Earlier this year, we posted about a huge construction lien filed by the prime contractor in connection with the $8.5 billion CityCenter project in Las Vegas.

We titled the post:  Liens Make Your Payment Problem the Entire Project’s Biggest Problem. That post was really written to the subcontractors/suppliers, demonstrating that when a sub/supplier files a lien, the property owner becomes very interested in getting the subcontractor or supplier paid.   And…it does.

In fact, as predicted by the May 2010 blog post, the property owner was more than interested in getting the subs and suppliers paid…over the next few months, the property owner went over the prime contractor’s head and settled with the lien claimants directly – to the tune of millions of dollars.

And this, of course, brought up an issue with the prime contractors construction lien, which was calculated assuming that all the money owed to those subcontractors was owed to the prime.

The property owner asked the Nevada court to reduce Perini Building’s mechanic lien by $67 million.   The prime contractor argued that “settling” with the subcontractors didn’t resolve the full debt the owner owed to the general, and objected to “settlement provisions” within the subcontractor agreements that “benefited CityCenter at the expense of Perini.”

Here’s an example of how this problem can arise.   Let’s say a subcontractor is owed $50k, meaning of course that the prime contractor is owed at least $50k.    If the owner settles directly with the sub for $20k, what does that mean for the other $30k.   Does the owner owe it any longer?

The $67m issue in the CityCenter case was a bit more complicated than this example, but nevertheless, the Nevada judge ruled in favor of the property owner requiring that the prime’s lien be reduced.

This is an interesting case for the construction industry, and for construction lawyers across the country who are interested in mechanic lien laws and situations like this one.

The CityCenter project is such a large-scale project that it takes some of these common construction law issues and amplifies them.   Stay tuned for more interesting decisions…

The existence of these laws can undermine a contractor’s true security in getting paid on a job, while providing assurances to consumers and builders that financing will not be held up by downstream contractors.

In Nevada, recent law effectively made it possible to limit lien rights during contracting. John Foust and John Ralls of Howrey LLP offer the case of Dayside, Inc. v. First Judicial District Court, 75 P.3d 384 (Nev. 2003) as an example of this unique legal protection. In that case, a contractor signing a standard form contract, which contained a waiver of lien rights clause was prevented from asserting its lien claim. The court found that a knowing assent to a clear and unambiguous term, waiving lien rights, was an enforceable clause which was not adverse to public policy.

In the book Fifty State Construction Lien and Bond Law By Robert Frank Cushman, Stephen D. Butler, Laurence Schor, the authors illustrate that the State of Alabama has permitted contractual waiver of lien rights prior to the work being initiated. The book, which can be found on Google Books, illustrates that Alabama further provides builders with the right to obtain a list of all other contractors working on the job from the general contractor.

On the contrary, states such as Pennsylvania have taken steps to ensure that contractors’ rights are not upended through contract. Joshua Lorenz of Meyer, Unkovic and Scott addresses the effect of a 2006 law, taking effect January 1, 2007, which unanimously passed through the state legislature with the intent to prevent contractual waiver of lien rights. Joshua’s analysis was that the law would have an immediate impact upon construction lending, title insurance and delays on projects.

A second opinion by Michael Zukowski, of Kirkpatrick & Lockhart states that in some instances, where contractors post a payment bond, or for residential construction under $1,000,000.00, a contractor may still expressly waive its lien rights prior to beginning work. Regardless, Pennsylvania’s stance clearly prevents builders from running amuck of the mechanic’s lien statutes.

Florida also prevents the pre-performance waiver of lien rights. An article by Jeffery Wertzman indicates that contractors cannot contractually release these rights until after they have actually performed the work to be released.

In 1994, New Jersey’s legislature passed sweeping reform to its mechanic’s lien statutes. The effect of these laws, among other things, abolished lien waivers during contracting as against public policy. Peter J. Smith of Connell Foley, LLP opines further in his article which can be found in the firm’s publications section.

Similarly, Illinois law expressly prohibits the waiver of lien rights during contracting. Heidi Hennig Rowe, of Schiff Hardin LLP’s Chicago practice, opines that the Illinois mechanic lien statute provides no avenue for a project owner to prevent a contractor from liening its project during contracting. Seemingly becoming the majority position, contractors’ rights are once again protected in the Midwest.

Zlien.com is a revolutionary lien filing service offering those in the construction industry a fast and affordable way to lien non-paying projects and protect the interests of their organizations. The service was launched in July 2007, and is now the fastest and most effective way to lien a construction project in California, Nevada, Oregon, Washington and its founding state of Louisiana.

Launching the service in Nevada is part of the company’s long-term growth strategy. The service hopes to soon expand into the neighboring states of Idaho and Utah.

Within just five to ten minutes, a contractor or material supplier can now lien a non-paying project without the hassles of hiring an attorney or scouring the internet for forms and procedures. Liens are prepared to the standards of the filers jurisdiction, are delivered to interested parties as per state law, and are stored on Zlien’s servers for ease of record-keeping.

The processing fee to file a construction lien is only a flat $295.00, which is a fraction of what it could cost to hire an attorney to file the lien.

“The construction lien is a unique remedy, and available only to contractors,” says Scott Wolfe, founder of the service. “Our contractor’s typically see a 50-65% success rate with their liens. This means they are getting paid after only spending a few hundred dollars on filing their lien. It’s a remarkable potential collection method for them, and if it doesn’t result in payment, they’re left in a powerful legal position against the non-paying party.”

The Zlien service makes filing a construction lien easier and more cost effective than ever before.

“Now the construction lien remedy is available to contractors of all shapes and sizes,” says Wolfe, “it really levels the playing field.”

Visit Zlien.com to begin liening your non-paying construction project.

Have you been paid today?

*Zlien, L.L.C. is a Washington company. Zlien is not a law firm or lawyers, and does not give legal advice. If you have questions about lien laws, you should consult with an attorney.