Last week I wrote an article about the epic battle between Credit Departments and Sales Department. In examining how the two departments can co-exist, and thrive, we discussed a best practice of creating options to take new business. If a customer’s credit doesn’t qualify, in other words, what other options are there to bridge the gap and convert the prospect to a customer?

The article mentioned personal guarantees, joint check agreements, mechanics lien rights, bond claim rights, letters of credit and credit insurance. On their own, each of these items are huge topics. The options only work if they are utilized properly, and such utilization requires the credit manager have a depth of knowledge about each. The knowledge is legally oriented, which makes it complicated. Worse yet, however, if your company does business in multiple states you’ll need to know how the tools change from jurisdiction to jurisdiction. Yikes.

Let me boil it down for you: The credit options your company uses are only as good as your company’s practices in implementing them. This post reviews some legal tricks to utilize various credit tools, and thus, make extending credit easier and more successful.

Drafting Your Credit Application and Credit Agreement

Earlier this year, our friends from Funding | Gates wrote a blog post here titled “Creating A Concrete Credit Application.”  This outlined some things your company will want to think about when constructing its credit application. In addition to these, here are some other things to keep in mind:

• Get Good Data:  You want good data on who your customer is, where they are located, their tax id or social security number, their bank account information, etc. etc. The data will be invaluable in the event of non-payment.
• Include Legal Terms To Give You Leverage: Your credit application doesn’t have to rape the customer; it can be fair. It should, however, be stern and put your company in a good position in the event of non-payment. That means including provisions that allows you to collect interest and attorney fees in the event of non-payment.  This is so, so important.
• Get Your Personal Guarantee Right: Any good credit management policy is going to require a personal guarantee from customers without stellar credit, but how many of these personal guarantee’s get it legally right?  Keep a few things in mind:  (i) You want to get good data on the guarantee too; (ii) Make sure the personal guarantee is signed by the party in the capacity that they are guaranteeing, which usually means you want to not allow the signor to indicate a position (i.e. don’t let them write, “President”); (iii) Make sure you include an ability to collect interest and attorney fees in the event the personal guarantee must be enforced; and (iv) Expressly waive “discussion and division.”
• Complete It and Follow Your Polity!  So you have the world’s greatest credit application and credit terms…but you’re not completely filling it in. ARGH!   Take a look at this discussion in our Construction Credit Group on LinkedIn:  How many credit managers are flexible on accepting incomplete credit applications?  It is definitely a problem in the industry. It’s definitely something you want to not plague your business.

Managing Your Mechanics Lien and Bond Claim Rights

Managing mechanics lien and bond claim rights can be tough. While the mechanics lien or bond claim rights are very, very powerful, you must follow statutory requirements to avail your company of the laws’ benefits. The requirements change from state-to-state, project-to-project and circumstance-to-circumstance. It’s a very tangled web.

How do you keep track of it all?

Lien Law Seminars and education sessions are nice – really, they are nice. It’s never bad to have some background on how these laws work. It’s impossible, however, to gain the expertise required to navigate these lien laws on a national basis through one, ten, or one hundred seminars. Your company needs a tool.

zlien, the Leader in Liens, is the publisher of the LienPilot platform, which enables companies to manage their mechanics lien and bond claim compliance requirements across the country. The proprietary system can handle large volumes of construction projects and instantly calculates every notice requirement and every lien deadline, making it effortless for your company to track these metrics.

You can rely on the mechanics lien and bond claim remedy to secure an account, but only if you can rely on the remedy.  You can only rely on the remedy if your company has the confidence that it’ll be available to use, and that’s only possible through the complete management of the lien process.

You can signup for a free LienPilot account.

Related articles

• How To Collect On An Overdue Invoice in the Construction or Building Supply Industries
• Mechanics Liens: Guide to Getting Paid On Funding Gates Blog
• Getting Paid In The Construction Industry: A War Between Policy, Contract And Tempers

Written by Scott Wolfe Jr See original article at Credit Management: Legal Tricks To Make Extending Credit Easier Originally posted on the LIEN

Running a successful business can be full of complications, but your company’s bottom line really boils down to doing two things well: (1) Acquiring clients; and (2) Getting paid for what you do. It’s that simple.

