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
Important California Lien Forms – FREE
Unlike any other legal document preparation service in California, Express Lien Inc. works exclusively for the construction industry, preparing, filing & securing construction lien documents for contractors, architects, and material suppliers.
Our service can help your company by:
- Preparing and serving preliminary notices for your construction projects;
- Maintaining copies of served notices and liens on our secure servers, accessible to your company through a secure login;
- Preparing and filing construction liens, and serving copies of the lien upon the property owner and other interested parties;
- Guiding your company from Lien Notices to Lien Cancellations, to help your protect your rights and get paid.
- Ensuring that your documents are prepared professionally and correctly, and filed with the proper authority.
We’re different from the competition because we do more than prepare forms – we do all of the filing and delivering work for you, and we keep everything available to your company so you never have to worry about proving that anything was filed or sent.
Express Lien is so confident in our service that we provide California contractors with California lien forms completely free of charge. Click below to download any of the following forms in PDF format.
- California Claim of Lien Form (mechanics lien form)
- California Preliminary Notice Form
Is Notice Required Before Filing a Construction Lien? Washington Law
It’s difficult to stress how beneficial filing a lien can be for your company when attempting to collect on a non-paying project. However, this begs the very important, and sometimes difficult to answer question: Are you legally entitled to lien?
In virtually every state, including Washington, the lien statutes are drafted with a certain balance. On the one hand, the statutes were created to grant those involved with the construction of a project a privilege on the properties they build or improve. On the other hand, however, the statutes have mechanisms within to protect the property owners from being liened improperly, or otherwise without notice.
Unfortunately, the notice requirements are oftentimes confusing and technical. It is important, however, that your organization understand these requirements. If you lien a project without following these notice procedures, you will have filed an improper lien, and this could subject you to owing the property owner damages, penalties and/or attorneys fees.
The notice requirements in Washington are actually quite clear – the general rule is simply that everyone is required to provide notice to the owner (and/or contractor) except for those who are specifically excluded.
This post breaks the notice requirements into two categories. Category one is the catch-all, and regards all types of projects that do not fall into category two. Category two regards construction projects for the improvement of an existing owner-occupied residential property.
Category One – The “Catch All”
Category one projects are all of those projects that do not fit within category two. This, therefore, includes every commercial project, and virtually every new residential project.
Washington statutes provide that written notice of a right to claim a lien must be given to the owner or reputed owner in every circumstances except:
1) Persons or companies who contract directly with the owner or owner’s agent;
2) Laborers for any claim that is based solely on labor; and
3) Subcontractors who have contracted with the prime contractor
To properly deliver notice, the notice must be in writing and must be given to the owner either through certified or registered mail and/or personally delivered.
For the sake of clean record-keeping, it’s a good practice to send the notice via certified mail with return receipt requested, and to keep record of the certified mail number. If you send the notice via hand delivery, you will want to get signed acknowledgment of receipt to later prove that the notice was sent.
Category two projects are very limited in scope. They include only improvements to existing owner-occupied single family residences.
The following are examples of Category Two projects:
- Improvement of kitchen to existing structure on a single family residence that is owned by the person occupying the home;
- Adding a new room or new addition to existing structure on a single family residence that is owned by the person occupying the home.
The following are examples of projects that are not Category two projects:
- Improvement of kitchen to an existing structure on a single family residence that is occupied by a tenant, and not the owner of the property;
- New construction of owner-occupied residence.
When a project can be classified as a “Category Two” project, notice is required from the following parties:
1) Persons who do not contract directly with the owner-occupier, or their agent.
Therefore, if you are a handyman and you contracted directly with the owner, you would have the right to file a lien without providing the owner with a notice of lien rights. However, if you are a subcontractor hired by a handyman to do electrical work in a category two project, you would be required to provide notice of lien rights.
Summary
The goal of the Washington statute’s notice requirements is to protect the owner from being liened by a contractor who is not authorized to perform work on the property and/or by a contractor with no direct link to the owner.
