Service Area: Collection Services

Fabricated Invoice Date Leads to Invalid Mechanic’s Lien

Posted on November 11, 2019 by - Mechanic's Liens & Bond Claims

Filing a Lien? Make Sure You Have Documentation to Backup Your Furnishing Dates.

As One Creditor Learned, Making Up a Fake Invoice Date Could Lead to Invalid Mechanic’s Lien

Thinking of changing an invoice date to extend a lien deadline? While it may be tempting to alter an invoice, don’t do it! As one contractor discovered, a fabricated invoice date may lead to an invalid mechanic’s lien.

Altered Invoices = Invalid Mechanic’s Lien

The State: Texas

The Case: Consolidated Reinforcement, LP v. Cheraif

The Parties:

  • Owner: Two Investors (Owner)
  • General Contractor: Cheraif

This relationship is a bit different than a typical owner/GC relationship. In this case, Cheraif and the investors contracted together under an investment contract. Ultimately, under the investment contract, Cheraif would live in the home being constructed. Cheraif was to be paid $50,000 as general contractor, provided he could “…present clear property title” to the house free of any liens within ten months after the date construction on the house began.”

  • Subcontractor: Russell Bankston (Bankston)
  • Material Supplier: Consolidated Reinforcement, LP (CRI)

The Payment Problem

Bankston was hired by Cheraif to pour foundation for the home. Bankston hired CRI to supply materials. Once the foundation was finished, Bankston was paid in full; however, Bankston didn’t pay its material supplier, CRI. Subsequently, CRI filed a mechanic’s lien.

The Key Dates

  • Bankston’s work was complete in June 2014.
  • CRI had an invoice with a ship date of July 2014.
  • CRI filed its mechanic’s lien October 2014.

The Problem with the Key Dates

The trial court determined this was a residential project. With the completion of Bankston’s work in June 2014, CRI should have provided notice of its unpaid claim by August 2014 and filed its mechanic’s lien by September 2014. However, CRI didn’t serve its notice until September 2014 and file its lien until October. CRI calculated its deadlines from the July invoice.

Now, I should note, there were many issues with this case. In fact, there were additional issues with this July invoice, aside from the obvious “it was issued after work was completed.” For example, there were discrepancies on what was furnished vs. what was invoiced, such as CRI invoiced for tensioning, but it wasn’t a tension slab/foundation.

The Court Ruled

The trial court ultimately determined CRI filed an invalid mechanic’s lien and caused additional financial loss to Cheraif (i.e. the $50,000 Cheraif was to be paid if the home maintained clear title).

“… intentionally and knowingly used the altered invoices in an attempt to send the above-referenced notices and file the Lien Affidavit within their respective statutorily prescribed deadlines. This was done in order to cause financial injury to Cheraif in an attempt to have him pay for material for which he would not be required to pay had those deadlines not been met, and furthermore to have him pay for material that was not provided on his project.”

As the saga continued, other issues were uncovered, such as the “lack of diligence” by CRI’s attorney to serve Cheraif with a copy of the notices.

Alas, the trial court deemed CRI’s lien invalid, wouldn’t permit a foreclosure of the lien, and awarded fees to Cheraif.

As you’d imagine, CRI was miffed that the trial court wouldn’t allow it to foreclose on the mechanic’s lien. But, as we know, it was an invalid mechanic’s lien — which means, foreclosing is obviously not an option. And, an award in fees can be expensive, so it’s not surprising that CRI argued the trial court erred in awarding fees. Much to CRI’s dismay, the appeals court agreed with the trial court on all counts.

  • The lien is invalid.
  • Foreclosure is not permitted.
  • Attorney’s fees awarded to Cheraif.

And all this craziness because CRI altered an invoice date so it would appear it timely served its notice and filed the lien.  Gosh, that got expensive!

The Moral

Tracking lien deadlines can be a challenge. Missing deadlines stinks. But fudging an invoice date so you can “extend” your lien deadline is just not worth the cost of the consequences.

What Information Should You Include In Lien Waivers?

Posted on November 8, 2019 by - In Other Commercial Credit News

Information You Should Include In Lien Waivers

What Information Should You Include In Lien Waivers?