Or is it?

This article examines the balancing act required for companies to perform both of these tasks well, specifically reviewing the relationship between sales departments and credit departments and discussing best practices that can help companies on both fronts.

Goals and Incentives: Two Departments Naturally At Odds

In the quest to acquire new business companies have sales and marketing departments pounding the pavement to sell. However, to assure the company gets paid for its work, it will also set up accounting and credit departments charged with the task of managing financial risk and collecting unpaid debts.

Can these two departments co-exist?

It’s clear that credit departments and sales departments are naturally at odds. Sales departments are charged to “sell, sell, sell,” get paid by commissions and get reviewed based on the company’s revenue. Credit departments, on the other hand, are salaried and bonus based on the company’s ability to collect on accounts and reviewed based on the bottom line.

The salesperson wants to sell to anybody and everybody, but the credit manager wants to clear every credit check and be comfortable with the client’s ability to pay. The salesperson is moving at the speed of business, and the credit manager, for better or worse, moves a bit more slowly – more at the speed of a tiny bureaucracy.

Sound familiar?

The push and pull from the two departments is generally good for business. One without the other would spell disaster. Ryan Himmel (@BIDaWIZ) hints at this on Enterprenuer.com in answering the question of “What department should handle credit applications for new customers, sales or accounting?,” saying:

It is very important to segregate duties in this situation because the sales department is likely less objective and more likely to receive incentives for closing sales whereas a separate billing or accounting department would likely be more objective and their work is not directly linked to closing sales.

In an article on the Credit-To-Cash Advisor website titled “Sales vs. Credit,” I also enjoyed this quip about the “two functions [who] have been arm wrestling for dominance since the first transaction on account was made:”

Credit has no purpose without sales. The credit function was birthed to facilitate and support sales.

But before all you salespeople start gloating over a victory, hear this. Without credit, profitable sales – the kind that consistently bring in revenue and make for a successful company – are not possible. Remember, the purpose of sales is not to meet quotas or win incentives, but to bring in the cash.

The friction between credit professionals and sales people is plain as day. But what can be done about it?

Theory Tip: Align The Vision Between The Sales and Credit Departments

It’s a universal business understanding: communicate your company’s vision to your staff. Read about it at Inc.com or the Harvard Business Review, or just about anywhere else. That’s how a leader can lead a team towards a common goal.

In fact, a great example of the perils of over-compartmentalizing an organization comes from the NFL. The pathetic 2011 and 2012 seasons for the Philadelphia Eagles may have been partly caused by each component of the team (offense, defense, wide receivers, running backs) being isolated from the other, a change that Chip Kelly recently made to the locker room. Or, perhaps a worse case, the example of Bountygate getting out of control because one department allegedly wasn’t aware of what the other department was doing.

I love the above-quoted Credit-To-Cash Advisor article simply because it points out the “cold, hard facts” about why the sales and credit departments exist. They truly need one another for the company to reach its goals. Separated, the departments may believe they can accomplish their goals alone. This belief is mistaken, however, because each is serving to accomplish a component of a single company goal: to make more money!

Don’t let your credit and sales departments forget this about one another. Help them understand the ultimate vision of the company and where they fit in.  That communication will help the two departments work together to reach the common goal.

Oh, and how do you communicate it?  Repeat, repeat, repeat.

Practical Tips: Steps You Can Take To Lead To Increased Sales And Decreased Credit Risk

This article has identified the problem and discussed a theoretical way to help align your organization’s credit and sales teams. Alone, however, this will do little to prevent the day-to-day friction between your credit department and sales department. Your company needs to implement real, practical changes to grease the gears. Here are some thoughts on this.

Offer Options:  Not a perfect credit candidate? Offer options that makes sense.

I recently asked a client whether zlien has enabled them to take more business. Their response was a lightbulb moment for me, as they indicated that they now had a lot more options to work with someone who has risky credit or can’t pay an upfront deposit. The lightbulb was this:  Options!

