Contractors who fail to pay their bills may find it hard to build in Utah next year if proposed legislation passes the scrutiny of lawmakers in January.

The legislation, still in draft form, is aimed at protecting the public and keeping the legitimate contractor in business, but some contractors fear it will only cost them more to stay in business."Contractors can see added expenses coming from that," said Bill Fairbanks, president of the Utah Valley Homebuilders Association. "I can see where they are coming from as far as protecting the public, but I think there are a few things they can do to make it better."

The proposed legislation - called the Construction Trades Licensing Act and the Uniform Building Standards Act - is being put together by the Department of Business Regulation's Division of Occupational and Professional Licensing.

Jud Weiler, licensing coordinator for the division, said the legislation will require contractors to give adequate proof of financial responsibility and, if necessary, to purchase bond insurance to ensure that they have financial backing.

The proposed legislation would also implement criminal sanctions for the diversion of funds. If a contractor is paid for specific items and then doesn't pay the subcontractors, he will face criminal penalties.

The theory is that contractors, in order to be licensed, must post a bond or a security cash deposit. That way if claims are made against them, they and the consumer will be protected, Weiler said.

Fairbanks said he thinks contractors should be able to use irrevocable credit by local banks to guarantee the amount of money they have behind them. Weiler said this will probably be acceptable under the new legislation and the division is still getting suggestions about the bill from others in the industry.

Provo resident Kim Fearneyhough, founder of Home Aid _ an organization to help consumers facing construction problems, said she has worked for almost three years to get some consumer protective legislation to Capitol Hill.

She met with Weiler and other officials last week to discuss the proposal and expects legislation to be successful this time because "it's not me alone anymore. The governor and state officials have finally realized that something needsto happen."

There has been no effective enforcement of contractors licensing since 1986 when the Legislature reduced the Division of Contractors staff from 23 and three branch offices to a staff of six with no branch offices, and then in 1987 eliminated the Contractors Division entirely, Weiler said.

Weiler said they will ask for additional investigators and financial officers to check a contractor's financial responsibility. Total expenditures for the new organization are expected to be about $650,000.

The state collects more than $800,000 a year in contractor licensing, but puts only $125,000 back into the program. The rest has been going into the state's general fund.

The new legislation would require that a substantial amount go back into the program.

Fearneyhough said a bill passed in 1984 states that all money collected from licensing fees has to go to the regulating industry. If the proposed legislationdoes not pass, by law the state cannot collect the money and will not be able tolicense contractors.

But Fairbanks said, "There is no way to police a lot of what they are passing. I wonder if they are putting a little too much red tape in it."

At the same time he said he is sensitive to what has happened to consumers. He said it is hard for contractors to be legitimate when they see those who are not legitimate be the low bidders and then go bankrupt and leave everyone hanging.

"We can't compete with them,," Fairbanks said. "This legislation will flush out the garbage. It puts everyone on an even field. We will all be playing by the same rules."