Posts Tagged ‘Why Lien’

Litigation Topics for Prime / Subcontractor Contracts

I had a speaking engagement today here in Kenner, Louisiana (a suburb of New Orleans) whereby I had the pleasure of speaking to a group of contractors and architects regarding construction contracts. The bulk of the discussion focused on the most contested provisions within construction contracts.

The information is very helpful to contractors and can be used a resource when a contractor begins the contracting phase of a construction project to help get a better understanding of what is going on within the contract documents.

Prime/Subcontractors Contracts

Contracts between prime/general contractors and their subcontractors make up a vital link in the construction project chain. Here both parties need to negotiate terms to better protect when a dispute arises. A well crafted contract can better protect a prime and/or a sub when default arises. Typically subcontractors are at the mercy of the prime. A good subcontractor will have his attorney review any agreement to make sure that the deal is an even one.

AIA – American Institute of Architects is the most common standard form contracts in the construction industry. AIA contracts are a good starting point and offer contracts for Prime/sub relationships, Architect/owner, Owner/Prime, and any other design professional/contractor relationship that may exist.

• Commonly litigated subcontract provisions

There are a number of provisions which could be contained in a prime/subcontractor contract that need to raise a red flag when present and should be negotiated by either party so as to keep the contract from becoming one-sided.

1. Incorporation by Reference Clauses: (flow-up & flow-down provisions)

  • a Flow-down provision in a prime/sub contract will incorporate by reference terms and provisions of the owner/prime contract;
  • conversely, a Flow-up provision incorporates the duties owed by the owner to the prime into the prime/sub contract;
  • Many times parties enter into these agreements with out ever seeing the referenced document making them susceptible to unknown provisions;
  • Enforcement depends on the reciprocality of the provisions and lack of ambiguity

2. Scope of Work Provisions

  • Prime contractors want a broad scope of work provision with subs so that they can pin other work to them later on if needed;
  • Subs should demand very specific scope of work provisions so as to know exactly what work is expected and what exactly they have bid on;
  • This provision can incorporate other documents such as plans and specifications;
  • Provision needed for extra work or change order if work called for is outside of the scope;

3. Change Order and Extra Work Provisions

  • Very popular area for dispute in construction contracts – changes are always happening
  • There should be a clear provision in the contract outlining the process whereby CO’s are made and approved;
  • Define change order – modification to work already contemplated by the agreement; (ie different materials)
  • Define extra – item of work beyond the original scope of work that is added during construction;
  • MAKE SURE change orders and/or extras are in writing;

4. Notice Provisions

  • Found in various places within a prime/sub contract
  • Very important risk-shifiting devices – can determine a win or loss regarding a claim

5. Indemnity Clauses

  • Typically these trickle down the line Owner -> Prime -> Sub
  • These are generally enforceable, Subs should be careful and not allow indemnity for negligence of another party
  • Insurance can be purchased by prime or sub to cover the indemnity obligation

6. No Damages for Delay Clauses

  • Owners and Primes try to insert “no damage for delay” provisions in contracts for protection against unforeseen delays
  • Parties want to check all referencing documents to see if this provision is in there

7. LD’s – Liquidated Damages Provisions

  • Very helpful provisions because the pre-determine delay damages, usually on a per day basis;
  • Enforceable unless determined to be a penalty or if they are a “one- size fits all” provision;
  • LD’s are a good way to measure delay damage but can enhance the need for Contractor/Sub to accelerate work to avoid further damage, leading to defects and workmanship issues;
  • For LD’s to apply the contractors work must be a substantial factor in the delay;

8. Lien Waivers

  • reduce the chance for encumbrances to be placed on the title of the property;
  • Usually not enforceable if lien waiver required before work performed;
  • A good tool for Prime and Owner to reduce exposure;
  • Can be used in an incremental fashion as payments are distributed

9. “Pay-when-paid” v. “Pay-if-paid”

  • Pay-if-paid is defined as a subcontractor gets paid by the general contractor only if the owner pays the general contractor for that subcontractor’s work.” Requires a condition precedent.
  • Pay-when-paid in contrast to the pay-if-paid; a pay-when-paid clause does not establish a condition precedent, but merely creates a timing mechanism for the general contractor’s payment to the subcontractor.

10. Retainage

  • Typically 5%-10% of each payment will be withheld by the Owner/Prime until a later date, such as substantial completion
  • Its purpose is to keep a pool of money to remedy any defects in workmanship by that sub

11. Termination provisions

  • Termination for Cause
  • Usually nonpayment, excessive delay, insolvency, or convenience are reasons to terminate the contract

12. ADR Clause (Arbitration/Mediation clauses)

  • Arbitration (most popular) – binding way to avoid litigation;
  • Mediation – non-binding way to avoid litigation;
  • Both can be effective, typically arbitration can be more intimidating due to its binding and no (very limited) ability to appeal

13. Attorney fee provisions

  • Very popular as no one likes to pay an attorney!
  • Many provisions will say that the unsuccessful party must pay attorney fees but others to be careful will put the burden on one party
  • Primes and subs should include an attorney fee provision in all contracts
  • Good to be specific on the provision and include for litigation and ADR

14. Forum selection & choice of law

  • If working out of state, make sure you know which venue a dispute will be held in;
  • This can be a very costly provision

(list partially obtained from the ABA’s Fundamentals of Construction Law)

 

Posted in:     Arbitration & ADR, Change Orders, Construction Contracts, Construction News, Damages, Delays, Dispute A Lien, Disputes, Insurance, Litigation, Louisiana, Mechanics Lien  /  Tags: , , , , ,   /   2 Comments

Real Estate Agent Claims: Mechanic’s Liens Can Mess Up A Real Estate Closing

Although situated in Texas, the “We Did It Again Group” sells and lists property and property insurance in all 50 states, and even internationally.  Last week, they posted an article on their blog titled “Mechanic’s Liens Can Mess Up A Real Estate Closing!”

