Service Area: Notice and Mechanic’s Lien Services

Which Bond is Which? Bond Types in Construction Credit

Posted on February 4, 2019 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Which Bond is Which? Bond Types in Construction Credit: a Bond Breakdown

The construction credit world is chock full of industry-specific terms and definitions; sometimes it’s tough to keep them straight. “Bond” is one of those terms. Is it a payment bond, performance bond, bid bond, contractor’s bond, prevention bond, discharge bond? And, who is a party to a bond?

What are Common Bond Types in Construction Credit?

Although this isn’t an exhaustive list, it shows the top hits:

  • Payment
  • Performance
  • Bid
  • Prevention
  • Discharge
  • Contractor’s License

Most Common Bond Type We Work With? Payment Bond!

A payment bond is a surety bond, particularly on public projects, issued as an assurance of payment to certain parties should the principal of the bond breach their construction contract. Bonus: In Canada, a payment bond is often referred to as a Labour and Material Payment Bond.

“We asked an NCS payment bond expert,

“When should a credit manager obtain a copy of the bond?”

Pros Know these Best Practices!

Up Next? Performance Bond

A performance bond is issued to one party of a contract as a guarantee of the performance of the other party to meet the obligations specified in the contract.

Heed! Payment and performance bonds are often issued together, but they guarantee very different things: payment bonds guarantee payment, performance bonds guarantee performance.

Third on the List: Bid Bond

At NCS, we don’t work too closely with bid bonds, though we do see them. The key to remember here is a bid bond is used during the bid process and is for the protection of the obligee (the party requesting the bids).  A bid bond guarantees the contractor will accept the award of a contract under the terms stated within their bid or the surety will compensate the obligee.

Inside Scoop: In some states, a bid bond converts to a payment bond! Ohio provides a form of bond that at first is just a bid bond. If the contract is awarded to the principal of that bond, the bond then transforms into a payment and performance bond. HOWEVER, the bond only converts to a payment bond once the contract has been awarded.

Prevention & Discharge

Although prevention bonds & discharge bonds are not the same, I put them together because they share the same goal: attach security to the bond rather than the property.

  • Prevention bonds prevent a lien from attaching to the property
  • Discharge bonds remove a lien that has already attached to the property

You may be familiar with discharge bonds if you have ever received notification that a lien has been bonded off or bonded around. A bonded off lien does not eliminate your rights, it changes your rights. Instead of pursuing the claim against the property, you would pursue the claim against the bond.

 Rounding Out the List: Contractor’s License Bond

In some states, such as California, a contractor is required to obtain a bond before they can get a contractor’s license.

According to The Contractors State License Board, “The bond or cashier’s check is filed for the benefit of consumers who may be damaged because of defective construction or other violations of contractors’ state license law, and for employees who have not been paid wages they are owed.”

Essentially, this bond obligates the contractor to adhere to various rules/regulations and helps protect consumers and other businesses mitigate loss if issues such as fraud arise.

 Who is a Party to the Bond? “Bond. Payment Bond.”

Earlier, Mark mentioned it’s important to know who the principal of the bond is. The principal, sometimes referred to as the obligor, is the party on the bond that has an obligation to pay the debt. In construction, we frequently see bonds where the General Contractor is the principal or obligor.

The other important party on the bond is the obligee. The obligee is the party the principal is bound unto or contracted with. I mentioned we frequently see bonds where the GC is the obligor, which would make the project owner the obligee.

GC’s aren’t the only payment bond principals. We do encounter bonds where the principal is the subcontractor and the obligee is the GC. Always carefully review the bond! Player Recap:

  • Principal: whose bond is it?
  • Obligee: with whom did the principal contract?
  • Surety: who is the bond company/insurance company?
  • Claimant: who is covered by the bond?

Is a Payment Bond Required?

Each state has its own statutes requiring payment bonds on construction projects.  Some statutes may require the general contractor to obtain a payment bond on every construction project, and other states may only require a payment bond when the total value of the construction project exceeds a certain threshold.

Are You a Claimant Under the Bond?

If the payment bond is required by statute, claimants will most likely be defined by the statute.  In some cases, the statute may refer to the terms of the bond, or the bond may not be covered by a statute (think subcontractors’ bonds), and the bond must be reviewed to determine the definition of a claimant.

