I recently spoke about this with a friend of mine who works at Universal Forest Products in connection with that company’s Concrete Forming products. Soon after I find myself reading an article in the New York Times about an “Instant Bridge” (cool video at link). Now, in perhaps the most impressive prefabricated construction I’ve ever seen, I stumbled upon a video from China where a 30 story building was constructed in just 15 days! That video is at the top of this post.
Prefabricated construction is terrific, and there’s plenty of reasons for anyone in the industry to love this trend. As a mechanics lien guy, however, it makes me wonder…are there lien rights here?
Mechanic Lien Rights For Off-Site Work
A few months ago, I argued a case before the Washington State Court of Appeals in Blue Diamond Group Inc v. KB Seattle, Inc.. The underlying issue in that case was whether a construction manager could file a mechanics lien, and the court ultimately held they could not largely because a construction manager doesn’t do work on-site. Here is a relevant quote from the decision:
As this court observed in Pacific Industries, Inc. v. Singh, management and coordination services do not fall within the statutory definition of “labor,” absent a clear showing that the labor was provided at the improved property. Here, there is nothing to show that any “labor” was performed at the site of the improved property. In fact, an affidavit from Blue Diamond expressly disclaims “any physical work on the project.”
During oral arguments, the on-site / off-site debate raged with the justices specifically focusing on the fact that construction managers always do their work off-site. As counsel for the construction management firm, I highlighted that general contractors can lien for services they perform off-site (such as coordinating and other overhead expenses). Ultimately, however, the court found that the off-site work was not lienable. Labor, in other words, was not “labor” as contemplated by Washington’s lien statute unless it happened “at the site of the improved property.”[pullquote style="right" quote="dark"]With prefabricated bridges, buildings, homes and similar manufactured items, a large amount of the labor performed for the project is performed off-site.[/pullquote]
So, what would happen if the Washington courts were faced with one of these prefabricated construction situations?
With prefabricated bridges, buildings, homes and similar manufactured items, a large amount of the labor performed for the project is performed off-site, preparing the structures for installation on-site. Insofar as the portion of labor required to install the structures at the job site, there are clear lien rights for this. The question is more difficult to answer for the portion of work performed off-site. If the Blue Diamond Group case is any indication, Washington courts would not allow for recovery of the off-site work.
Other states may not be so strict. In Louisiana, for example, the definition of “work” is quite broad, and would likely allow recovery for off-site work eventually installed at the job site.
Is Prefabricated Construction Structures A Material?
The work that is performed off-site might not be lienable in some states since the labor and work is not “furnished” to the jobsite. However, once the prefabricated item is shipped to the jobsite and installed there, is it then considered a piece of material that is furnished? And what is the value of the material furnished?
For those states that restrict recovery for labor expenses off-site, this may be the way to get prefabricated construction items mechanics lien protection. If the item is shipped to the jobsite and installed, it should be considered a material just like any other piece of material. The company who fabricated the item would be considered a material supplier.
If this interpretation would be adopted, there would be a few issues to consider.
First, what is the value of the material. The mechanics lien rights available here may come down to how the contract for the prefabricated item is written. What is the subcontractor, prime contractor or property owner paying for — the material in one lump sum, or are they paying for the labor off-site to construction the material? This may seem like semantics, but I can defintely see a court latching onto that nuance in determining the value of the material itself.
Second, are these materials specially fabricated materials? This may be another category for the pre-fabricated buildings to qualify for lien protection. However, those working on prefabricated structures must be aware that if they are considered this type of contractor, they may be subject to special not rules.
On this topic, each state’s laws will read differently, and there is ultimately very little case law on this particular question. With the rise of prefabricated construction, however, we can expect to see courts being called upon to decide the question.