By Hal Emalfarb, Esq General Counsel
National Lien and Bond Claim Systems (“NLB”)
The Construction Industry’s Source for Legal News
In 2017, The National Lien Reporter Blog will be the “go to” place for you to read about the latest legal, credit and payment issues confronting subs and suppliers. Have a legal question? NLB’s network of construction lawyers nationwide are ready to answer your questions. We will review best practices in the construction industry , and best of all, you’ll be able to contribute your questions, exchange forms and get practice tips and help with the industry, so you can improve your standard and customized contract terms, credit extensions, risk management techniques and develop improved cash flow.
Construction contracts are booming in 2017. Will the next 12 months be profitable for you? As you read our tips and follow legal compliance on all your projects, you will be in a better position to manage payment risks. NLB protects subs and suppliers on Private, Public and Federal works. Getting paid after all is our goal and it must be your number one priority!
How do you get paid? You will meet our new strategic partners, the nation’s leading notice providers, lien lawyers, credit reporters, public record data and best of all our new lenders who are ready to help you bridge funding shortages between draws, and when your collections become legal. We will introduce you this year to many new solutions to help protect your company and its biggest asset your accounts receivable.
1. DON’T WAIVE YOUR MECHANIC’S LIEN RIGHTS.
Start out 2017 and really Jump in and Know the different kinds of waiver of lien forms. We can help you check to see if you are using these important forms correctly. Your proper use of completing a lien waiver requires AN UNDERSTANDING OF THE LEGAL CONSEQUENCES and a proactive credit and corporate policy. Using your waivers correctly add value to protect your cash flow and receivables, and places you in the right legal position to enforcing your legal compliance, including collecting on your lien claims.
Don’t Waive Your Lien Rights In Advance. Improperly using Waivers or Lien Releases is the Most Common Mistakes that Construction Business Can Make. As a quick example here are four types of releases required for use in California construction projects.
- Conditional Waiver and Release on Progress Payment
Use this form when the claimant is NOT YET BEEN PAID.
- Conditional Waiver and Release on Final Payment
Use this form when the claimant is NOT YET BEEN PAID.
- Unconditional Waiver and Release on Progress Payment
Use this form when the claimant is required to sign a waiver and release in exchange for, or in order to, induce a progress payment, and the claimant asserts in the waiver that he or she has in fact received the progress payment.
- Unconditional Waiver and Release on Final Payment
Use this form when the claimant is required to sign a waiver and release in exchange for, or in order to, induce a final payment and the claimant asserts in the waiver that he or she has in fact received the final payment.
All waivers of lien forms are intended to release and limit your construction lien rights through the last date of work or up to the amount you are being paid. Waiving lien rights through the date you sign the waiver is not the best practice. Why would you waive your rights before you get paid? That makes no sense. However, many times owners and GCs ask you to sign the “unconditional” release and waiver of mechanics lien through today’s date regardless of whether the check actually clears the bank.
Don’t waive your lien rights until the check clears your account. A Conditional Waiver of Lien can be exchanged for a check. If the check does not clear the bank the release is conditional and generally not effective and the funds clear your account.
It is therefore very important that you only look to use conditional waivers of lien not unconditional waivers or releases of liens in advance of payment.
2. KNOW HOW TO ACCESS AND ENFORCE YOUR CONTRACT REMEDIES
In February 2017 we will be reviewing your standard the terms and conditions and credit forms like joint checks, riders with favorable provisions to counter the one sided GC contract – Learn examples of how to modify contract language to shift the risks and avoid unnecessary liabilities.
3. VERIFY JOB INFORMATION BEFORE YOU START WORK
You can’t comply unless you put into place a pre-job verification of the basic contract and project facts. We will be reviewing this subject further in March 2017.
4. SEND YOUR PRELIMINARY NOTICES TIMELY – UNDERSTAND ALL THE LIEN AND BOND CLAIM DEADLINES FOR YOUR PROJECT
In April be Proactive by having the working knowledge and understand and learn the deadlines and steps for perfect notices, payment bond claims, mechanics liens, stop notices and lawsuits. For summaries of these state specific requirements you can visit www.mechanicslien.com
5. TRACK YOUR LEGAL COMPLIANCE
NLB will discuss the best practices for your company to track your lien compliance in May of 2017. The use of excel spreadsheets or software is the way most companies track their lien compliance information.