A good salesperson isn’t interested in selling to a non-quality customer, but there is a really fine line between a good and bad customer when looking only at credit worthiness. Sometimes, in fact, the companies with the best credit can be the most dangerous to a business. And frankly, finding good credit in the construction industry is extraordinarily difficult and unreliable given the volatile nature of the business and its cash challenges.

What can an organization do? My client said it best: Options.

Credit departments should do what they can to give their sales departments options. Best case scenario is squeaky clean credit, but what if that’s not possible? What alternatives are available to enable the company to do business with the prospect?  Here are some ideas:

• Personal Guarantees: If the company’s credit isn’t up to par get the company’s principals, or someone with good credit willing to vouch for the company, to execute a personal guarantee. 
• Joint Check Agreements: Others on the project (i.e. the prime contractor or developer) may have good enough credit. Getting an assurance through them through a joint check agreement will give your company the confidence to go forward with the job. Be careful, however, as joint check agreements are hairy.
• Mechanics Lien Rights:  If you’re on a private construction project your mechanics lien rights can enable your company to do business with a customer not otherwise qualified. Lien rights provide your company with security to get paid, which is almost always enough to do the trick. In fact, proper use of your mechanics lien rights should enable your company to do business with anyone.
• Bond Claim Rights: If on a state, federal or bonded construction project, the underlying payment bond is security to get paid on the project. Think about it like this: Your company gets a personal guarantee from a licensed surety!  Wow!  What can be better than that?  The only thing you need to do is comply with the statutes to take advantage of it.
• Letters of Credit:  A letter of credit is a guarantee issued by a financial institution  such that if your customer doesn’t pay you can actually go to the financial institute and withdraw money against the customer’s credit line with the institution, reserved and guaranteed specifically for your company.
• Credit Insurance: Last, but not least, there are a lot of credit insurance products out there that can help mitigate any loss. If your customer doesn’t clear your credit hurdles, maybe they’ll be stable enough to get a green light from a credit insurer, who will indemnify you in the case the customer doesn’t pay.

What do you think?  What other options are out there?

Co-bonuses Based On The Opposite Departments Performance

Your sales people should be given an incentive when the customers they sell actually pay!  Perhaps you already tie a sales commission to an accounts actual collection, and this is a good start (see pros and cons of different sales commission structures here). Take it a step further by creating a bonus structure that rewards the sales department when the credit department hits its overall goals, and not simply when a sales person’s specific customer pays.  This will align your sales department with the big picture goals of the credit department.

Likewise, your credit department should get a piece of the action when the sales team meets it’s sales production quotas. Giving the credit department an incentive to increase the company’s revenue (not profits) will inspire them to be more creative and proactive to convert prospects into customers.

Comment And Give Some Additional Tips

Leave a comment and give us some of your experiences. Do you have any other options that enable your credit department to allow more new business in that may be riskier?  Do you have any other tactics you use to align the credit and sales departments?

Related articles

• Credit Management: Vote On The Most Important Credit Risk Tools
• Throw Me Some Credit Mister! A Look At Credit Management
• Credit Department Overview
• Business to Business Sales Lead Appreciation

Written by Scott Wolfe Jr See original article at Credit Department v Sales Departments: How Everyone Can Get Along Originally posted on the LIEN

Just a few days ago, a new contributor to the Paid Blog authored a review of the recent changes to North Carolina bond claim law, specifically the revisions to N.C. Gen. Stat. § 44A-27. That post did a great job of clearly setting forth the statutory changes and additions, and defining the stated reasons for the change. Unfortunately for North Carolina, however, the statutory revisions do not accomplish their task with nearly the requisite clarity, and in my opinion, do not actually accomplish the stated purpose at all.

Purpose of Recent Revisions to N.C. Bond Claim Law Was to Mitigate Double Payment Liability of General Contractors

Ostensibly, the purpose of North Carolina’s recent revisions to the bond claim law was to provide general contractors protection against double payment. In fact, the statute was only amended after a long period of lobbying to achieve that purpose. The revised statute creates two different protections to general contractors against the risk of double payment. The efficacy of these protections, however, is likely to be limited in practice, and is basically non-existent in theory.

