[Rev. 11/21/2013 12:43:35 PM--2013]

CHAPTER 627 - DISBURSEMENT OF MONEY BY CONSTRUCTION CONTROLS

GENERAL PROVISIONS

NRS 627.010           Short title.

NRS 627.020           Definitions.

NRS 627.030           “Categories of disbursements” defined.

NRS 627.040           “Complete plans and specifications” defined.

NRS 627.050           “Construction control” defined.

NRS 627.060           “Construction loan deed of trust” defined.

NRS 627.070           “Crossing categories of disbursement” defined.

NRS 627.080           “General contract of construction” defined.

NRS 627.090           “Improvement” defined.

NRS 627.100           “Lender” defined.

NRS 627.110           “Owner-contractor contract” defined.

NRS 627.130           “Premises” defined.

NRS 627.140           “Related construction control” defined.

NRS 627.150           “Restored category of disbursement” defined.

NRS 627.160           “Subcontract” defined.

NRS 627.170           “Total cost of construction” defined.

NRS 627.175           Applicability.

SURETY BONDS

NRS 627.180           Duty of construction control to deposit surety bond with State Contractors’ Board; form and amount of bond; exceptions.

NRS 627.183           Construction control may deposit substitute form of security in lieu of surety bond; amount deposited must equal amount of bond; interest or dividends accrue to depositor.

DUTIES AND LIABILITIES

NRS 627.190           Duties of construction control.

NRS 627.200           Designation and appointment of construction control as agent; liability for violation of chapter; action by claimant of mechanic’s lien.

_________

 

GENERAL PROVISIONS

      NRS 627.010  Short title.  This chapter may be cited as the Construction Control Law.

      (Added to NRS by 1965, 1179)

      NRS 627.020  Definitions.  As used in this chapter, the words and terms defined in NRS 627.030 to 627.170, inclusive, unless the context otherwise requires, have the meanings ascribed to them in those sections.

      (Added to NRS by 1965, 1179)

      NRS 627.030  “Categories of disbursements” defined.  “Categories of disbursements” means categories of construction funds to be disbursed in payment of work, labor and material bills due for construction, repair, alteration or improvement of premises. Such categories shall be in writing and include but not be limited to structural masonry, masonry veneer, plumbing, electrical work, carpentry, reinforcing steel, structural steel, earthwork, heating and ventilating and air-conditioning, glass and glazing, lath and plaster or sheetrock, insulation and soundproofing, finish flooring, painting and decorating, concrete or asphalt paving, and shall provide for the complete, full and final disbursement of all of the construction funds.

      (Added to NRS by 1965, 1179)

      NRS 627.040  “Complete plans and specifications” defined.  “Complete plans and specifications” means all written instruments, diagrams, drawings, notations, provisions, statements and lists of materials used by artisans, workers, contractors or subcontractors in the construction, repair, alteration or improvement of premises and approved by the appropriate city or county board, agency, commission, building department or council and upon which the building permit has been issued.

      (Added to NRS by 1965, 1179)

      NRS 627.050  “Construction control” defined.  A “construction control” is any person that engages in the control or disbursement of any funds payable or paid to laborers, materialmen, material suppliers, contractors, subcontractors, architects, engineers or others, for the purpose of satisfying bills incurred in construction, repair, alteration or improvement of any premises or that engages in the processing or approval of any mechanic’s lien release, voucher or authorization for payment of a labor bill, or material bill where such bill is incurred in the construction, repair, alteration or improvement of any premises.

      (Added to NRS by 1965, 1179)

      NRS 627.060  “Construction loan deed of trust” defined.  “Construction loan deed of trust” means any deed of trust recorded or to be recorded as security for a loan for the construction, repair, alteration or improvement of any premises, and includes a construction loan mortgage.

      (Added to NRS by 1965, 1179)

      NRS 627.070  “Crossing categories of disbursement” defined.  “Crossing categories of disbursement” means the exhausting by disbursement of funds held within a category of disbursement and thereafter the disbursement of funds out of another category to pay for bills applicable to the exhausted category. A construction control does not cross categories of construction if it removes from one category of disbursement funds found to be in excess of the costs of construction to be performed under that category after giving at least 10 days’ written notice in person or by mail to each person entitled to be paid from that category. Notice by mail is deemed to be given when deposited in the mail, postage prepaid, directed to the most recent address of the recipient known to the construction control.