Who’s on the Job? A Look at the Contractual Chain

Posted on January 21, 2019 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Who’s on the Job? A Look at the Contractual Chain

What do you call the collective group of parties on a construction project? (Sounds like the start of a fun dad-joke!) We often refer to the collective parties as the contractual chain or the ladder of supply.

It can be tough to identify all parties within a contractual chain, but in today’s post we are going to review the different types of parties that may be involved.

Let’s Start with the Project

The project is the location where new construction or an improvement to an existing building/property is taking place. The project is where your materials and/or services will be incorporated.

Our Contractual Chain Begins: The Owner

The project owner is the party who has an interest in the project and who contracts for the construction/improvement. The owner, either of the real property or of a leasehold interest in the property, hires a general contractor.

The General Contractor

After entering into a contract with the owner, to carry out the work of improvement or new construction, the general contractor (“GC”), sometimes called the prime contractor, will likely hire one or more subcontractors and/or material suppliers.

That Brings Us to First-Tier Subcontractors / Material Suppliers

A first-tier subcontractor is a party that contracts directly with the GC to do a portion of the work.  A first-tier material supplier is one who contracts directly with the GC to provide only materials (no labor) to the project.  Neither has privity of contract with the owner.

 “No privity of the what?”

It’s a mouthful, I know.

We often hear this phrase in mechanic’s lien/bond claims statute: privity of contract is the legal relationship between two parties.

In this case, it may describe the relationship between the GC and owner or between the subcontractor/material supplier and the GC. Think of “privity” as “direct” – the subcontractor does not have a direct relationship to the project owner, the subcontractor’s direct relationship is with the GC.

Second-Tier Subcontractors / Material Suppliers

Frequently, the first-tier subcontractor / material supplier will turn around and hire additional sub-subcontractors or material suppliers. You may be starting to understand the “chain” portion of “contractual chain.” Here’s a visual:

contractual chain 1

Seems simple enough, right?

And, it is possible that the contractual chain will be that simple, but it’s more likely it will look something like this:

contractual chain 2

Each hired party is likely to hire another party, which can make one construction project confusing, busy and risky!

Pro-Note: There are often multiple contractual chains within one project. It’s important to identify the contractual chain specific to your contract.

In the next chart, I’ve identified my contractual chain by filling in the boxes with green. There are a lot of parties involved in this project, and each party’s involvement may indirectly impact me, but right now I am only concerned with identifying the parties between me & the money. In this case, I’m a material supplier and my customer is a subcontractor hired by the GC.

contractual chain 3

Who’s Covered?

Unfortunately, not all parties’ payment rights are protected under a mechanic’s lien or a bond claim. See, as the contractual chain grows, it is possible that parties will be too remote to be covered under the statute. Let’s go back to our first visual, except this time you’ll notice the 2nd material supplier is in red. This is a case of “Material Supplier to Material Supplier”:

contractual chain 4

Although statutes vary by state, and every case is different, if you are a material supplier furnishing to a material supplier, your mechanic’s lien and bond claim rights may be questionable. Additionally, based on state statute, rights may be limited when contracting with a lower-tier subcontractor. Please understand, it is always recommended to proceed with a statutory notice, even when your rights may be questionable, as the statute is not always clear and the notice may help to prompt payment!  However, you should always seek legal guidance for your specific situation(s).

BONUS!

You can download a quick reference guide to see which states may cover material supplier to material supplier situations. Does a Material Supplier to Material Supplier Have Mechanic’s Lien / Bond Claim Rights?

Arbitration, Mediation, Lawsuit – What’s the Difference?

Posted on January 18, 2019 by - Credit Risk Management, In Other Commercial Credit News

Arbitration, Mediation, Lawsuit – What’s the Difference?

Over the holiday break, I spent some time reading articles I’ve (shamefully) had bookmarked for way too long. One of these articles reviewed the pros & cons of arbitration in construction disputes, although for me, it better explained the similarities and differences of arbitration and a lawsuit.

Construction Arbitration: The Pros and Cons by Jason Strickland of Ward and Smith, P.A.

Arbitration vs. Mediation vs. Lawsuit

I don’t think I have ever confused a lawsuit with arbitration or mediation, but I have certainly confused arbitration with mediation. Here are key features explained by Strickland:

“Mediation is a settlement conference in which the parties meet (typically in person) and use a third-party neutral to act as a settlement facilitator.  The third-party neutral is called the mediator.”