If the goal of the statutory revision was to create double payment protection for general contractors, it would be easy to amend the statute to accomplish that task. Many states have similar protections in place for property owners on private or commercial projects – this is the difference between a “full-price” and a “unpaid balance” lien. Statutory language in “unpaid balance” states limits the amount of a valid lien to the amount still unpaid under the original contract. That is, the property owner is not liable for any amount over the contract price. If the property owner pays the general the full amount, and the general fails to pay the subs, those subs (and their sub-subs) are out of luck, no lien can attach. It would have been easy for North Carolina to provide clear and specific double payment protection by using similar language in their statutory revision. However, instead of revising the statute with precision to accomplish this specific task, the North Carolina legislature apparently attempted some sort of balancing act.

The Recent Revisions Merely Complicate N.C. Bond Claim Law

The practical result of the lien law revisions is only increased complexity in the bond claim scheme. The new version of N.C. Gen. Stat. § 44A-27 sets out several new requirements for parties up and down the project chain. The general contractor is mandated to provide a “project statement” to all subcontractors who, in turn, are required to pass the statement down to their sub-subs. Further, the general contractor is required to provide a copy of the bond within 7 calendar days of a request from a lower-tier party. Finally, all sub-subs are required, in some circumstances, to serve a “Notice of Public Subcontract” on the general contractor within a certain time period.

Each of these new requirements has an associated deadline, and some potential penalty associated if the deadline is missed. This creates a whole new tangled web of dates and consequences that people up and down the project chain must attempt to untangle. While this brings the public project rules more in line with the convoluted private project rules – I’m not sure that’s necessarily a benefit. Instead of formulating the new law in such a way that general contractors are clearly protected from double payment liability, the revised law sets out a bunch of requirements that may or may not lead to the general contractor being protected from being required to pay twice.

Let’s take a look at the new requirements one more time to see how they mesh together:

To preserve claims under the bond, every sub-sub is required to serve the general contractor with a “Notice of Public Subcontract” within 75 days of first furnishing labor and/or material to the project unless, 1) the claim is for $20,000 or less (for any amount over $20,000 the notice requirement only applies to the amount of the claim exceeding $20,000); or 2) the general contractor failed to deliver a copy of the bond within 7 calendar days of a written request from the claimant. Note that in situation 2) the requirement that the Notice be sent is not waived, only the 75-day deadline.

The Recent Revisions Provide Little Double Payment Protection to General Contractors

So, with all this new complexity, what is protection from double payment liability is gained by general contractors. Unfortunately for G.C.’s, the answer to that question is: very little. There is no double payment protection at all for the first $20,000 claimed by each remote subcontractor. For amounts over $20,000, there is only double payment protection in instances when the remote sub fails to give the required Notice within 75 days. Even in those situations, the protection only extends to amounts claimed for labor and/or materials provided more than 75 days before the service of the Notice, if the Notice was eventually given late, and only if the G.C. didn’t fail to give a copy of the bond within 7 calendar days of a written request from the claimant.

Not very much protection at all.

In any even, the “protection” provided by the revision is negligible. In fact, there is no real protection given at all. If the sub-sub complies with the new statutory requirements there is literally nothing the general can do to escape double payment. This is not protection, it is merely a set of hurdles that must be cleared. Sure, they may trip up an unsuspecting sub-sub and “protect” the G.C. from the amount of that sub’s claim over $20,000 – but that is poor protection indeed. To me, actual protection against double payment would disallow claims that would necessitate double payment, not explicitly allow them if certain notice requirements are met.

Written by Nate Budde See original article at N.C. Bond Claim Revisions Revisited: Double Payment Protection? Originally posted on the LIEN

If you’re a general contractor on a construction project, you know that one of the most important parts, besides the construction itself, is ensuring that the flow of money from the project owner to subcontractors is as smooth as possible. Additionally, if you have experience on public projects, you likely know that the law requires general contractors to acquire payment bonds from private insurers. In the unfortunate event that subcontractors, sub-subcontractors, or suppliers aren’t paid these parties may make a claim against the bond. After some recent re-working, North Carolina bond claim law now may provide some protection to general contractors from being forced to pay double when their subcontractor fails to pay more remote subs.