Lien waivers; we can’t get enough of ‘em! A lien waiver is a signed document in which the lien claimant agrees to waive rights to its claim based on payment to be received or received. So, what information should be included in a lien waiver?

Lien Waivers Should Include

Every lien waiver should clearly identify the property name & project location, the debtor’s name (your customer), the invoice or purchase order number, the payment amount and the disputed claim amount. If the lien waiver is for partial payment, you should also include the payment period or a through date.

Conditional or Unconditional: Lien Waivers, Not Love

Unconditional love is great! Unconditional lien waivers, not so much. In the lien waiver world, conditional is always better.

  • Conditional Lien Waivers: A signed document agreeing to waive rights to a claim given conditioned upon receipt and clearance of a final payment. If the client does not get the final payment, the waiver does not waive their rights.
  • Unconditional Lien Waivers: A signed document agreeing to waive rights to a claim. The waiver is not conditioned upon clearance of a final payment. The client’s rights will be waived whether payment is received or cleared.

What Else Can Be Included in Lien Waivers?

This week we shared an article by Jason Lambert, Construction Lien Waiver Provisions Contractors Should Be Using. Lambert recommends that those who request lien waivers include the following in their waivers:

  • Lien waivers don’t have to waive lien rights only.

“…a lien waiver can also include releases of any claims against surety bonds, other statutory rights or claims, and at its broadest, claims against the paying party. One example of a provision that could help accomplish this is a release of ‘any right arising from a payment bond that complies with a state or federal statute, any common law payment bond right, any claim for payment, and any rights under any similar ordinance, rule, or statute related to claim or payment rights.’”

  • Confirmation that others have been paid.

“…contractors can include language requiring the company receiving payment to represent and warrant that all subcontractors of a lower tier have been paid or will be paid within a certain time frame using the funds provided and that these are material representations and inducements into providing payment.”

  • Make them a payment affidavit.

“…turn a lien waiver into a miniature payment affidavit and require the party receiving payment to swear that subcontractors have been paid or will be paid. They can also require that a list of unpaid subcontractors or material suppliers be listed on the affidavit to give them the ability to track a continuing lack of payments or to confirm that previously unpaid subcontractors have been paid as the project continues.”

Lambert also recommends including an indemnification provision.

“…include an indemnification provision requiring the party receiving payment to indemnify them (and maybe even the property owner) from payment claims made by lower tier subcontractors or material suppliers. This can provide another incentive to a payee to use the funds to pay downstream subcontractors if they know that failing to do so will subject them to additional liability.”

What’s in Your Lien Waiver?

Man, I wanted that to sound like the actor “What’s in your wallet?” Alas, I don’t do voice-overs, however I do recommend all lien waivers be reviewed by legal counsel PRIOR to executing the waivers. It’s imperative you remain protected.

Changes Ahead for Louisiana Mechanic’s Lien Rights

Posted on October 25, 2019 by - In Other Commercial Credit News

Changes Ahead for Louisiana Mechanic’s Lien Rights

It’s hard to believe we are only a few months away from the year 2020! 2020 will be a BIG year, not only for NCS (we’re turning 50!) but also for states with changes to mechanic’s lien and bond claim statutes; states like Louisiana.

Louisiana’s 2019 legislative session included the passage of HB 203, which becomes effective 1/1/2020. Let’s review one of the statute changes: the calculation of mechanic’s lien deadlines.

Current Mechanic’s Lien Deadlines

Louisiana has this tricky thing about its mechanic’s lien deadlines; the lien deadline is calculated by a combination of varying factors. Factors include whether the project is residential, whether a Notice of Contract was recorded, where you are in the ladder of supply, if/when a Notice of Termination is filed, or the date of substantial completion or abandonment of the project.

For example, under current statute, if you are the prime contractor, your lien should be filed within 60 days after a Notice of Termination, or if no Notice of Termination has been filed, within 60 days from substantial completion or abandonment.

If you are a subcontractor or material supplier, there is an additional layer: whether a Notice of Contract was recorded.

  • Notice of Contract has been recorded:
    • File the lien within 30 days after a Notice of Termination is filed.
  • Notice of Contract has not been recorded:
    • 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.
    • 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.

So, under current law, your mechanic’s lien deadline could be 30 days, 60 days, or 70 days.

