This is the second in our series on protecting the right to payment in the construction industry. In the first of our series we set the stage for using construction lien rights to enable the credit that runs the construction industry and as a form of security for payment. Those lien rights are not self-executing, however. There is important early work to be done to properly protect them. Many states have early notice requirements and the unprepared can lose the right to a lien within weeks of starting a job.
Any successful strategy for protecting the right to payment begins with information and analysis. This sounds complicated but really should not be. A job information sheet can help prompt the right questions and organize the answers. Don’t overlook the fact that some of this information may already be in a sales or bidding file. Here are the simple steps to follow:
- Start by gathering the facts about the project. Where is the job site? This will tell us what state or federal law applies. Location information should also include the job site address where you will show up to work or deliver.
- Is what you do or sell part of a permanent or a long term “improvement” to real estate? The work may be either horizontal or vertical and might even be performed off-site, but in most cases it should involve some visible change to the property.
- Who is the owner of the project? Is it a private party such as a company or an individual? Get a name and address. If the owner is private, lien rights probably apply. Is the work it for a tenant? If the owner is residential, is it for one unit or many? There are often special rules for single unit residential. If the owner is public, however, there is probably a payment bond but no lien claim. Payment bond discussion comes later.
- Who are you going to do business with? Will it be the owner or a general contractor or a subcontractor? Get the names and addresses. This can help you determine who you may have to send notices to.
- How “big” is this job? For private work this is usually the number of living units or “floor” area. Again, this can help you determine who you may have to send notices to. If the owner is public, what is the best estimate of the overall contract price? This can help you determine whether the project meets a statutory threshold for a payment bond.
- When did you or will you first start work or deliveries? Time can be critical. In many cases you may be able to give any necessary notices “early” and not have to count out the prescribed number of days.
Now review your answers against the notice and lien requirements in the state where your job is located and you are ready for the next in our series about the what and why of the various kinds of preliminary notices.