North Carolina Bond Claim Law Historically Placed the Burden of Double Payment on General Contractors

Until January 1, 2013, North Carolina law seemed geared much more to protecting the subcontractor than the general contractor. What happened, for example, if a second-tier subcontractor never received compensation from a first-tier subcontractor who was paid by the general contractor? Unfortunately for North Carolina GC’s, the second-tier subcontractor (or lower) could directly sue the general contractor in their action on their bond claim. Essentially, even though the general contractor already paid the first-tier subcontractor the full amount due, if that money never made it past the first-tier, the GC would be liable for paying everyone the first-tier never compensated. Accepting this risk of “double payment” was something that general contractors in North Carolina had to live with.

Making a North Carolina Bond Claim May Require Additional Notice

After decades of lobbying, the North Carolina legislature finally modified N.C. Gen. Stat. § 44A-27 in an effort to extend more protection to general contractors against the possibility of double payment through a North Carolina bond claim.

from the date on which [the second-tier or lower subcontractor] performed the last of the labor or furnished the last of the materials for which [the sub] claims payment.

The Notice has content requirements such as a description of the amount claimed, the name of the person for whom the work was performed or to whom the material was furnished, a description of the property, and more.

The general contractor also has obligations under the revised law, and is required to provide a Contractor’s Project Statement to all subcontractors with whom he contracts. The Statement must include the name and address of the project and the name of the contracting body and contractor. Additionally, upon request the GC must provide a copy of the payment bond within seven days.

New Protection Against Double Payments Under North Carolina Bond Claim Law

Although the new law doesn’t completely protect general contractors from the risks of double payment in the event that remote subcontractors are not paid, there are now additional requirements for remote subcontractors to preserve their right to make a bond claim.

Written by Elliot Singer See original article at North Carolina Bond Claim: New Protection for General Contractors Originally posted on the LIEN

English: Clearing a residential driveway in Incline Village (Lake Tahoe), Nevada. Snow Removal / Snow Blowing Services. (Photo credit: Wikipedia)

Massachusetts, New York, Connecticut and others in the Northeast were pummeled with the #Nemo storm and snow over the weekend. I can confirm the reports first hand as I’ve spent the last two day sin Cambridge, MA, where snow on the sidewalk is nearly taller than me.

Everywhere I looked was construction machinery or machinery of some sort working to clear the snow.  Clearing the snow from walkways, from driveways, from roadways and more.  It got me thinking – can you file a lien for this?

Mechanics Lien Against Private Property For Snow Clearing Work

Let’s start by analyzing the rules applicable to private works. If you were performing snow clearing work for a private owner (like a university) and were not paid, you would look to the state’s mechanics lien laws to see if you can protect yourself with a mechanics lien claim.

Whether you can or cannot file a mechanics lien is going to boil down to what is “lienable work” under the state’s mechanics lien statutory scheme.  Zlien’s mechanics lien law resources page provides this information for every state under the first FAQs for the state’s laws, marked: “Who Can Lien?”

Looking at Massachusetts as an example, the FAQ provides as follows:

In Massachusetts, any party who furnishes labor or materials to the construction, alteration, repair, or removal of a structure on land, or the land itself is entitled to mechanic’s lien protection.

Will this include the removal of snow from the grounds of a university or facility?  Close call.  What do you think?

Bond Claim If Snow Removal Part of State Contract

Snowplow in Sapporo (Photo credit: Wikipedia)

Things are a bit clearer for those furnishing snow removal services under a state contract. At least when dealing with work for the state, county or municipality, it is clear that a bond claim may be filed when there is a bond issued.  Duh!  The real question is whether a bond must be issued.

Under the Little Miller Act in Massachusetts, the following requires a bond:

the construction, reconstruction, alteration, remodeling, repair or demolition of public buildings or other public works

The phrase “other public works” really leaves the door open here. There may be some exceptions in the law for emergency response contracts and the like, but the take away here should be that these state contracts probably do require some type of bond, and therefore, a bond claim is probably possible on this work.