2020 Mechanic’s Liens Deadlines

Under the new statute:

  • Notice of Contract has been recorded:
    • Prime contractors: File the lien within 60 days after a Notice of Termination is filed, or, if no Notice of Termination is filed, within 7 months after substantial completion of abandonment of work.
    • Subcontractors or material suppliers: File the lien within 30 days after a Notice of Termination is filed, or, if no Notice of Termination is filed, within 6 months after substantial completion or abandonment of work.
  • Notice of Contract has not been recorded:
    • On commercial projects, file the lien within 60 days after a Notice of Termination, or, if no Notice of Termination is filed, within 60 days after substantial completion or abandonment of the project.
    • On residential projects, file the lien within 70 days after a Notice of Termination, or if no Notice of Termination is filed, within 70 days after substantial completion or abandonment of the project.

This is text from the House Bill, in which legislators explain the change:

“It should be recognized, however, that the new six-month period is by no means a lengthening of the period permitted for filing statements of claim or privilege. It is, instead, the imposition of an outside deadline where none previously existed. If [a Notice of Contract was filed], a statement of claim or privilege filed more than thirty days after the filing of Notice of Termination is untimely. If [a Notice of Contract was filed] and no Notice of Termination is filed, the period for filing statements of claim or privilege will nevertheless expire six months after substantial completion or abandonment of the work, and a statement of claim or privilege filed later than that will be untimely.”

The effective date for these changes? Generally, if the Notice of Contract is recorded on or after 1/1/2020, and all work began on or after 1/1/2020, the new statute will take effect.

Best Practice:  Clarify your deadlines!  As provided by statute, serve notice upon the owner expressly requesting the owner to notify you of the substantial completion or abandonment of the work or the filing of a Notice of Termination of the work.  If in doubt, track your deadlines using the most conservative calculation.

Idaho: Lien & Bond Claim Rights in the Gem State

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

Idaho Lien & Bond Claim Rights

Idaho: Mechanic’s Lien & Bond Claim Rights in the Gem State

Did you know the “Idaho Territory” was larger than Texas? According to Idaho.gov, although Idaho is now smaller than Texas, it is “as large as all six New England states combined with New Jersey, Maryland, and Delaware.” Do you know what that means? A lot of land for potatoes, construction and potentially mechanic’s liens!

Idaho Mechanic’s Liens

There is no statutory requirement for a preliminary notice for private commercial projects. For residential projects (owner or non-owner occupied dwelling of 1 to 4 units) if you are contracted directly with the owner and the contract exceeds $2,000.00, you should provide two disclosure statements to the owner:

  • Serve the first disclosure to the owner priorto entering a contract and include an acknowledgment of receipt to be executed by the owner.  Retain a copy of the executed disclosure and provide a copy to the owner.
  • Serve the second disclosure to the owner prior to the closing with a prospective residential purchaser or the final payment to the prime contractor.

File the lien after last furnishing materials or services, but within 90 days after last furnishing materials or services and serve a copy of the lien upon the owner within 5 business days from filing the lien. File suit to enforce the lien within 6 months from filing the lien.

The time in which to file suit may be extended if a payment on account is made, or an extension of credit is given with an expiration date, and such payment or credit and expiration date is endorsed on the record of the lien. Suit would then become due within 6 months from the extension.

Retainage on Idaho Private Projects

According to Idaho statute, retainage may not exceed 5% for private commercial projects.

29-115 (2) In any contract relating to the construction of any private work of improvement, the retention proceeds withheld by the owner from the original contractor or by the original contractor from any subcontractor from any payment shall not exceed five percent (5%) of the payment and in no event shall the total retention withheld exceed five percent (5%) of the contract price.

Idaho Bond Claim

Generally, payment bonds are required for general contracts of $50,000.00 or more. You should always attempt to obtain a copy of the payment bond from the public entity which contracted the project. If the public entity fails to require a payment bond, the public entity is liable to the claimant and shall make payment to the claimant upon demand.

Serve bond claim notice upon the prime contractor within 90 days from last furnishing materials or services.

When contracting directly with the prime contractor, no bond claim notice is required. File suit to enforce the bond claim after 90 days from last furnishing materials or services, but within 1 year from last furnishing materials or services. When contracting directly with the prime contractor, file suit to enforce the bond claim after 90 days from last furnishing materials or services, but within 1 year from the date on which final payment, under the subcontract, became due.