      (Added to NRS by 1965, 1180)

      NRS 627.080  “General contract of construction” defined.  “General contract of construction” means a written contract signed by the owner of premises and by a contractor who contracts with other contractors, subcontractors or material suppliers to perform work or labor, or supply materials to such premises.

      (Added to NRS by 1965, 1180)

      NRS 627.090  “Improvement” defined.  “Improvement” means any existing or proposed structure, building, edifice or addition to real property added to or placed on or under the surface of real property.

      (Added to NRS by 1965, 1180)

      NRS 627.100  “Lender” defined.  “Lender” means any bank or savings and loan association authorized to do business under the laws of the State of Nevada or laws of the United States of America making a loan or providing moneys for construction, repair, alteration or improvement of any premises or any person doing business in the State of Nevada, providing moneys to be used in the payment of bills incurred in the construction, repair, alteration or improvement of any premises.

      (Added to NRS by 1965, 1180)

      NRS 627.110  “Owner-contractor contract” defined.  “Owner-contractor contract” means any written contract entered into between an owner of premises who is a contractor having the work done and another person for the performance of work or labor, or the supplying of materials, or both, to such owner-contractor having the work done.

      (Added to NRS by 1965, 1180)

      NRS 627.130  “Premises” defined.  “Premises” means real property or any interests therein.

      (Added to NRS by 1965, 1180)

      NRS 627.140  “Related construction control” defined.  “Related construction control” means a construction control owned, in whole or in part, by the lender, by one or more of the stockholders of the lender, by one or more of the associates or partners of the lender, or designated by the lender or the lender and the borrower of funds or by the borrower alone or by a person at the request of the lender.

      (Added to NRS by 1965, 1180)

      NRS 627.150  “Restored category of disbursement” defined.  “Restored category of disbursement” means a category of disbursement that has been exhausted below a level sufficient to pay bills to which have been added other funds sufficient to cover such bills.

      (Added to NRS by 1965, 1180)

      NRS 627.160  “Subcontract” defined.  A “subcontract” is a written contract signed by a contractor who is not the owner of premises and another person for the performance of work or labor or the supplying of materials to bring about the construction, repair, alteration or improvement of any premises.

      (Added to NRS by 1965, 1180)

      NRS 627.170  “Total cost of construction” defined.  “Total cost of construction” means the total sum payable to a general contractor to complete the construction, repair, alteration or improvement of the premises, or the aggregate total sum payable to others under owner-contractor contracts to complete construction, repair, alteration or improvement of the premises.

      (Added to NRS by 1965, 1180)

      NRS 627.175  Applicability.

      1.  Except as otherwise provided in subsection 2, the following shall not be a construction control or subject to the provisions of this chapter:

      (a) A contractor licensed under the laws of the State of Nevada, paying a subcontractor, supplier of material, laborer or other person for bills incurred in the construction, repair, alteration or improvement of any premises.

      (b) A subcontractor licensed to do business under the laws of the State of Nevada, paying a subcontractor, supplier of material, laborer or other person for bills incurred in the construction, repair, alteration or improvement of any premises.

      (c) An owner-contractor paying a contractor, subcontractor, supplier of material, laborer or other person for bills incurred in the construction, repair, alteration or improvement of any premises.

      (d) A lender of construction loan money, provided that the lender disburses the money directly to a contractor authorized by the borrower to do the work, or disburses the money directly to the owner of the premises.

      (e) A lender of construction loan money, to an owner of a residential property or to an owner of not more than four units if the loan is made to repair or improve such property and the construction costs are $10,000 or less, or 35 percent of the appraised value of the improvements and repairs, whichever is greater.

      2.  The provisions of this chapter apply to a contractor who is required to obtain the services of a construction control pursuant to the provisions of NRS 624.264, 624.323 or 624.960.

      (Added to NRS by 1965, 1183; A 2001, 2983; 2003, 1903)

SURETY BONDS

      NRS 627.180  Duty of construction control to deposit surety bond with State Contractors’ Board; form and amount of bond; exceptions.

      1.  The provisions of this section do not apply to:

      (a) Savings and loan associations, state banks and national banking associations licensed to do business in the State of Nevada, under the laws of the State of Nevada or under the laws of the United States.

      (b) Title insurers or underwritten title insurance companies authorized to do business in the State of Nevada.

      (c) Lenders of construction loan money for dwelling units who are approved by the Federal Housing Administration or Department of Veterans Affairs and who have been licensed and authorized to do business in the State of Nevada.

