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F I S C A L I M P A C T R E P O R T

SPONSOR

SPAC

ORIGINAL DATE

LAST UPDATED

1/31/07

HB

SHORT TITLE

CID Licensing - Proof of Responsibility

SB

13/SPACS

ANALYST C. Sanchez

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

NFI

NA

NA

(Parenthesis ( ) Indicate Expenditure Decreases)

Duplicates, Relates to, Conflicts with, Companion to

Substitute of SB13 introduced by Senator Mary Jane M.Garcia

SOURCES OF INFORMATION

LFC Files

Responses Received From

Construction Industries Division (CID)

SUMMARY

The Senate and Public Affairs Committee’s substitute specifies that the bond shall be a “code

bond" which shall respond to damage caused by uncorrected code violations of a

contractor/licensee. The substitute bill also provides that the proceeds of the bond may not be

used to pay punitive damages, attorney fees or costs associated with pain and suffering. Finally,

the substitute bill deletes a provision in the original bill that limited the licensees’ ability to

contract for projects that had a value greater than 95% of the bond amount.

Overall, this legislation would require licensees (contractors only) of the Construction Industries

Division (CID) to carry a bond that would respond to damages caused by the licensee in the

performance of contracting as proof of the professional responsibility required by the

Construction Industries Licensing Act see NMSA 1978, Section 60-13-1.1). This bond would

replace the current professional responsibility requirement (see NMSA 1978, Section 60-13-49)

which is either:

. a bond that responds to a claim by CID for payment of fines assessed by CID;

. A cash collateral deposit against which CID has recourse for payment of fees; or

. an audited financial statement from the licensee.

Senate Bill 13/SPACS – Page

2

FISCAL IMPLICATIONS

Impact on the Agency

. There is very little fiscal implication for the Division if this amendment is

made. Currently, the Division seeks payment of fines directly from the contractor, rather than the

bonding company, so that the cause and effect relationship between the contractor’s mistake and

the fine is reinforced. This legislation would not change this practice; therefore, the Division

does not expect a significant impact on its ability to collect fines if bond requirement in the

current statute is repealed.

Impact on the Contractor

. The majority of contractors currently satisfy the professional

responsibility requirement with a bond. Assuming that the cost of the new bond would not be

significantly different from the bond currently required, the contractor would not be adversely

affected by the change in bond type.

Impact on the Public

. Under the current professional responsibility statute, the consumer of

services provided by a licensed contractor has no assurance of the contractor’s professional

responsibility because none of the three options for demonstrating professional responsibility

gives the consumer restitution for damages if the contractor fails to perform professionally or

responsibly. This legislation would give the consumer recourse for damage proven to be caused

by a licensed contractor.

SIGNIFICANT ISSUES

The existing professional responsibility requirement does not demonstrate or prove professional

responsibility of CID licensees. It merely ensures that CID has a source for the payment of fines

if the licensee does not pay them, and then only if the licensee elects the bond or cash collateral

option. If a financial statement is selected, neither the division nor the public have any assurance

of the contractor’s performance.

The existing requirement creates a discrepancy in the discipline of licensees. Licensees whose

bond or cash collateral becomes ineffective during the term of the license are subject to license

suspension and revocation. Licensees who submit a financial statement are not subject to

suspension or revocation, regardless of the financial condition of the licensee.

According to CID:

The existing statute does not ensure that a contractor will be responsible in performing the work

undertaken. The statute limits the contractor’s ability to obtain permits for individual projects

based on the amount of the bond or cash collateral. For example, a bond in the amount of $500

will authorize the licensee to obtain a permit for work the value of which is not greater than

$25,000 per project or permit. However, there is no restriction on the number of $25,000

projects for which the licensee may obtain permits at one time; therefore, contractors can, and

do, over-extend regardless of the permit limitation imposed by the professional responsibility

limit. Further, there is no value–per-project restriction on a licensee who uses a financial

statement to satisfy the requirement.

Senate Bill 13/SPACS – Page

3

PERFORMANCE IMPLICATIONS

Liquefied Petroleum Gas licensees are required to carry insurance and Manufactured Housing

licensees are required to carry a bond. Requiring the same kind of proof of professional

responsibility of CID licensees would treat these similarly situated licensees consistently and

would ensure that CID’s licensees would meaningfully demonstrate proof of professional

responsibility.

ADMINISTRATIVE IMPLICATIONS

This legislation would not adversely affect CID’s administration of the professional

responsibility requirements. In fact, because there would be only one type of proof of

professional responsibility, current procedures could be streamlined. In addition, because the bill

simplifies the consequences and procedures when a bond becomes ineffective, it will be easier to

communicate the requirements and consequences of failing to comply to the licensees. Bond

attachment would be processed by the bonding company in direct communication with the

claimant, so there would be little administrative impact on the Division.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

Substitute of SB13

TECHNICAL ISSUES

None

OTHER SUBSTANTIVE ISSUES

The Construction Industries Division supports the changes adopted by the committee’s substitute

bill.

ALTERNATIVES

Require errors and omissions insurance instead of a bond

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

The inequities of the current professional responsibility requirements will continue to result in

disparate treatment of CID licensees, and CID licensees will continue to be licensed without

being required to demonstrate meaningful professional responsibility to the citizens of New

Mexico.

CS/csd