Retainage on Public Projects

Like the statute for private projects, retainage on public projects is also 5%.

54-1926 (3) Public bodies requiring a performance bond or payment bond in excess of fifty percent (50%) of the total contract amount shall not be authorized to withhold from the contractor or subcontractor any amount exceeding five percent (5%) of the total amount payable as retainage.

Statute also dictates that retainage should be released within 30 days after project completion/final acceptance.

Prompt Pay on Public Projects

Section 67-2302 of Idaho statute outlines prompt pay provisions for public projects. Parties should be paid within 60 days of billing receipt.

(2) All bills shall be accepted, certified for payment, and paid within sixty (60) calendar days of receipt of billing, unless the buyer and the vendor have agreed by a contract in place at the time the order was placed that a longer period of time is acceptable to the vendor.

Other Key Pieces of Info for Idaho Lien & Bond Claim

Here are a few other points of interest!

  • For commercial projects, the lien is enforceable for the full amount owed, regardless of payments made by the owner
  • Mechanic’s liens can be bonded off
  • Generally, only those contracting with the prime contractor or a first-tier subcontractor have a claim under the bond
  • Nearly 1/3 of all potatoes grown in the U.S. are grown in Idaho
  • More than 70 gemstones are mined from Idaho

Those last two bits won’t help you secure your lien rights, but they may help you on your next trivia night!

Rhode Island Mechanic’s Lien Rights are Mighty

Posted on October 18, 2019 by - In Other Commercial Credit News

Rhode Island May Be The Smallest State in Land Size, but Rhode Island’s Mechanic’s Liens are Mighty

Rhode Island may be the smallest state in land size, but don’t let that fool you when it comes to securing your mechanic’s lien or bond claim rights, because Rhode Island means business!

Rhode Island’s Notice of Possible Mechanic’s Lien

Generally, there is no statutory provision requiring a preliminary notice for private projects, unless you contracted directly with the owner.

If you contract with the owner, you should:

  • Obtain a written contract and include notification within the contract, or
  • Serve notice upon the owner prior to first furnishing materials or services.
  • When contracting directly with a tenant/lessee, also serve the fee owner with the notice.

R. Thomas Dunn recommends including the language within the contract, and serving the notice via certified mail, return receipt requested prior to furnishing, in his article An Easy Way to Preserve Your Mechanic’s Lien Rights in Rhode Island.

“The Notice of Possible Mechanic’s Lien may also be served by certified mail at ‘any time prior to commencing work or delivery of materials for construction, erection, alteration or repair as set forth in this chapter.’ This sounds straightforward but this deadline can be easily missed when construction commence with limited notices to proceed and/or oral agreements to start preliminary aspects of the work as contract amounts and other commercial terms are being negotiated. If the work has begun, but the contract has not been executed, include the Notice of Possible Lien into the written contract with the owner.”

Dunn also notes, if the Notice of Possible Mechanic’s Lien is required and isn’t served, you may lose your lien rights.

“Failure to provide this notice results in the contractor losing its ability to assert a mechanic’s lien for the labor and material supplied to the Project… In addition to losing its mechanic’s lien rights, a contractor who fails to serve the Notice of Possible Mechanic’s Lien is required to indemnify and hold harmless the owner from any costs incurred on account of liens claimed by the contractor’s subcontractors or suppliers unless the owner did not yet pay the general contractor.”

Rhode Island Mechanic’s Lien & Suit

You should serve and file the lien (Notice of Intention) within 200 days from first furnishing materials or services. The lien may be served and filed as late as 200 days after last furnishing materials or services but, it will only be effective for materials or services furnished 200 days prior to serving and filing the lien. (Fun Fact: some states have a trapping notice, Rhode Island has a trapping lien!) Act quickly if you need to enforce your lien; the suit deadline is 40 days from the date of the lien filing.

Rhode Island Bond Claims

Much like Rhode Island private projects, there is no statutory provision requiring a preliminary notice on public projects — regardless of who you contracted with. Typically, payment bonds are required for general contracts exceeding $150,000, and you should always attempt to obtain a copy of the payment bond from the public entity contracting for the work.