It’s important to note, the mediator can’t force a settlement – which I didn’t know. I assumed the mediator has the same powers that an arbitrator has.

“A lawsuit is conducted in a court of law and usually is initiated by a plaintiff filing a complaint, in which the plaintiff will ask for some form of relief from the defendant.”

In the NCS world, a lawsuit is often referred to as “suit to enforce…” a lien or bond claim.

Now, this explanation of arbitration is new to me, in part:

“Arbitration is essentially a lawsuit but without court involvement.”

Wow. “Arbitration is essentially a lawsuit but without court involvement.” Yes! That’s a great explanation. Why? Because arbitration is binding, just like a legal decision.

Mind. Blown.

“The parties agree… to submit their dispute to arbitration rather than to pursue a lawsuit in court.  The parties’ agreement gives the arbitrator the power to issue a decision as to the parties’ rights and obligations, and such decision will be legally binding on all parties. Thus, arbitration is very different from mediation because the third-party neutral provides a legally binding decision.  However, arbitration is not mutually exclusive with mediation.  In many cases, parties will have a dispute resolution provision in their contract that will allow, or require, the parties to mediate first, and if the mediation is unsuccessful, to then submit their dispute to arbitration.” – Jason Strickland

The Differences (Pros & Cons) Between Arbitration and Lawsuits

Strickland reviews several differences between arbitration and a lawsuit. Here’s a quick table to break down Strickland’s points.

So, who wins? Arbitration or Lawsuit?

Obviously, it will depend on your circumstances and contractual language, but both options have their pros & cons. A key benefit in arbitration is the efficiency; with a less formal environment and the rarity of appeal, it can prevent a case from dragging on. On the flip side, construction disputes typically involve a myriad of parties, which can be easier to accommodate within a court/lawsuit setting.

Mechanic’s Liens and Discharge Bonds

Posted on January 11, 2019 by - In Other Commercial Credit News, Mechanic's Liens & Bond Claims

Mechanic’s Liens and Discharge Bonds

We know mechanic’s liens can be bonded off, we’ve discussed it before. But it’s a topic that can be quite confusing, especially when each state treats the bonds a bit differently. I recently read an article from Surety Bond Quarterly, that I found not only entertaining, but quite educational on the perks and perils of a lien discharge bond – let’s dig in!

“Mechanics’ Lien Discharge Bonds — The Substitutes of the Surety World”

In this article, written by attorneys Mike F. Pipkin and Jacob L. McBride (collectively “authors”), authors compare a lien discharge bond to a substitute teacher.

First, let’s take a moment to relive “substitute days.” Most, if not all, of us know what it was like to have a substitute teacher in school.

Walking into class to see your regular teacher has been replaced by a new face often triggered a mini-party in your head, because it meant a break from the routine, a decreased likelihood of a test, an increased likelihood of the AV club wheeling in a projector (I may be showing my age), and if you were a procrastinator, it may have given you a little extra time to finish the homework from the night before.

OK, so how is a discharge bond like a substitute teacher? According to authors, “Mechanics’ lien discharge bonds… substitute for a previously filed mechanics’ or materialman’s lien, providing relief to owners and contractors alike from the onerous procedures, rules, and remedies that such liens carry with them. They may provide added time to negotiate a settlement by substituting their own statutes of limitations. While mechanics’ lien discharge bonds are not without their risks, they offer a satisfying alternative in that owners and other stakeholders can insulate their property interests from foreclosure, while contractors have a simpler alternative to recovery than foreclosure.”

Two substitute teacher & discharge bond commonalties that jump out? Both may provide relief/reduce pressure and they may provide additional time.

There’s Always a Risk of One Kid Spoiling It for the Group

You know the kid – the one who saw the line drawn in the sand and crushed it with rude comments, long trips to the bathroom and picking on other kids. The kid that put the whole class at risk of having “quiet time” or forcing the substitute to turn off the movie.

Just as there were risks in school, there are risks with discharge bonds. Specifically, according to authors, why a discharge bond was issued to begin with. It’s important to understand, a payment bond and a discharge bond are not the same.

