to be performed.  A second-tier subcontractor or supplier must notify the prime contractor by certified mail within 90 days of the last furnishing of labor or materials.  Any suite on the bond must be brought within a year of such furnishing.

VI. BID LISTING ON STATE WORK (S.C. Code 11-35-3020(2)(b))

A prime contractor on state work is required to list each subcontractor who will perform work of a value over three percent of the estimated cost of construction as determined by the project architect/  The contracting agency will identify by specialty, in the bid documents, the subcontractors required to be listed.

Failure to follow the bid-listing procedure renders a bid subject to attack under the bid protest provisions of the Procurement Code.

VII. LIMITATION OF RETENTION ON STATE WORK (S.C. Code 11-35-3030(4))

Retention on state work is limited to 5% and must be released on a line-item basis.  A prime contractor must pass such retention on to his subcontractors.

VIII. INTEREST/FEES IF CLAIM UNREASONABLY DENIED (S.C. Code 27-1-15)

A contractor or supplier who places by certified mail a claim for payment for services or materials incorporated into the work, may recover interest and attorney's fees if the claim is not properly investigated, and, if valid, paid within 45 days of the demand.

IX. THE SOUTH CAROLINA PROMPT PAY ACT (S.C. Code 29-6-10 et seq.)

This law requires prompt payment to contractors, subcontractors and suppliers, and provides for interest penalties when payment is delayed.  The general contractor must pay the subcontractor within seven days from the time the general contractor receives payment from the owner.  The subcontractor must, in turn, make such payment to sub-subcontractors and suppliers within seven days of receipt by the subcontractor of those funds.

In order to take advantage of the protection provided by the Prompt Pay Act, the subcontractor or supplier must put a written notice in each pay application or invoice.  The notice should read substantially as follows:  "South Carolina law requires prompt payment to subcontractors and suppliers, and provides interest penalties for late payment."

X. THE SUBCONTRACTOR'S PAYMENT PROTECTION ACT (S.C. Code 29-6-20)

This law protects the payment rights of subcontractors and suppliers by making pay if paid (contingent payment) provisions unenforceable, requiring payment bonds on all public work, and prohibiting the issuance of payment bonds by entities other than licensed insurance companies meeting certain criteria.

XI. PAYMENT BOND RIGHTS OF REMOTE CLAIMANTS (S.C. Code 11-1-120 et seq.)

This law, passed in 2000, restricts the rights of remote claimants to recover against payment bonds, in the same manner that their rights were restricted with regard to recovery on mechanic's lien actions.  Essentially, in order to trigger this statute, the general contractor must file a notice of commencement.  Once such notice is filed, a supplier to a subcontractor or other remote provider (no privity with the general contractor) must send a notice of furnishing to the general contractor by certified mail.  There is no deadline for the sending of this notice, but until it is received, any payments made by the general contractor for the materials/services which are the subject of the claim, will discharge - to the extent of such payment - the bond rights of the remote provider.

XII. CONTRACTS TRANSPORTING DISPUTES (S.C. Code 15-48-10 et seq.)

Many of the subcontract forms commonly used in South Carolina by out-of-state general contractors require that the subcontractor go back tot he general contractor's home state to resolve a dispute.  Under the above statute, such clauses are no longer enforceable, and subcontractors and suppliers may sue or seek arbitration as otherwise provided by South Carolina law and the Rules of Arbitration.  (NOTE: As far as the arbitration prong of the statute is concerned, several trial court decisions have held the statute impermissibly conflicts with the Federal Arbitration Act.)

XIII. ARBITRATION IN SOUTH CAROLINA (S.C. Code 15-48-10 et seq.)

South Carolina has adopted the Uniform Arbitration Act, which makes arbitration agreements valid and enforceable.  In order for an arbitration to be enforceable under the South Carolina Arbitration Act, conspicuous front-page notice of the arbitration provision is required.  If such notice is not given, however, and if the project affects interstate commerce, arbitration may be enforceable under the Federal Arbitration Act, which does not requite a stamp.

("A Guide to South Carolina Construction Law" was prepared as a service to the industry by Daniel T., Brailsford, Esq., a member of the Columbia, South Carolina law firm of Robinson, McFadden and Moore PC.  Mr. Brailsford has been active in construction law since the mid 70's, representing primarily the interests of suppliers and subcontractors.  He is a member of the "Subcontractors, Materialmen, and Equipment Systems" subcommittee of the ABA Forum on Construction.  He is General Counsel to the MCASC and the American Subcontractors Association of the Carolinas.  He has presented programs on legal rights of subcontractors and suppliers to several national symposiums, the South Carolina Bar, and numerous specialty contractor trade associations.  Mr. Brailsford has been a construction arbitrator since 1978 and completed mediation training at Duke University.  He now serves as a construction arbitrator and mediator as part of his practice, and ahs written and lectured on alternative approaches to the resolution of construction disputes.)

 

American Subcontractors Association of the Carolinas

Executive Director: Linda Burkett

104-A N. Woodland Drive, Lancaster, SC 29720

Phone:  (803 or 877) 285-3356

Fax:  (803) 285-3357

E-mail:  asac@asacarolinas.com

 www.asacarolinas.com