6. PROTECT THE PROJECT RECORD
Do you keep all emails, schedules, and shop drawings in a project drop-Box? How do you maintain your records? What is the best software program? We will be exploring these topics in June, 2017. Obtaining written confirmation from the debtor of the exact amount the debtor believes it owes you is powerful evidence in support of your later claim.. Having prior written confirmation of the debt from the debtor will prove extremely persuasive in support of your claim.
7. WHAT LAWS REALLY APPLY TO CONSTRUCTION PROJECTS IN YOUR STATE?
In July you’ll learn how avoid firecrackers from exploding your legal risk and having your cash flow going off unexpectedly. While construction contracts contain specific dispute resolution procedures that define how you can make a claim, if you’re not bound by these terms such as a supplier or sub-subcontractor, But of you are covered or your customer who is not getting paid ask them have they complied with for example any notice or other deadlines to implement for example change orders, claims, or mediation or arbitration as alternatives or prior to filing litigation.
8. DON’T SLEEP ON YOUR LEGAL RIGHTS – AUDIT IN ADVANCE THE CONTRACT NOTICES AND DEADLINES
In August your working hard and the heat allows for some unscrupulous players to think they can lull unsophisticated creditors into a false sense of security with promises that the check is “in the mail” or other false assurances. Many in the construction industry are well aware of the important deadlines for pursuing construction claims. Others are not.. These tactics may continue until the debtor confirms that the creditor has missed important construction claim deadlines. Avoid this result by calendaring important dates to pursue your construction remedies and inform the debtor that you are fully aware of these deadlines and will act to protect your rights to collection before these deadlines expire.
9. WIN CLAIMS, GET PAID AND AVOID LAWSUITS BY NEGOTIATING FROM STRENGTH
Disputes can be expensive and litigation is rarely the most efficient way to resolve a dispute. What negotiation strategy should I adopt? Therefore, in September before resorting to a lawsuit, we’ll do your very best to help you get up to speed to exhaust all reasonable efforts to achieve resolution through ADR or mediation or arbitration. We will interview mediators and you can learn “How to Choose the Best Mediator” to solve your contract dispute.
A common outcome of a construction dispute is settlement before trial, with each side bearing their own attorney fees and costs. If you can use your negotiation skills to reach a reasonable resolution before it is necessary to begin trial, you are often better off.
10. DOCUMENTATION OF YOUR CLAIM WILL OFTEN BE YOUR KEY TO SUCCESS
If you are unable to resolve the debt yourself, in October our construction attorneys will help you realize how important it is for you to comply with full documentation of your claim in order to prove your entitlement to payment or to defend a claim against you. All other things being equal, the party who can best document the validity of its claim or defense is more likely to win the case. Of course, good documentation begins long before you ever visit your attorney. It starts with good practices in your office and in the field. Proposals and bids should be clear and unambiguous. Contracts should be closely reviewed and revised. Contract changes must be initialed. All changes in work should be confirmed in signed change orders containing agreed details, price and time extensions. When potential sources of dispute arise they must be fully documented. Documentation of the dispute and all discussions regarding the dispute must continue until the dispute is either resolved or brought through the contractual dispute resolution process. Documentation is very often the key to success.
11. BUILDING YOUR INSTITUTIONAL KNOWLEDGE
How many times have we heard a construction businessman faced with a legal issue or collection situation say: “I knew this would turn out bad.”
In November we will help you develop good instincts about people and how to extend credit and be successful in pursuing collections or claim situations. People who learn to trust their good instincts tend to survive difficult economic times when others do not. You’ll Learn Stories How Contractors Grow from Their Mistakes. Every construction dispute will teach you something new. It may be that your bid procedures are inadequate, It may be that your contract is poor, It may be that your office procedures are weak. Whenever you encounter a problem, stop, take stock of the source of your problem, determine if there is anything you can do to prevent the problem in the future and make adjustments in your procedures and paperwork to prevent the reoccurrence of this problem in the future.
12. GET EXPERIENCED HELP!
In December together we will summarize all the legal strategies that will strengthen your legal compliance. The main topic will be “How to Choose the Best Mediator” to solve your contract dispute. We hope you will conclude that if a legal issue comes up its important to hire qualified Attorneys and Consultants with Knowledge in Construction Law who are Familiar with Industry Practices. The practice of law has become complicated and knowledgeable legal counsel and qualified consultants can help you navigate through the myriad of obstacles that exist in every legal dispute.
By year end you will have learned how to comply with my legal rights and remedies and be able to say “I will get paid on every project”!