“Unlike a typical payment bond, issued to protect against potential future circumstances, a lien discharge bond is born out of an existing dispute over nonpayment that resulted in a lien being filed on real property. In other words, a surety executing a lien discharge bond steps into a situation where the principal is already not paying the obligee(s).”

In other words, the discharge bond is issued because there is already a payment problem. Because they are issued based on a “known” issue, the scope of the discharge bond can be limited. Authors remind us the discharge bond is frequently issued for an amount that totals the value of filed mechanic’s liens, which means it is “[U]nlike a typical payment bond with its broad scope… the scope of a lien discharge bond is limited to specific, identified lien claimants with specific, limited lien values…”

The Savvy Substitute Reigns Supreme

As a kid, I remember the different feeling between seeing a new substitute versus a seasoned veteran. A seasoned veteran knew the rules, enforced the rules, and provided a bit of relief from schooling but we knew better than to push our luck. What’s the discharge bond equivalent? Rules still apply, deadlines must be met, and statute must be complied with — from authors:

“Like the wise substitute teacher who learns and enforces the class rules, the surety can assert the defenses of its principal. Because a lien discharge bond provides substitute security for the lien, most states require a claimant to have complied with the requirements of the lien statute to make a claim on the bond. The lien discharge surety can defend against a claim by identifying any defects in the lien claim, such as failure to meet standing requirements, failure to provide proper notice, and failure to perfect the lien claim, among others. The surety may also use any substantive defenses it has available to the validity of a claim as well as applicable affirmative defenses, such as statute of limitations and waiver.”

Be aware of & follow statute carefully. Earlier this year we reviewed a case in New York where the claimant failed to follow lien statute when its lien was discharged by a bond, and lost its rights.

As a best practice in liens & in school: assume the substitute has the same authority and follow the rules, otherwise, there will be consequences.

Louisiana Private Projects and Your Lien Rights

Posted on January 7, 2019 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Louisiana Private Projects and Your Mechanic’s Lien Rights

If you are furnishing to a private project in Louisiana, today’s post is just for you! In this post, we will review the statutory requirements for the preliminary notice, mechanic’s lien, suit and even a bond claim.

Notices for Louisiana Projects | Commercial

In Louisiana, commercial and residential projects have separate notice requirements. First let’s review commercial projects.

If you are a prime contractor (contracted directly with the owner), you should file a Notice of Contract or the general contract, prior to commencing work. If neither the Notice of Contract nor the general contract is timely filed, you (the prime contractor) will not have lien rights on contracts exceeding $25,000.00.

Louisiana RS 9:4811 dictates the following should appear within the written notice of contract:

The notice:

(1)  Shall be signed by the owner and contractor.

(2)  Shall contain the legal property description of the immovable upon which the work is to be performed and the name of the project.

(3)  Shall identify the parties and give their mailing addresses.

(4)  Shall state the price of the work or, if no price is fixed, describe the method by which the price is to be calculated and give an estimate of it.

(5)  Shall state when payment of the price is to be made.

(6)  Shall describe in general terms the work to be done.

There is an optional notice that may be served upon the owner, prior to termination of the contract or substantial completion of the project, obligating the owner to notify the claimant of the termination of the contract or substantial completion of the project.

Louisiana is what I call “a notice of non-payment state.” Essentially, for each month you furnish and aren’t paid, you should serve the 75-Day Notice of Non-Payment.

“Claimants should serve a notice of non-payment upon the owner and prime contractor within 75 days from the last day of the month for EACH month in which materials were furnished, but within the period in which a lien must be filed.” – The National Lien Digest

The date calculations for this can be a bit confusing, so here’s an example:

Furnishing Date Deadline Begins Calculating 75-Day Notice of Non-Payment Due
December 17, 2018 December 31, 2018 March 15, 2019
January 4, 2019 January 31, 2019 April 16, 2019
February 24, 2019 February 28, 2019 May 14, 2019
March 3, 2019 March 31, 2019 June 14, 2019
April 9, 2019 April 30, 2019 July 12, 2019

I added the middle column “Deadline Begins Calculating” because the actual furnishing date is not used to calculate the notice deadline. Statute states the notice should be served within 75 days from the last day of the month for EACH month in which materials were furnished.  Remember also, when serving your notice of non-payment for your last furnishings, be certain the notice is served prior to the lien deadline.

