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Lien Laws & Out-of-State Construction Projects (Part I)

 Like everyone else, your construction company is likely feeling the pressure of our prolonged economic downturn with no end in sight. Some states, but perhaps not yours, are starting to show small upticks in economic activity, possibly leading you to consider joining the tides of contractors looking for work in other states. As your company ventures into other territories, you apply your existing lien law knowledge to out-of-state projects. However, as your out-of-state job approaches completion, something goes horribly wrong. Perhaps there is a change order dispute with a sub who liens the project, causing the owner to withhold payment from you.

Naturally, you attempt to lien the project too. But the out-of-state lien law is drastically different than the one you know, resulting in an inadvertent failure to perfect your company’s lien rights. Even worse, your sub perfected its rights and was paid by the owner to satisfy their lien, so now you must defend the inevitable claim from the owner for sums paid to the lienor.

 

What went wrong? Your unfamiliarity with the out-of-state lien law gave your sub an unfair advantage when it perfected its lien for sums to which you believe it was not entitled. Your company’s ability to resolve the payment dispute was compromised by the loss of benefits otherwise provided by that particular state’s lien law. Unfortunately, this scenario happens all too often. As contractors expand their business into other states, they seldom consider the differences in lien laws from state to state. 

 

Although lien laws differ significantly, most generally address the same topics – so, with a little advance research, you can learn about the most pressing provisions and perfect your company’s rights in the future. This is the first in a series of blogs that will list various subjects usually covered by lien laws that you should research in foreign states before you begin a construction job there. Today we will begin with differences in the protected class of lienors.

Construction Contracting for the Owner – Essential Terms of construction contracts

I wanted to address key terms for any contruction contract.  Although some of these may seem mind numbingly obvious, I have seen contracts over the years that failed to address very critical points. 1. Scope of Work - What are you trying to get done?  For more detail go here. 2. Contract Price - What is the price and how do we determine that? It depends on the type of contract.  Does the price include permitting, bonding or additional insurance? 3. Start Date and End Date - When do you want the work to start? When should it be completed? 4. Insurance - How much and who has to carry it? 5. Indeminfication - Who has to hold who harmless?   6. Dispute Resolution - Are you agreeing to arbitration or litigation in the case of a dispute?  Which disputes are subject to these provisions? What jurisdiction will these disputes be resolved in? Does the prevailing party get their legal fees back?...

Construction Contracting for the Owner – Types of contracts

There are several types of contracts which are used in between owners and contractors. The primary ones are lump sum contracts, unit price contracts, time and materials, construction manager and design-build.

Lump Sum:

A lump sum contract is the most basic agreement between a contractor and owner. The contractor agrees to provide specified services for a specific price. The owner agrees to pay the price upon completion of the work or according to an agreed payment schedule. T lump sum includes the costs of labor and materials and the contractor’s overhead and profit. The benefits of a lump sum contract for the owner are primarily that the costs are known at the outset of the project and the contractor has the risk if additional materials or time is needed.

Unit Price:

In a unit price contract a fixed price is established for each unit of work. A common example for condominium associations is a unit price for cubic feet of concrete repair on a balcony renovation project. This is useful as the price is set for the that unit of work.  Like a lump sum contract, the contractor is paid an agreed upon price, regardless of the actual cost to do the work. Unlike a lump sum contract the agreed upon price is usually for a small component of the work and not the entire project so the final cost may not be known at outset since the contract quantities at bid time are only estimates. Any contract for cost plus should require the contractor to keep careful records so as to be able to show quantities.

Time and Materials:

In a time and materials contract the contractor charges an hourly rate for labor, and there can be a certain percentage added to the materials and labor for profit. The perceived benefit for the owner is that they are not paying for any fluff that a contractor may build into the lump sum, and contractors are ensured that they will a fair profit. However, this contract shifts the price risks completely from the contractor to the owner. In the absence of checks and balances for the types of materials used and the actual time spent, including a guaranteed maximum price the owner could be giving the contractor a blank check.

Potential Settlement of a Chinese Drywall Case

Per today's Tampa Tribune Online: "A Miami-based supplier of tainted Chinese drywall agreed in a court filing today to a $55 million settlement of claims that the corrosive product damaged homes, all or nearly all of them in Florida. The proposed settlement, which requires approval from U.S. District Judge Eldon Fallon in New Orleans, would resolve claims by thousands of plaintiffs against Banner Supply Co., several related companies and Banner's insurers."   The full article can be found here.   As noted in the article, the deal still has to be approved by the court and until that happens all of this is tentative.  However, this may be a good step in these cases being resolved and homeowners being able to recoup some of their damages.  Obviously this is not the end of this legal chase as the parties making payment will be seeking to recover from the suppliers of the chinese drywall.  Although settlement of this one case...