The author is speaking to property owners who are interested in selling their property, wherein he discusses how a lien works and what effects it may have on someone interested in selling property.

Because of the way lien laws work in most states, the We Did It Again Group warns that a “homeowner may actually end up paying twice for the same work.”

The author of the blog post has a great explanation of what types of situations a homeowner may encounter if their property is liened and they want to move forward with a sale or refinance:

The theory is that the value of the property upon which the labor or materials have been bestowed has been increased by virtue of these efforts and the homeowner who has reaped this benefit is required in return to act as the ultimate guarantor of full payment to the persons responsible for this increase in value. In practice, a homeowner faced with a valid mechanics’ lien may be compelled to pay the lien claimant and then pursue conventional legal remedies against the contractor or subcontractor who initially failed to pay the lien claimant but who himself was paid by the homeowner. Another justification for this result relates to the relative financial strengths of the parties to a work of improvement. The law views the property owner as being in a better situation to absorb the financial setback occasioned by having to pay the amount of a valid mechanics’ lien, as opposed to a laborer or material man who is viewed as being less able to absorb the financial burdens occasioned by not being paid for services or materials provided in connection with a work of improvement.

Get more information by reading the blog post here.

What does this mean for contractors?   As we’ve said before, when used properly, a construction or mechanics lien can be a very powerful collections tool.  Learn more about how you can lien smarter with Zlien.

Posted in:     About Our Services, Mechanics Lien  /  Tags: , , ,   /   1 Comment

Will the 2009 Economy Create More Mechanic Lien Filings?

At the Construction Lien Blog, we’ve written about the current state of the economy in America, and how this has affected the construction industry from coast-to-coast.

However, there is recent conversation in the media and out in the blog-o-sphere that the economy’s impact on construction has increased the amount of mechanic’s liens filed by contractors.

The Pacific Business News source in St. Louis, for example, has a story on a construction attorney in Missouri who says that he filed twice as many liens in 2008 as he did in 2007.

A similar article appears in the Virginia Lawyers Weekly, which reports that construction litigation in general is increasing in the current economy, with increased claims for construction delays, defects and problems with collections.

It seems that the business journals are full of stories about construction projects being slammed with liens, like the story here and here.

As the new year approaches, what will we see in the construction industry that is predicted to remain pretty stagnet?

One thing is for sure, regardless of whether lien filings increase, decrease or stay the same, with the current credit crunch and economic woes, it’s more important than ever to file liens on claims you do have, and to do it timely and properly.

Posted in:     Construction News  /  Tags: , , , , ,   /   9 Comments

Be Careful When Using Free Legal Forms

Gerard Simington with “FindAnAttorneyForMe.com” published an informative article that warns businesses about using free legal forms found on the internet.

The Internet has placed legal information and legal forms at our fingertips – and its easy to forget sometimes that the law is a very complicated subject, and legal forms are no exception.  While a legal form may seem simple on its face, the blanks can carry significant legal consequences.

It’s always great to hire an attorney to draft legal documents from scratch, or to “tweak” legal forms to fit your particular need.   The costs associated with legal counsel, however, are simply sometimes out of your business’ reach.

Legal Document preparation services like Express Lien are perfect for these situations.  Our staffs of professionals are familiar with the forms that relate to your construction project, and we can help you draft & file your forms properly and avoid costly mistakes.

Posted in:     Construction News  /  Tags: , , , , , , , , , , , , , ,   /   1 Comment

7 Habits of Contractors Who Lose Money…and How to Break Them

The Construction Commando’s “Contractor’s Secret Weapon” published an article with this title that described seven instances when contractors lose money on a project.  While the article was drafted to an audience of California contractors, the habits apply nationwide.

It will be to any contractors’ benefit to review this article online, access which habits apply to you, and make an effort to avoid the costly mistakes.  Any progress will help increase your bottom line.

The seven habits highlighted are:

1)    The “Gentlemen’s Agreement” – A Handshake and Your Word.   Bottom line:  Get it in writing.
2)    Using Contracts that Fall Short of the Legal Requirements.
3)    Not Getting Every Change Order in Writing.
4)    Failing to invoice immediately.
5)    Failing to serve a preliminary 20-day notice (pre-lien construction notices)
6)    Don’t Worry – They Will “Take Care of You” on the Next Job
7)    It isn’t good “customer service” to record a Mechanic’s Lien

Posted in:     Change Orders, Construction Contracts, Construction News, Mechanics Lien  /  Tags: , , , , , , , , , , , , , , ,   /   Leave a comment