There may be situations when this notice won’t be required, with the most obvious being if you have been paid. A few additional times a notice may not be required: if the Notice of Contract or the general contract is not recorded, when contracting directly with the owner or prime contractor, or when providing labor and materials or only labor.

Pro-Tip: if you haven’t been paid, serve the 75-Day Notice of Non-Payment! It is much better to serve the notice and find out it wasn’t required, than it is to not serve the notice and discover it was required.

Notices for Louisiana Projects | Residential

In Louisiana, a project is deemed residential if it is an owner-occupied single-family dwelling. In addition to the requirements for commercial projects, those furnishing to residential projects should take note of the following.

If you are a prime contractor, you must require the owner to execute a Notice of Lien Rights prior to or at the time of entering into a contract.

Any would-be claimant should serve a Final Notice of Non-Payment upon the owner at least 10 days prior to filing the lien, stating the total amount to be claimed under the lien. This notice may not be required if you are providing labor and materials or only labor.

Bonus: Are you leasing equipment? At the time of entering the contract, obtain the lessee’s signature on the notice to be served upon the owner and the prime contractor within 10 days after the equipment is first placed on the project site.

Mechanic’s Liens in Louisiana

The mechanic’s lien deadlines are not nearly as complex as the notice of non-payment deadlines, but they do differ depending on where you fall within the ladder of supply.

If you are a prime contractor, you should file your lien within 60 days after a notice of termination or substantial completion of the project.

For subcontractors, materialmen, lessors & laborers, if a Notice of Contract was recorded, you should file the lien within 30 days after a notice of termination is filed. You should serve a copy of the lien upon the owner, at the address specified on the Notice of Contract, within 30 days after the filing of a notice of termination.

In the event the Notice of Contract was not recorded, the lien deadlines for residential & commercial projects are:

  • On residential projects, file the lien within 70 days after a notice of termination or substantial completion or abandonment of the project if no notice of termination is filed.
  • On commercial projects, file the lien within 60 days after a notice of termination or substantial completion or abandonment of the project, if no notice of termination is filed.

Louisiana is a full balance lien state (for commercial projects), so the lien is enforceable for the full amount owed, regardless of payments made by the owner.

Payment Bond Issued for Private Project?

A properly filed payment bond will prevent mechanic’s liens from attaching to the property. Although you would pursue payment from the bond, as opposed to a lien, you will need to follow the same notice requirements as noted above.

In addition to following steps under mechanic’s lien statute, you will serve a bond claim notice upon the prime contractor within 30 days after notice of termination.

The suit deadline is a bit different than it is under mechanic’s liens. Suit cannot be filed against the surety before the expiration of the lien filing period, unless the claimant has served the surety with a copy of the lien at least 30 days prior to filing suit. If the contract and the payment bond have been properly recorded, file suit to enforce the lien/bond claim within 30 days after a notice of termination; otherwise, file suit within 1 year from the expiration of the lien filing period.

When in Doubt – Ask!

Please know, this is not an exhaustive list of the statutory requirements for protecting rights on private projects in Louisiana. If you have additional questions, please do not hesitate to contact us!

What To Do When You Can’t Get Change Orders in Writing

Posted on December 14, 2018 by - In Other Commercial Credit News, Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

What To Do When You Can’t Get Change Orders in Writing

Change orders can be tough to track. Nearly every construction project has change orders and with the number of parties on a given project and the number of projects any one party is involved in, it is no surprise that change orders are often overlooked or simply given a verbal approval to proceed.

But like all documentation, it can be vital in supporting your claim. So, what can you do when a formal change order isn’t issued?

What You Can Do When You Can’t Get a Change Order in Writing

A change order, which is a change to the original contract, should be formally issued and approved. Should. There are a lot of things that we should do: make the bed, exercise daily, avoid sugary drinks, etc. Unfortunately, we don’t always do what we should.

It’s so easy to simply send additional materials and invoice your customer when he calls in search of more scaffolding. It’s a pain to go through the proper channels to get a formal document, especially when your customer needs materials now, not a week or two from now when the formal request is issued.

If your contract requires change orders to be in writing, and a request for formal documentation falls on deaf ears, don’t just assume it’ll be OK, find a way to document, document, document. Those are the words of Todd Heffner of Smith Currie in his article Can’t Get a Written Change Order? Document, Document, Document.