Your bond claim notice should be served upon the prime contractor within 90 days from last furnishing and you should file suit after 90 days from last furnishing materials or services, but within 2 years from last furnishing materials or services, or within the terms provided in the payment bond, whichever is later.

Bonus: Rhode Island Has Prompt Pay Statute

You can read the statutory guidelines in full here, but here’s the at-a-glance:

  • If the contractor submits its bill(s) correctly, the owner should pay within 30 days of receipt of proper invoice
  • The contractor should pay its subcontractors within 10 days of receipt of payment from the state.

There are, of course, caveats such as “This section shall not apply to contractors or subcontractors performing work pursuant to a contract awarded by the department of transportation unless the subcontractor provides a payment and performance bond in an amount equal to the contract between the contractor and subcontractor.” So, if you have questions, I recommend carefully reviewing statute, asking an attorney for guidance, or…

Contact NCS today!

Recap of Changes to Ontario’s Construction Lien Act

Posted on October 14, 2019 by - Mechanic's Liens & Bond Claims

Recap of Changes to Ontario’s Construction Lien Act

Over the last two years we have discussed the changes to Ontario’s Construction Lien Act. Now, with all changes in force, here’s a breakdown of what you should know.

More Time to File a Lien

The first wave of changes went into effect in July 2018 and included changes to the deadline calculations for the filing of a mechanic’s lien or a public improvement lien.

  • File the lien within 60 days from last furnishing materials or services, but within 60 days from the earlier of publication of the certificate or declaration of substantial performance, completion, abandonment or termination of the contract. (Increased from 45 days)
  • File suit to enforce the lien within 90 days from the period in which the lien must be filed. (Increased from 45 days)

The Ontario legislature had earlier provided clarification on whether contracts would fall under old statute or new statute. Would-be-claimants would follow old statute if:

  1. The contract/improvement was entered prior to 7/1/18
  2. Procurement process began prior to 7/1/18
  3. Project is a leasehold interest & the lease was in effect prior to 7/1/18

Essentially, the statutory provisions that became effective 7/1/18 would apply if the contract and procurement process were initiated on or after 7/1/18.

If you aren’t sure whether events took place on or after July 1, 2018, follow the old statute; be conservative in calculating your deadlines. You don’t want to rely on the new 60-day deadline and later find the general contract or procurement began prior to 7/1/18 and that your lien rights should have been secured by day 45. It is certainly better to file a lien early than file a late lien & risk it being unenforceable.

Also of note, as of October 1, 2019, the public improvement lien can no longer be filed against the property of a municipality.  Instead, the public lien will attach to the funds owed by the municipality to the prime contractor.

Requirement for Payment Bonds on Public Projects

While the threshold established for requiring a payment bond on a public project is large ($500,000.00), Ontario statute, effective July 1, 2018, requires the prime contractor to obtain a labour and material payment bond.  A claim must be made within 120 days from last furnishing materials and services, and suit must be filed within 1 year from completion of the project.

All New Adjudication aka Dispute Resolution

Effective for projects procured or entered into on or after October 1, 2019, adjudication is a rapid construction dispute interim resolution process to avoid payment issues that may otherwise result in project delay.

Adjudication is subject to the procedures set out in the contract or subcontract, if they comply with statute.  The party who wishes to refer a dispute to adjudication must serve a written notice of adjudication on the other party and then request adjudication from the Authorized Nominating Authority.  The legislation defines the matters that may be adjudicated as:

  • The valuation of services or materials provided under the contract
  • Payment under the contract, including in respect of a change order, whether approved or not, or a proposed change order.
  • Disputes that are the subject of a notice of non-payment
  • Amounts retained / set-off
  • Non-payment of holdback
  • Any other matter that the parties to the adjudication agree to or that may be prescribed

Hooray for Prompt Pay

Also effective for projects procured and entered into on or after October 1, 2019, and applying to both private and public projects, prompt payment rules will require payment to be made by the owner within 28 days from submission of a proper invoice.

A proper invoice is a written bill or other request for payment in respect of an improvement under a contract between the owner and the contractor, and it is to contain specific information as outlined by the Act or as required by the contract.  Failure to pay the invoice within the stated period will result in an automatic accrual of interest from the date the invoice was to have been paid.

