New Laws Impacting the Construction Industry Passed During Indiana’s 2019 Legislative Session

The Indiana legislature passed, and Governor Eric Holcomb recently signed, four new laws impacting the construction industry. These laws impact indemnity rights, available delivery methods for public projects, required bonds on certain public projects, and environmental permitting. Below is a brief summary of these laws.
 
Changes to Anti-Indemnity Law
(Senate Enrolled Act 230)
 
A new law makes significant changes to Indiana’s anti-indemnity laws contained in Indiana Code § 26-2-5. Indiana’s anti-indemnity statute previously provided and continues to provide that construction or design contracts cannot require one party to indemnify the other for its sole negligence or willful misconduct with request to bodily injury, injury to property, or design defects. However, several important changes and clarifications were made to this anti-indemnity statute.
 
First, the new law specifies that the anti-indemnity statute applies to design-build contracts. It was assumed such contracts fall under the anti-indemnity statute, but this change makes it crystal clear.
 
Second, the old law prohibited indemnity for the sole negligence or willful misconduct of “the promise or the promisee’s agents, servants, or independent contractors who are directly responsible to the promisee.” The new law strikes the reference to agents, servants, or independent contractors and adds “sole negligence does not include vicarious liability, imputed negligence, or assumption of a non-delegable duty.” This change in the law was intended to nullify a recent line of Indiana appellate cases providing that vicarious liability via a non-delegable duty in a contract constitutes sole negligence. This means a general contractor should be able to seek indemnification based on an enforceable indemnification clause in its subcontract from a subcontractor when a subcontractor’s employee is injured and sues the general contractor, because the subcontractor’s negligence is no longer imputed to the general contractor for purposes of this statute.
 
Third, the new law now includes certain contractual prohibitions related to agreements with a design professional, including architects, landscape architects, surveyors, engineers, geologists, or geotechnical and environmental consultants entered into after June 30, 2019. Specifically, this new law provides that the contract cannot require these design professionals to defend another against a professional liability claim. More significantly, it also bars design professionals from indemnifying another for any liability other than to the extent caused by the design professional’s willful misconduct or negligence. In other words, if a design professional is only partially at fault for a certain condition it can only be liable for its proportion of the fault and cannot be forced to assume all of the liability. Of note, any defense or indemnity provisions in these design professional contracts entered into after June 30, 2019 that are contrary to these restrictions will be void and unenforceable.
 
Construction Manager as a Constructor
(House Enrolled Act 1214)
 
In 2014, Indiana passed a law (Indiana Code § 5-32) allowing certain public agencies to utilize the construction manager as constructor delivery method to build projects. With respect to these authorized public agencies (but excluding state educational institutions), the law included a “sunset clause” that effectively meant this construction manager as constructor project delivery method could not be used by these agencies after July 1, 2020.  
 
This year the legislature passed a bill removing the date restrictions within Indiana Code § 5-32, in effect making this method of delivering construction projects permanent. It also enlarged the number of public agencies who can use this method. In addition to public agencies set forth in Indiana Code § 5-30-1-11, which includes state educational institutions, school corporations, airport authorities, and multiple other public agencies, the law now specifies that public libraries and the Health and Hospital Corporation of Marion County may use construction manager as constructors. This law is retroactive, going into effect January 1, 2019.
 
Bonds on P3 Projects
(House Enrolled Act 1374)
 
Indiana’s original statutes authorizing build-operate-transfer (“BOT”) agreements and public-private partnerships (“P3”) provided that, while the agreement may require performance and payment bonds, the agreement did not have to contain these requirements. This is unlike other agreements involving public works construction, where payment and performance bonds are generally required. The new law now requires bonds on BOT and P3 projects, with payment bonds in an amount not less than 100% of the cost to design and construct the project, and performance bonds in an amount not less than 50% of the cost to design and construct the project. These new bonding requirements apply to all such agreements entered into after June 30, 2019.
 
Environmental Permitting
(House Enrolled Act 1266)
 
A new law related to environmental permitting could expedite the process and lower the overall burden on builders. A new chapter was added to the Indiana Code, IC 13-18-27, to address permitting related erosion and sediment control. It provides communities may not require erosion and sediment control measures that are more stringent than measures required under state-issued regulations. It does permit communities to require measures on “very small construction activity sites,” defined as less than one acre, even if the state does not, but those measures cannot be more stringent than measures required under Indiana’s regulations for “small construction activity sites,” defined as sites that are larger than one acre but less than five acres.
 
The new law also expedites the review of construction plans for erosion and sediment control. Authorities have ten working days to review plans related to small or very small construction site activities. Authorities get a bit more time – 14 working days – to review plans for large construction activity sites, defined as a site that is at least five acres. After a plan is approved and work has commenced, authorities cannot order work to stop based on erosion and sediment control deficiencies unless the deficiencies remain unresolved 72 hours after written notice is received or in the event a public health hazard or a safety hazard has been created.
 
Nate Uhl and Steve Jones are attorneys with Ice Miller LLP. Ice Miller's Construction Practice is ranked as a National Tier 1 Practice in U.S. News & World Reports' Best Law Firms. Uhl and Jones practice construction law with a focus on assisting clients in preparing and negotiating construction and design contracts as well as handling construction disputes. Jones can be reached at steve.jones@icemiller.com or (317) 236-2436, and Uhl can be reached at nate.uhl@icemiller.com or (317) 236-2383.
 
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.