Related articles

• Contractor snow removal work, insurance claims and working safe
• Blizzard pummels North East U.S
• States clean up in deadly snowstorm’s wake
• Northeast blizzard pounds region, leaves thousands without power

Written by Scott Wolfe Jr See original article at Can You File A Mechanics Lien For Snow Removal Work? Originally posted on the LIEN

As always a general rule of thumb for all lien law nation wide is that the requirements to file are technical.

This post deals with Louisiana, and shows how timing can be used for (by the legally savvy) or against a party.

Most all contractors either know that they should or that they are required to file a notice/certificate of “substantial completion” at the end of a project. This document is typically signed by owner and general contractor and filed in the local mortgage office of the parish where the work was performed. This substantial completion notifies third parties that the work on the project is now complete with the exception of some punch-list items and that the owner has accepted the work. It signifies that the project is now capable to be put to its intended use.

The significance regarding filing liens is very important. This substantial completion document is the most concrete way to determine when a statutory lien period has commenced and when it terminates. A contractor, equipment lessor, owner and/or supplier would reasonably and logically think that both the Private Works Act and Public Works statutes in Louisiana would treat the filing of this document similarly. To some extent this is true but there are some very important differences as explained below.

Louisiana Lien Deadline on Public Works Projects

Deep in Chapter 10 of the Louisiana Revised Statutes lies the Public Contracts section. La. R.S. 38:2242, spells out the timing mechanism for substantial competition of a project. It is described in subsection (B) as follows:

B. Any claimant may after the maturity of his claim and within forty-five days after the recordation of acceptance of the work by the governing authority…”

This provision basically says that the claimant (entity filing the lien) has forty-five (45) days from when the acceptance of work (notice of substantial completion) is recorded to file a public lien. So in theory here, the job can reach substantial completion and/or the owner accept the work on a particular date, but that actual date is useless. The only date that is worthwhile is the date of recording, not the substantial completion date. There could be a few to many days difference in these.

This timing mechanism is very exact and lets contractors, laborers, suppliers and equipment lessors know exactly when they need to file a lien to preserve rights. There is not much gray area here. Owners and General Contractors need to be aware of this so that they get the acceptance of the work filed quickly.

Louisiana Lien Deadline on Private Works Projects

To the contrary, the Louisiana Private Works Act as codified in La. R.S. 9:4822, does not start the lien period based off a recording date of the substantial completion. Subsection (B), (C) and (D) only mention the “substantial completion” of the work. This revised statute is very technical but from a plain reading it does not require the notice of substantial completion to be filed at all. If nothing is filed then the parties have to go and look at other circumstances such as putting the project to its ordinary use and/or public documents such as a certificate of occupancy to determine a substantial completion date, then the lien deadline is calculated retroactively.

A smart and savvy owner or general contractor can have a date of substantial completion which is agreed upon, and then either not file it in the public record or wait to file it later on so as to almost trip up any possible lien claimants. The date of substantial completion on the notice is the date that will be used to calculate the lien deadline, not the date of recording.

Let it be noted that the Private Works Act does require a “Notice of Termination” to be filed and the recording date on this document will start the lien period. A notice of termination is complicated in itself and the subject of a future blog post.

Conclusion

Lien laws are complex and complicated. Its important to know all relevant dates for construction projects, such as when work was performed, when it was completed, when materials were first delivered, last delivered and so on. These dates are important so that liens can be filed and enforced. Zlien has mechanisms and software to help guide you when you have the right dates.

Written by Seth Smiley See original article at Louisiana Liens: Filing Date Differences For Public And Private Projects Originally posted on the LIEN

Bond claims, like mechanic’s liens, have requirements that vary from state to state.  Whether or not preliminary notice is required, who must receive preliminary notice or the claim itself, and even if a formal claim is required prior to initiating a lawsuit to recover can all change depending on the state in which the project is located.  One of the biggest formal differences between a bond claim and a mechanic’s lien claim, is that actually filing a mechanic’s lien against the property is always necessary prior to being able to initiate a suit to foreclose on that mechanic’s lien.