The general contractor must pay the subcontractor within 7 days from receipt of payment from the owner.  And, all parties in the contractual chain below the general contractor must make payment within 7 days from receipt of payment.

If the owner is not going to make payment within 28 days from receipt of a proper invoice, the owner must submit a notice of non-payment to the general contractor within 14 days after receiving the proper invoice.  Similarly, parties below the owner in the contractual chain must submit a notice of non-payment within 7 days from receipt of a notice of non-payment.  The notice of non-payment must provide the reason for non-payment and the amount of any dispute.

Canada: Provincial Construction & Your Payment Rights

Posted on October 11, 2019 by - In Other Commercial Credit News

Canada: Your Payment Rights on Provincial Construction Projects

If you are furnishing to a construction project in Canada, you follow steps to secure mechanic’s lien or bond claim rights, much like you would when furnishing to a project in the United States. Construction projects in Canada will likely fall in to one of three categories: private, provincial crown/government, or federal crown/government.

  • Private: improvement contracted by a private entity, e.g., a person, company, or corporation
  • Provincial Crown: improvement of public works or building under formal contract made by Provincial government
  • Federal Crown: a contract for construction, alteration, or repair of any public building or public work of the Canadian government

What is a Provincial Project?

A provincial project is the improvement of public works or building under formal contract made by the provincial government. The provincial government is the equivalent to state government in the U.S.; where the U.S. has 50 states, Canada has 13 provinces.

Often, construction claims on provincial projects are recovered via a Labour & Material Bond, which is a payment bond.

Labour & Material Bond: A surety bond, particularly on public projects, issued as assurance of payment to certain parties should the principal of the bond breach their construction contract.

Currently, only 2 provinces have payment bond requirements for provincial projects: New Brunswick and Ontario.

  • New Brunswick: On Crown Construction contracts of $500,000.00 or more, a bid bond and a payment bond will be required. On Crown Construction contracts less than $500,000.00, a bid bond and a payment bond may be required.
  • Ontario: generally, payment bonds are required for general contracts of $500,000.00 or more.

We are watching proposed legislation in other provinces where payment bonds may soon be statutorily required on provincial projects.

No Payment Bond? File a Public Works Act Claim

Different than a bond claim, a Public Works Act Claim (public improvement lien) is a claim served upon the provincial crown, in which the public entity may pay the claimant directly from funds owed to the prime contractor. The public improvement lien is available in the following provinces:

  • Alberta
  • Manitoba
  • New Brunswick
  • Newfoundland
  • Nova Scotia
  • Ontario
  • Saskatchewan

How Can the Public Works Act / Public Improvement Lien Help in the Event of Bankruptcy?

In his article, Doing Work on a Provincial Project? Protect Yourself with a Public Works Act Claim, author Anthony Burden reviewed a recent case before the Alberta Bankruptcy Court. You can read his article in full for the details, but ultimately the bankruptcy court declared a claimant’s Public Works Act claim took priority over unsecured claims and the claimant received payment in full.

“The Court lifted the automatic stay to allow funds to be paid out of Court to… its sub-subcontractors, in the amount of their proven claims. This was done without a formal Order approving the BIA Proposal by [debtor]. Despite [debtor’s] insolvency, its sub-subcontractors were able to receive full payment for their debt claims and were not required to share pro-rata.”

Miller Act Bond Claim: Miss 1 Day, Lose $8M

Posted on October 7, 2019 by - Mechanic's Liens & Bond Claims

Miller Act Bond Claim Deadline: Miss 1 Day, Lose $8M

Miss the Miller Act Bond Claim deadline by a day and lose the right to recover a claim amount of over $8M. Sounds a bit dramatic, no? Perhaps. But the Miller Act is clear, and as one sub-subcontractor has learned, leaves little room for error.

Here’s an Overview of the Miller Act Bond Claim

Mechanic’s lien rights are not available on federal projects. If you are furnishing to a federal project, you would seek payment protection under the Miller Act by serving a Miller Act Bond Claim. Generally, payment bonds are required on general contracts for construction exceeding $100,000.

You are not required to serve a preliminary notice to secure Miller Act Bond Claim rights; however, we recommend serving a non-statutory notice to ensure all parties within the ladder of supply are aware you are furnishing to the project.