      2.  Except as otherwise provided in subsection 1 and NRS 627.183, as a condition to doing business in this State, each construction control shall deposit with the State Contractors’ Board and keep in full force and effect a surety bond, in the amount set forth in subsection 4, which is executed by some corporation authorized to issue surety bonds in this State.

      3.  The surety bond must be in substantially the following form:

 

Bond No.

CONSTRUCTION CONTROL BOND

 

Know All Persons by These Presents:

       That I, ................................, having a principal place of business in ...................................................., Nevada, as principal, and ................................, a corporation licensed to execute surety bonds under the provisions of the Nevada Insurance Code, as surety, are held and firmly bound to the State of Nevada, for the use of any person by whom funds are entrusted to the principal or to whom funds are payable by the principal, in the sum of ................ Dollars, lawful money of the United States of America, to be paid to the State of Nevada, for which payment well and truly to be made we bind ourselves, our heirs, executors and successors, jointly and severally, firmly by these presents:

       The Condition of the Above Obligation Is Such That:

       Whereas, Under the Construction Control Law, certain duties, obligations and requirements are imposed upon all persons, copartnerships, associations or corporations acting as construction controls;

       Now, Therefore, If the principal and its agents and employees shall faithfully and in all respects conduct business as a construction control in accordance with the provisions of the Construction Control Law, this obligation shall be void, otherwise to remain in full force and effect;

       Provided, However, That the surety or sureties may cancel this bond and be relieved of further liability hereunder by delivering 30 days’ written notice of cancellation to the principal; however, such cancellation shall not affect any liability incurred or accrued hereunder prior to the termination of such 30-day period;

       Provided Further, That the total aggregate liability of the surety or sureties herein for all claims which may arise under this bond shall be limited to the payment of ................ Dollars.

       In Witness Whereof, The principal and surety have hereunto set their hands this ..................... day of the month ................ of the year........... .

 

                                                                                   .......................................................

                                                                              By.......................................................

                                                                                                        Principal

                                                                  (Surety)

                                                                              By.......................................................

                                                                                                       Attorney

 

      4.  Each construction control shall initially deposit a surety bond that complies with the provisions of this section or a substitute form of security that complies with the provisions of NRS 627.183 in the amount of $20,000. Not later than 3 months after the initial deposit and annually thereafter, the construction control shall:

      (a) Submit to the State Contractors’ Board a signed and notarized affidavit attesting to the average monthly balance in the trust account maintained by the construction control; and

      (b) Deposit a surety bond that complies with the provisions of this section or a substitute form of security that complies with the provisions of NRS 627.183 in the following amount based upon the average monthly balance in the trust account maintained by the construction control:

 

AVERAGE MONTHLY BALANCE                              AMOUNT OF BOND OR

                                                                                               SECURITY REQUIRED

Less than $2,000,000.................................................................................... $20,000

$2,000,000 or more but less than $4,000,000............................................. 40,000

$4,000,000 or more but less than $6,000,000............................................. 60,000

$6,000,000 or more but less than $8,000,000............................................. 80,000

$8,000,000 or more but less than $12,000,000........................................ 120,000

$12,000,000 or more but less than $20,000,000...................................... 200,000

$20,000,000 or more..................................................................................... 250,000

 

      (Added to NRS by 1965, 1181; A 1971, 842, 1924, 1958; 1995, 1096; 1999, 3760; 2001, 282)

      NRS 627.183  Construction control may deposit substitute form of security in lieu of surety bond; amount deposited must equal amount of bond; interest or dividends accrue to depositor.

      1.  As a substitute for the surety bond required by NRS 627.180, a construction control may, in accordance with the provisions of this section, deposit with any bank or trust company authorized to do business in this state, in a form approved by the State Contractors’ Board:

      (a) An obligation of a bank, savings and loan association, thrift company or credit union licensed to do business in this state;

      (b) Bills, bonds, notes, debentures or other obligations of the United States or any agency or instrumentality thereof, or guaranteed by the United States; or

      (c) Any obligation of this state or any city, county, town, township, school district or other instrumentality of this state, or guaranteed by this state.

      2.  The obligations of a bank, savings and loan association, thrift company or credit union must be held to secure the same obligation as would the surety bond. With the approval of the State Contractors’ Board, the depositor may substitute other suitable obligations for those deposited which must be assigned to the State of Nevada and are negotiable only upon approval by the State Contractors’ Board.