Since a bond claim does not attach to or encumber the actual property on which work is being performed, the claim is not a document that needs to be recorded in the land records – it is served on, or filed with, parties to the construction project (i.e. the public entity in charge, or the prime contractor that supplied the bond).  It is not always required, however, any notice or actual claim be given prior to the claimant initiating a lawsuit to recover the money owed, however.  In that case, the “bond claim” is basically like any other lawsuit for non-payment – just with the security that there is actually money to go after – in the form of the bond.

But, in the states where a formal notice of claim is not required, is there any reason to provide parties with a formal bond claim anyway?

Short Answer:  Yes.

Longer Answer:  There is really not much of a downside in sending a formal bond claim, and the upside is potentially large.  By sending a formal bond claim to the surety, (and general contractor) the claimant may be able to initiate payment without the expense of beginning a lawsuit.  At the very least, the bond claim will provide notice that the claimant is unpaid and a lawsuit will be forthcoming.  This could result in pressure to the prime (or hiring party) to pay, or, provided the proper information was sent to the surety it can jump-start the claim process.  In my opinion, wherever there is a chance of getting paid without the necessity of filing and prosecuting a lawsuit that’s not an opportunity to be squandered.

Written by Nate Budde See original article at Is There a Benefit to Sending A Bond Claim When There is No Requirement to Send a Claim Prior to Initiating Suit? Originally posted on the LIEN

Some people get confused about the differences between a bond claim and a mechanics lien claim, and this can result in causing decision paralysis. As this post will explain, however, the question of “which should you file” is usually a trick question. On most occasions, you only have the opportunity to file one or the other.

You Usually Don’t Have A Choice. It’s Either Mechanics Lien OR Bond Claim.

If you’re struggling with the decision of whether to file a bond claim or a mechanic’s lien claim, you are likely struggling in vain. Most of the time only one of these remedies are available to you.  The task isn’t deciding on which one you should file…the task is just figuring out which one you’re allowed to file.

So, which one?  Generally, the answer to this is very easy.

[pullquote style="right" quote="dark"]The general rule is that if you’re working on a private project you can file a mechanics lien only and not a bond claim. If you’re working on a public project, you can file a bond claim only and not a mechanics lien.[/pullquote] If you’re unpaid on a private construction project you’re allowed to file a mechanics lien claim against the project job site. As we’ve discussed ad nauseum on this Lien Blog, a mechanics lien claim asserts a security interest in the title of the property itself.

These claims must typically be filed with the recorder’s office in the county where the property is located, and the claims are usually asserted against the owner’s interest in the property.  You can file this document if you are on a privately owned construction project.

If you’re unpaid on a state, county, municipal, government or federal construction project you’re allowed to file a bond claim, and not a mechanics lien claim against the project’s bond.

Since the government is well-funded (presumably) and is not going to give up its interest in public property to a construction or building materials supply entity, it is impossible to actually claim an interest in the underlying job site property when unpaid on a government project. The lien-like remedy, therefore, is the bond claim.

When the public project meets certain criteria (usually, when it is over $25,000 – $50,000 in value), the laws require the contractor to post a “payment bond” for the benefit of subs and supplies. Anyone not paid can make a claim against the bond – instead of the property – for payment.

To summarize, if you’re working on a private project you can file a mechanics lien only and not a bond claim.  If you’re working on a public project, you can file a bond claim only and not a mechanics lien.  That is the general rule.

Knowing whether you are on a private or public construction project, therefore, is of obvious importance.

Limited Exceptions When Private Bond Claims Are Available

It wouldn’t be a proper legal rule unless an exception applied, and that is the case here.  In some very limited circumstances, a contractor on a private construction project may have posted a bond, and you may have the opportunity to file a bond claim instead of a mechanics lien. Here are some notes about this exception:

1) It’s Rare and Usually On Large, Complex Commercial Developments

Posting a bond on a private construction project is quite rare, especially when compared with the millions and millions of private projects that get built each year without a bond. You really shouldn’t be too worried about whether a private bond exists on the project unless the project is a complex and large commercial development (like a sky scraper).

