Construction – Construction Law Musings- Richmond, VA

A Lien By Any Other Name Can Sound Just As Sweet

Originally posted 2014-08-04 09:00:11.

For this weeks Guest Post Friday here at Musings, we have our first three time guest poster. Scott Wolfe, Jr. (@scottwolfejr on Twitter) is a construction lawyer practicing in Washington, Oregon and Louisiana. He is the founding member of the bi-coastal construction law boutique practice, Wolfe Law Group. He is also the founder of Express Lien, a nationwide lien service that offers a free web-based preliminary notice and lien management software. Check out his great blogs on various areas of construction law.

Nearly everyone in the construction industry has heard the term “lien” thrown around on a project. Depending on the type of project being constructed, however, the lien-like remedies available to you may differ significantly.

This post discusses the types of lien or claim remedies available to contractors, suppliers and laborers on the three classes of construction projects: private, state and federal. This post discusses the concepts broadly, and does not focus on the law of any particular state. Remember that laws differ from state-to-state, and it’s important to consult the laws applicable to your project.

The Lien – Private Works

When you think of the term “lien,” you are likely thinking of the remedy available to unpaid parties on a private construction project.

In most states, when a party provides labor and/or materials to an improvement, and the party is not paid, the law allows that party to file a lien on the property itself and claim a privilege thereon (similar to a mortgage privilege held by a bank on mortgaged property).

This is the key difference between a private lien and a public claim. Unlike most public claims, a private lien actually gives the unpaid party a privilege upon the property. Most states then allow the lien claimant to bring a proceeding against the property owner to foreclose on the lien (and thus, the property).

To acquire this powerful privilege, many states require contractors to send pre-lien notices. The notice may be due before work begins or immediately thereafter, and other notices may be due immediately before filing the lien itself.

The first step to knowing the notice requirements in your state, however, is knowing the type of lien you’ll file on a project. It’s something you’ll want to understand from the start of your work.

Claims on State Projects

Most states do not allow “liens” to be taken against property owned by the state. Accordingly, the traditional “lien” that can be filed on a private work cannot be filed on a public work.

However, this does not leave unpaid contractors, suppliers and laborers without a remedy.

Normally, a state project will require the general contractor to post a bond in an amount sufficient to pay for the claims of all subcontractors, laborers and suppliers. In the event you’re unpaid on a state project, most states allow the unpaid party to file a claim against that bond.

Usually, this process is referred to as filing a claim, as opposed to filing a lien.

Three key things to keep in mind when working on a state project:

(1) Like a private lien, state projects may also require you to send pre-claim notices, so familiarize yourself with those requirements;

(2) Like a private lien, you will only have so long to assert your claim against the bond, so do it timely; and

(3) It’s important to know the name of the surety and the public entity in charge of the work, as you’ll be required to notify these parties of your claim. Have this information from the start of construction, or request it from the general (you’re entitled to know).

Claims on Federal Projects

Like property owned by the state, property owned by the federal government cannot be liened. Unpaid contractors, suppliers and laborers must bring a claim against the general contractor’s bond, through what is referred to as a “Miller Act Claim.”

To make a claim under the Miller Act, first tier subs and suppliers must bring suit against the bond within 1 year from last furnishing labor and/or materials, and must deliver notice to the owner and/or surety. Second tier subs and suppliers to first tier subs must deliver a Miller Act Notice to the prime contractor within 90 days from last furnishing labor and/or materials to the project, and a suit must be brought within 1 year of last furnishing labor and/or materials.

Again, as it is true with state projects, it’s important to know the name of the surety and the public entity in charge of the work. If it’s not provided to you, you can request it.

Conclusion

Regardless of what class of project you’re working on, a lien-like remedy is probably available to you in the event of non-payment. However, it’s critical to understand the different remedies available at the onset of construction, for each remedy carries different pre-lien or pre-claim requirements.

As always, both Scott and I encourage your comments below. I also encourage you to subscribe to keep up with this and other Guest Post Fridays at Construction Law Musings.

Musings on Guest Post Fridays

Originally posted 2015-03-17 10:06:58.

When I first got the idea of “Guest Post Fridays” back in early 2009 and then launched it with a great post from Scott Wolfe of The Wolfe Law Group (@scottwolfejr), I had no idea that it would take off in the way that it has. Now, almost 2 years and 90 posts later, Construction Law Musings has had the privilege of a wealth of perspectives on, among other topics, mediation (thanks Vickie Pynchon and Ron White), green building (thanks Chris Cheatham, Shari Shapiro, and James Bedell to name three of many), insurance (thanks Martha Sperry and Mark Rabkin), general perspectives on construction topics (thanks Doug Reiser, Melissa Brumback, among many others) and even the occasional interview.

While it is impossible to list all of you who have contributed to Guest Post Fridays here at Musings (please use the link above to review all of these posts and see who else has contributed) and to thank you individually, please know that each and every one of your contributions have made Construction Law Musings a more vibrant and interesting place to visit. The opportunity to work with such varied, intelligent, and insightful people over the last year has been wonderful. With each post I learn something new.

Without these contributions to add a layer of color that I could not provide alone, Musings would just be another blog about construction law by a Virginia lawyer. With them, Musings is a fun place to hang out and learn. To those who have posted here in the past, the door is always open for a repeat posting, just give me a buzz with a topic and when you can do it.

In short, thank you to all of you who have contributed since this experiment began and I look forward to hearing what you all have to say in the future.

Image via stock.xchng

Please join the conversation with a comment below. Also, I encourage you to subscribe to keep up with the latest Construction Law Musings.

Bankruptcy and the Virginia Mechanic’s Lien

Originally posted 2015-04-06 09:00:30.