      3.  Any interest or dividends earned on the deposit accrue to the account of the depositor.

      4.  The deposit must be in an amount at least equal to the required surety bond and must state that the amount may not be withdrawn except by direct and sole order of the State Contractors’ Board. The value of any item deposited pursuant to this section must be based upon principal amount or market value, whichever is lower.

      (Added to NRS by 1999, 3760)

DUTIES AND LIABILITIES

      NRS 627.190  Duties of construction control.  Every construction control shall:

      1.  Obtain a true copy, certified as true by a registered architect or licensed professional engineer and signed by the person or persons who executed the general contract of construction or the owner-contractor contracts, respectively, as owner, of the complete plans and specifications to be used in the construction subject to the construction control.

      2.  Obtain from the lender a written statement of the total net amount of money, credits or loan proceeds that will be available for disbursement or, as a lender engaging in construction control functions, review and ascertain its total net amount.

      3.  Obtain a true copy, signed by all the parties thereto, of the general contract of construction or all owner-contractor contracts, pursuant to which the construction will be performed.

      4.  Obtain a true copy, signed by the parties thereto, of all of the subcontracts entered into with a contractor if the construction is to be performed pursuant to a general contract of construction.

      5.  Compare the total amounts to be paid pursuant to all of the subcontracts with the total amount payable to the general contractor, and compare the amount payable with the total net loans proceeds available for disbursement as construction loan funds.

      6.  Compare the total amounts to be paid pursuant to all owner-contractor contracts entered into with the total net loan proceeds available for disbursement as construction loan funds.

      7.  Establish, in writing, the categories of disbursement and the amounts of money apportioned to each category for disbursement.

      8.  Disburse or authorize the disbursement of money from a particular category only for bills incurred within that category.

      9.  Disburse or authorize the disbursement of funds if the total net loan proceeds exceeds in amount or equals the total payable by the terms of:

      (a) The general contract of construction, or the subcontracts entered into with the general contractor, whichever is greater; or

      (b) The total payable by the terms of all owner-contractor contracts.

      10.  Receive funds before authorizing disbursement, if other funds are needed to create an excess of funds as required pursuant to subsection 9.

      11.  Restore categories of disbursement in the order in which they become exhausted and to the amount exhausted from any available funds in its hands and from other funds supplied by the borrower or borrowers.

      12.  Obtain from the obligee a mechanic’s lien release covering all work, labor and materials performed or supplied to the time specified in the lien release and for the amount payable pursuant to the terms of the release, before the disbursement of any money for payment of such bills.

      13.  Upon receipt of written notice of a change order entered into after the beginning of construction which requires expenditure of extra money and the amount thereof, require that any category of disbursement affected thereby be increased and restored to the extent of the amount of such extras from any available funds in its hands and from other funds supplied by the borrower before the disbursement of additional funds from that category.

      14.  Before disbursing money to a subcontractor or supplier, obtain from that subcontractor or supplier a true copy of the bill, in those instances in which the category was established based upon a proposal or bid of that subcontractor or supplier and not upon a firm contract.

      (Added to NRS by 1965, 1182; A 1997, 1057)

      NRS 627.200  Designation and appointment of construction control as agent; liability for violation of chapter; action by claimant of mechanic’s lien.  Any lender desiring to use the services of a construction control shall first obtain the written assent of the borrower specifying by name the construction control to be used. The lender and borrower shall be deemed to have appointed that construction control as their agent for the particular construction loan for which its services are requested and the acts of the construction control are binding upon the lender and borrower severally. If a related construction control or the employee or agent of a related construction control, or a lender acting as a construction control or any employee or agent of a lender acting as a construction control, violates any of the provisions of this chapter, otherwise than as the result of a good faith error in mathematical computation, then:

      1.  With respect to a particular loan subject to construction control, the construction control and the lender shall each, jointly and severally, be liable for payment of any mechanic’s lien filed against the premises subject to construction to the extent that such a lien is the result of a violation of any provision of this chapter.

      2.  Any mechanic’s lien claimant damaged by the violation of any provision of this chapter may jointly or severally proceed with an action on the bond referred to in NRS 627.180, and the rights and remedies under the bond or lien claims and any direct right of action against the lender or construction control are cumulative, and the lien claimant prevailing in any such action is entitled to reasonable attorney’s fees.

      (Added to NRS by 1965, 1183; A 1995, 1527)