2) You Probably Can Still Bring Your Mechanics Lien Claim

Even when a payment bond is placed on a private construction project, your right to file a mechanics lien claim is usually still in-tact.  The only difference is that the lien will get “bonded off” soon after you file.  This is not a big deal. In fact, we’ve previously written an article suggesting that bond claims may be preferred to lien claims.

Written by Scott Wolfe Jr See original article at Mechanics Lien Claim or Bond Claim? Which Should You File? Originally posted on the LIEN

The Pennsylvania Contractor and Subcontractor Payment Act 73 P.S. Sec. 501 et seq., was passed in 1994 to provide contractors and subcontractors additional protection when unpaid for their services on construction projects in that state.  Generally speaking, the act sets forth general payment terms for contracts that don’t contain a payment due date, and provides for interest to accrue beginning 8 days after payment is due, and additional interest if the contractor or sub is successful in litigation to recover the payments due.  Unfortunately, however, the act has (potentially unintended) consequences that undercut the rights of sub-subcontractors to recover through a bond claim.

73 P.S. Sec. 516 states that

Once a contractor has made payment to the subcontractor according to the payment terms of the construction contract or the provisions of this act, future claims for payment against the contractor by parties owed payment from the subcontractor which has been paid shall be barred.

This is an odd provision.  On its face, the rule states that once a general has paid a sub, a sub-sub who hasn’t been paid by that sub is prohibited from making a claim against the general for payment.  This clearly contradicts the provisions set forth in Pennsylvania bond law, so in regard to public projects in Pennsylvania, for which a bond is required, it is unclear how the courts will interpret this provision.

Pennsylvania bond law 8 P.S. Sec. 194(b) clearly holds that notice of the bond claim must only be delivered to the general contractor by the sub-sub within 90 days from the last date on which the sub-sub furnished labor and/or materials to the project.  Since the terms of the contract between the general and sub may provide that payment is due to the sub prior to 90 days from the date on which a sub-sub furnishes labor and/or materials – the two laws will be in conflict.

At some point, Pennsylvania courts will be forced to address this discrepancy, but until then, sub-subs on public projects may wish to make any bond claim as early as possible, and maybe even attempt to determine the payment terms of the contract between the general and the hiring sub in order to make their claim prior to the due date of payment.

Written by Nate Budde See original article at Does the Pennsylvania Contractor and Subcontractor Payment Act Undercut Sub-Subcontractors’ Rights? Originally posted on the LIEN

A previous article on our blog indicated that “Suppliers to Suppliers rarely catch a break” with respect to mechanics lien and bond claim laws. The reason here is because most private and public statutes prohibit suppliers to suppliers from filing a mechanics lien or bond claim.

It’s important to not only announce this information in a blog post or article, but to provide material supply organizations a resource to determine when they may have lien rights and when they may not.  This is exactly what we’ve done in a recent chart:  Suppliers to Suppliers Mechanics Lien & Bond Claim Rights.

Supplier to Suppliers Mechanics Lien Rights on Private Projects

This color-coded USA map indicates in which states suppliers to suppliers have mechanics lien rights.  The states in green indicate states where there are likely mechanics lien rights, the states in red indicate states where there are not likely any rights, and the states in gray are the maybes (but, you shouldn’t rely on the maybes…they are, after all, maybes).

Again, this chart relates to a supplier to suppliers mechanics lien rights. Accordingly, it is related to private projects only.

Suppliers to Suppliers Bond Claim Rights

This color-coded USA map indicates in which states suppliers to suppliers have bond claim rights.  The states in green indicate states where there are likely bond claim rights, the states in red indicate states where there are not likely any rights, and the states in gray are the maybes (but, you shouldn’t rely on the maybes…they are, after all, maybes).

Again, this chart relates to a supplier to suppliers bond claim rights. Accordingly, it is related to state projects only.

It is very important to note that this relates to a supplier-to-supplier’s rights under statutes providing bond claim rights for those who furnish labor or materials to a public project.  It is possible that a supplier to supplier may have rights to make a bond claim under the terms of the bond itself.  This has nothing to do with state laws and everything to do with the Payment Bond’s Terms.

Written by Scott Wolfe Jr See original article at Suppliers to Suppliers Mechanics Lien & Bond Rights Originally posted on the LIEN