: Image via Wikipedia

Unfortunately, developer bankruptcies are very much in the news these days. This news, while unsurprising in today’s economy and given the housing issues that hit last year, can give heartburn to those contractors that perform the site work, pave the roads, and of course build the houses at these developments. Like Musings has discussed before, bankruptcy of an owner or developer is a real possibility for which contractors and subcontractors must prepare.

However, contractors in Virginia may have a silver lining for the bankruptcy cloud. Virginia mechanic’s liens, being creatures of statute, survive bankruptcy and remain in force even after the owner of the property files for bankruptcy. Even more importantly, the 6 month statute of limitations on filing a case to enforce your mechanic’s lien stops running as of the date that bankruptcy is filed.

Even more importantly, aside from certain specific situations, mechanic’s liens in Virginia gain priority over all other secured liens.

In short, in today’s climate, contractors should not feel that they are completely helpless in the bankruptcy fight. Filing a mechanic’s lien after consultation with an experienced attorney can put a contractor or subcontractor in as good a position as possible should he owner of a project file for bankruptcy.

Please comment below, or subscribe to Musings if you find this of interest.

Construction Contract Basics: Venue and Choice of Law

Previously in this on-again-off-again series of posts on construction contract basics, I discussed attorney fees provisions and indemnification. In this installment, the topic at hand is venue and choice of law.

As construction professionals (outside of us construction attorneys), you are likely to be focused on things like the scope of work in a construction contract, the price terms, payment, delays, change orders, and the like. However, the venue (where any lawsuit or arbitration will have to happen) and the choice of law (what state’s law applies) can be equally important. You need to know where you will have to enforce your rights under the contract and also what law will apply. Will you need to go to another state to enforce your rights? Even if not, will your local attorney have to learn the law of another jurisdiction? These are important questions when reading and negotiating your prime contract (if with the owner) or subcontract (if with the general contractor). Continue reading Construction Contract Basics: Venue and Choice of Law

Restoration Frustration

Originally posted 2009-03-27 09:00:00.

For this week’s Guest Post Friday, Musings is privileged to have a good friend Rick Provost weigh in. Rick has over 20 years of experience helping to build the country’s largest design/build franchise network specializing in exterior home improvement. Formerly the President and CEO of Archadeck®, Rick now provides his franchising expertise through The Consultancy, a consulting firm specializing in business systems development for contractors. Rick also is a facilitator, coach, and consultant for Business Networks, a peer-review network for remodelers and insurance restoration contractors, and a columnist for Remodeling Magazine Online.

While at a recent conference of the Restoration Industry Association (RIA), I heard several contractors complain about remodelers and home builders attempting to get into the insurance restoration business. With head-shaking disdain, they remarked that the restoration business isn’t as simple as builders think. And they’re right.

But that’s not what some would have us believe. Shortly after the conference, I found a Website advertising a book that would teach contractors the Six Easy Steps to becoming an insurance restoration contractor, including how to achieve a remarkably precise 87.62% bid success rate, with HUGE PROFITS. BIG, FAT, WONDERFUL 20% to 40% PROFITS!

A few of these “easy steps” remind me of the first half of comedian Steve Martin’s joke about how to become a millionaire and never pay taxes: “First…get a million dollars.”

Easy Step 1 is to “Establish a relationship with the proper insurance company ‘insider’, known as an adjuster.” Go ahead and establish that relationship. However it helps to have knowledge of the special procedures unique to restoration work. Easy Steps 2 through 6 are to analyze the damage, perform the repair cost analysis, obtain an agreed scope and price from the insurance adjuster, set up the contractual relationship, and then proceed with the repairs. Bingo!

Let’s isolate just one of those “easy” steps. An insurance estimate is scoped and priced differently than a remodeling job, usually using the Xactimate software program, which requires special training. If you’re a participant in an insurer’s program, they will pay your cost based on Xactimate’s pre-set values plus 10% markup — not margin — for your overhead, plus 10% for profit. (Pause for laughter.) Money is made in this business, to be sure. But could you make money in your business if you used that formula, literally?

Now, perhaps I’m being cynical. Maybe it is easy to dive into 24-hour emergency response and restoration of water, smoke, and fire damage. Maybe you have the equipment to perform content inventory and pack-out, fire damage demolition, smoke mitigation, mold remediation, gray and black water mitigation, and even (shudder) trauma scene cleanup. But I’ve made my point. Restoration work is a completely different animal than remodeling.

Different, that is, until you get to the “put-back” or rebuilding step. This is where the remodeling industry intersects with the restoration industry. Put-back means what it implies–replacing the structure and finishes to their original state: framing, insulation, drywall, trim, flooring, painting, and so on. Margins are typically lower than for mitigation work because put-back requires management and technical skills that cost more in the marketplace. This would obviously dilute a restoration contractor’s blended margin if he carried the fixed costs necessary to perform that kind of work. Therefore, many choose not to pursue it. But it’s also the type of work that matches a remodeler’s skills and resources.

Given the state of the remodeling industry right now and for the foreseeable future, this may present an opportunity for you to subcontract for a local restoration firm that does not currently perform the put-back portion of insurance claims work. The difficulty will be in convincing them that their company’s good name will not be tarnished by your failure to perform acceptably. That’s a hot-button issue, as their business relies on maintaining a satisfactory reputation among the insurance adjusters who feed them work. One bad job could undo years of goodwill.

So if you can demonstrate why there would be no risk in subbing to your company; or if you’re willing to become an employee, there might be an opportunity for steady work through this protracted slowdown. After all, fires and burst pipes don’t care about the economy.

(P.S. The second half of Martin’s joke is “Then say… ‘I forgot!’”)