You should serve the Miller Act Bond Claim notice upon the prime contractor after last furnishing materials or services, but within 90 days from your last furnishing date. It is imperative (as we’ll see in this case) the Miller Act Bond Claim notice be received by the prime contractor within the 90-day period. The bond claim may be served by any means that provides written, third-party verification or in any way the U.S. Marshal may serve summons.

Should you need to proceed with suit to enforce the bond claim, you would file suit in U.S. District Court after 90 days from your last furnishing, but within one year from last furnishing — another key date in today’s case.

Couple Key Points: You are only protected under the Miller Act if you provide labor or materials to a contractor or first-tier subcontractor. If you are further down the ladder of supply, rights under the payment bond will not extend to you.  Also, the Miller Act prohibits any waiver of rights, unless the waiver is in writing, signed by the person waiving the rights, and executed after that person has furnished labor or materials.

Did You Know?

Did you know Miller Act Bond Claim rights exist in countries other than the United States? It’s true! Assuming the construction project is contracted by the United States government, such as for a military base in another country.

The Case: United States v. Zurich American Insurance Company, Dist. Court, ND Illinois 2019

Our story begins in 2012 when the Army Corps of Engineers hired AMEC Foster Wheeler Environment & Infrastructure, Inc. (AMEC) as the general contractor for construction at the Blatchford-Preston Complex and Al-Udeid Air Base in Qatar. AMEC hired subcontractor Black Cat Engineering & Construction (Black Cat) and Black Cat, in turn, hired sub-subcontractor A&C Construction & Installation, WLL (A&C).

As with any good story, the relationship between Black Cat and A&C soured.

Black Cat terminated its relationship with A&C in December 2015, and according to the court opinion A&C last furnished May 16, 2016. However, the last furnishing is a bit murky because A&C claimed it continued to provide work and equipment into 2017.

On August 16, 2016 A&C served the Miller Act Bond Claim notice with a claim amount of $8,449,710. Then on June 7, 2017, A&C filed suit to enforce its bond claim.

Now, I mentioned the sub-subcontractor lost its rights under the Miller Act because it served its bond claim late – by 1 day. At first glance, you may think May 16th to August 16th is 90 days, but it’s not. Here’s the court breakdown:

“The time between the last work on site was May 16, 2016 and the notice was served on August 16, 2016, a total of 91 days. The lawsuit was filed on June 7, 2017, which is one year and 22 days after May 16, 2016, the date of the last work.”

If you’re like me, you immediately went to the date calculator in The National Lien Digest to see if the math is right. *My inner bond claim guru light is shining bright! * To save you time & confusion, the date is right, but you must consider weekends/holidays etc.

A&C tried to argue that its last furnishing was in 2017, therefore when it filed suit in June 2017, it more than met the notice requirement (A&C actually said that it gave “too much notice.” Too much notice? *Insert my skeptical face here*)

The court didn’t buy the too-much-notice-argument.

“If [A&C] is to rely upon its 90-day notice, then it needed to bring suit…by August 19, 2017 or file a subsequent notice at some later date if there was in fact additional amounts due for labor and/or materials. It did not do so. In fact, its [suit action], which was filed on June 7, 2017, prayed for the exact same amount as was alleged as unpaid in the Miller Act notice. Based on that, one could conclude that no additional labor or materials were furnished after the date of the notice. If… additional amounts did become due after the August 19, 2016 notice … a 90-day notice would be due on or before May 29, 2017. None was filed…

[A&C’s] …argument is that it gave “too much notice” so that AMEC was on notice that Plaintiff was owed money by Black Cat, and therefore the purpose of the statute was satisfied. This, however, does not meet with the requirement that the limitations periods constitute conditions precedent…”

If you are keeping a tally: Court deemed A&C’s last furnishing date was 5/16/16. The bond claim notice was served 91 days from last furnishing and suit was filed 1 year, 22 days from last furnishing. Both actions late, A&C has no bond claim rights!

What Can the Sub-Subcontractor Do Now?

All hope is not lost for A&C and its claim of $8M+. Although securing bond claim rights is ideal, there may be other options available to claimants in the event securing bond claim rights fails. In this case, A&C could (and is) pursue its claim against Black Cat directly, which we refer to as “suit against the debtor.”

Take Away: carefully track bond claim deadlines!