Heffner mentions that if a dispute arises over an undocumented change order, “The general trend is for courts to allow a contractor to recover for the extra work that was performed.” But why risk it? If you can’t get a formal document, Heffner recommends utilizing email as a way of informal documentation.

“For example, the contractor can send an email to whoever is directing the work requesting clarification of what is to be done. The email chain will provide written evidence that the contractor did not proceed as a volunteer or consider the changed work to be in the original scope.”

What happens if the email recipient won’t acknowledge the email or refuses to respond? Is it still worth documenting? Yes, Heffner notes you can still send an email regarding the change, but follow it up with a letter sent via certified mail:

“This can be done initially by sending a long email documenting exactly what was directed and why it constitutes a change to the work. Any such email should be followed by a letter sent via certified mail. Both email and letter should give the owner, architect, or engineer a limited time to disagree, e.g., ‘We will proceed with this work in x days unless you direct otherwise.’”

The Pencil Remembers What the Mind Forgets

I’ve probably spouted this proverb before, with many thanks to my 7th grade history teacher, but it is worth repeating. “The pencil remembers what the mind forgets” – in other words, write down events and occurrences.

Document change requests, keep track of waivers, carefully itemize statements, match bills of lading/proofs of delivery to outstanding invoices. The paper trail can be annoying, with random bits of extraneous information slid in an offhanded email or quick text, but it’s critical in supporting any potential claim you may have.

Montana Lien & Bond Claim Rights: What You Should Know

Posted on December 10, 2018 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Montana Lien & Bond Claim Rights: What You Should Know

Furnishing to a construction project in Montana? Then you’ll certainly want to review today’s post! Let’s take a look at the notice, lien, bond claim and suit requirements in Montana.

Montana Mechanic’s Lien Rights

For those furnishing to a private commercial project, there is no required preliminary notice. If you are furnishing to a private residential project, get ready to serve a notice of right to claim a lien within 20 days from first furnishing and then record the notice of right to claim a lien within 5 business days from serving the notice upon the owner.

A notice may not be required for residential projects if you are contracted directly with the owner, if you are only providing labor or if the contract is related to a dwelling of five or more families.

Whether the project is commercial or residential, the mechanic’s lien should be filed within 90 days from last furnishing and within 90 days from the recording of the notice of completion. According to Montana’s statute, the following information must be included in the lien:

(a) the name and address of the person claiming the lien;

(b) a description of the real property against which the lien is claimed sufficient to identify it;

(c) the name of the contracting owner;

(d) the name and address of the party with whom the person claiming the lien contracted to furnish services or materials;

(e) a description of the services or materials provided;

(f) the amount unpaid for services or materials or, if no amount is fixed by the contract, a good faith estimate of the amount unpaid, designated as an estimate;

(g) (i) the date on which the services or materials were first furnished; and

(ii) the date on which the services or materials were last furnished; and

(h) a declaration that a notice of a right to claim a lien was given to the contracting owner or an explanation of why the notice was not required.   71-3-535

Should you need to enforce the mechanic’s lien, you must file suit within 2 years from the filing of the lien.

Montana statute does allow for the substitution of a bond for the mechanic’s lien. The property owner can file a payment bond if the bond is 1 ½ times the amount of the mechanic’s lien and if the bond includes the following condition:

“The bond must be conditioned that if the construction lien claimant is finally adjudged to be entitled to recover upon the claim upon which the construction lien is based, the principal or the principal’s sureties shall pay to the claimant the amount of the claimant’s judgment, together with any interest, costs, attorney fees, and other sums that the claimant would be entitled to recover upon the foreclosure of a construction lien against the principal.” 71-3-551

If the lien has been bonded off, suit to enforce a claim against the bond would be the same as if it were a lien. “The action must be commenced within the time allowed for the commencement of an action upon foreclosure of a lien, and the statute of limitations applicable to a lien foreclosure applies to an action upon the bond, as it would had a bond not been filed.”  71-3-553

Montana Bond Claim Rights

As a best practice, when furnishing to a public project in Montana, always attempt to obtain a copy of the payment bond from the public entity which contracted the project. Generally, in Montana, payment bonds are required for state or governmental contracts of $50,000 or more, and are generally required for school district general contracts of $7,500 or more.

There is a preliminary notice, and the notice should be served upon the prime contractor after first furnishing, but within 30 days from first furnishing. You may not need to serve the notice if you are contracted with the general contractor.

If you need to proceed with the bond claim, you should serve the claim upon the public entity within 90 days from completion and acceptance of the contract. Unfortunately, there is no statutory provision regarding suit to enforce the bond claim, so we recommend you file suit in accordance with the terms of the payment bond. Often, suit to enforce a bond claim is required within 1 year from last furnishing.

Bonus: Prompt Pay

Montana statute does address prompt payment. Ultimately, on private projects, the general contractor is to remit payment to its subcontractor(s) within 7 days after the contractor receives payment from the owner. You can review the statutory specifics here: 28-2-2103 Payment to Contractor and Subcontractor

Need assistance with securing lien or bond claim rights in Montana? Contact us today!

Don’t Ignore Contractor Licensing Requirements

Posted on December 7, 2018 by - In Other Commercial Credit News, Mechanic's Liens & Bond Claims

Be Careful, Don’t Ignore Contractor Licensing Requirements – Your Lien Rights May Depend on It

Don’t ignore contractor licensing requirements; your mechanic’s lien rights may depend on it. Sounds a bit like a public service announcement, right? Well, it should. Don’t let the mistakes of other contractors be in vain — this week we shared two articles about neglecting licensing requirements and the consequences it brings.

Do Not Pass “Go” You Out-of-State, Unlicensed Contractor

In this article, author Matthew Devries reviewed a North Dakota Court of Appeals case. The contractor, with a principal place of business in Washington, provided labor and materials to a project in North Dakota. The contractor began furnishing to the North Dakota project in December 2011, but didn’t obtain a license for the state of North Dakota until February 2012.

In 2012, the contractor was paid for furnishings provided through February 1st, then received a portion of its claim for furnishings between February 2nd and March 15th, and received no payment for furnishings from March 16th through November 30th. Because the contractor remained unpaid, it filed a mechanic’s lien. The owner argued the contractor’s lien was invalid because the contractor didn’t meet the proper licensing requirements at the time it entered into the contract.

Per Devries, “On appeal, the owner argued that North Dakota Code requires a contractor be licensed at the time of contract formation or commencement of work under the contract to maintain a claim or action related to the work performed under the contract. Because the contractor did not obtain a license until after it had entered into the contract with the owner and started working on the project, the owner claimed that the contractor (was) barred from bringing any claim.”

Ultimately, the contractor was able to recover its claim, with the exception of furnishings provided during the period when it was not properly licensed (it received its license February 6th). But, why risk it? Ensure you are meeting licensing requirements BEFORE furnishing!

Contractor Licensing Requirements: Ignore at Your Peril

Author, Amandeep Kahlon, reviewed a Georgia Court of Appeals case, Baja Properties, LLC v. Mattera. The property owner hired the contractor for the construction of the owner’s residence. The contractor began construction, but not long after, the owner terminated the contract. When the contractor filed a lien (among several other issues in this case), the owner argued the contractor’s lien was unenforceable because the contractor was not licensed.

It’s true, the contractor was not licensed at the time of the contract and did not obtain a license during the actual construction. Georgia is a no-nonsense state: no license, no lien rights. Per the court opinion “OCGA § 43-41-17 (a) provides, in pertinent part, that no person shall have the right to engage in the business of residential or general contracting without a current valid contractor license.”

Although this case is “unremarkable in its result,” it’s Kahlon’s recommendations that struck a chord with me:

“Securing contractor licenses can take time, and requirements vary across states. So, pay attention early on when determining whether to pursue work in a new state or with a subcontractor with which you don’t have prior experience. You may not be able to remedy any licensing deficiency post-contract execution or even post-submission of a bid, so you want to make sure any potential issues are known and dealt with well before then. Additionally, most states allow you to check a party’s licensing status online, so you can verify quickly whether a particular subcontractor is appropriately licensed before soliciting a proposal from them.”

Perhaps it’s my propensity for the proactive approach, but I think this is excellent parting advice from Kahlon: “A proactive and conscientious approach to licensing on the front end of any project will help you preserve your bargained-for contract rights and avoid substantial penalties or other damages later on.”