When a contractor is hired by the owner directly, there is no need for that contractor to notify them that work is being performed at their property; the owner should know this as a result of the contract.
When not hired directly by the owner, however, to satisfy the purposes of the statute the contractor is usually required to provide notice to the owner that work is being performed. There are a few exceptions, as above-noted.
What is Notice?
Washington statutes are very clear about what constitutes notice and what does not – the statutes even provide the public with a preferred form for notice.
The notice from the applicable Washington statutes have been converted to a PDF and properly formatted, and is made available to you on this blog post. You can:
Click Here for PDF of Washington Notice.
What Happens If I Don’t Provide Notice?
In Washington, notice is a prerequisite to filing a construction lien. Therefore, if you do not file notice, you will not be able to file a valid lien.
It is good practice to send notice of lien rights before work on a construction project begins. This will ensure that you lien rights are protected as to all work performed on the project. However, even if you have not delivered notice at the beginning of the project, you may still have the ability to lien the project to a certain degree.
Regarding Category one projects, a lien can be filed only as to the work, services, materials, etc. performed and/or delivered sixty (60) days before the notice is delivered.
For example, if you started work on January 1st, and delivered notice of lien on August 1st, you could only file a lien on the construction project for work performed in June, July, August and beyond. You would have lost the right to file a lien against the property for work performed between January 1st and June.
While this is the general rule for Category one projects (60 days before notice delivered), there is an exception. In the case of new construction of a single family residence, the lien can be filed only as to the work, services, materials, etc. performed and/or delivered ten (10) days before the notice is delivered. As you can see, this is a significant exception.
Regarding Category two projects, the lien may be satisfied only from amounts not yet paid to the prime contractor by the owner at the time the notice is received. Again, this is a significant exception.
Conclusion
The notice requirements in Washington are important, but also simple. The statutes even provide the public with an acceptable form of notice. Compliance with the statute is only a matter of procedure for your company.
If you are in the business of working on projects where notice is required, its as simple as dropping a form letter into the mail to preserve your lien rights. Even if you’re not typically required to provide notice, nevertheless you might want to consider sending it as it won’t harm any of your lien rights to over-notify the owner.
Is Notice Required Before Filing a Construction Lien? Louisiana Law
It’s difficult to stress how beneficial filing a lien can be for your company when attempting to collect on a non-paying project. However, this begs the very important, and sometimes difficult to answer question: Are you legally entitled to lien?
In Louisiana, the lien statutes are drafted with a certain balance. On the one hand, the statutes were created to grant those involved with the construction of a project a privilege on the properties they build or improve. On the other hand, however, the statutes have mechanisms within to protect the property owners from being liened improperly, or otherwise without notice.
Unfortunately, the notice requirements are oftentimes confusing and technical. It is important, however, that your organization understand the notice requirements of the Private Works Act.
Contracting with the Owner / Resident
The type of notice required is called the “Notice of Lien Rights.” A copy of an example of this notice is available by clicking here.
This notice, again, is required when the following elements are present:
1) Work is being done on a residence;
2) You contracted directly with the owner of the residence. In other words, you are not subcontractor on the project;
3) The owner lives in the residence.
The Notice of Lien Rights to be sent to owners in residential projects is very important, because the law requires that it be provided before work begins, and not as a condition to your construction contract.
Lessor of Equipment or Other Movables
For example, if you lease equipment to a subcontractor, you are not required to deliver an additional copy of the lease to the subcontractor within 10 days of delivery because they will – presumably – already have a copy of the lease. However, you would be required to send a copy of the lease to the general contractor and the owner.
This puts those other parties on notice that you have leased equipment/movables to someone for the work at the jobsite, and if such notice is sent, you will have preserved your right to file a lien in the case of non-payment.
Seller of Movables / Materials / Equipment / Etc.
If the materials sold are incorporated into a commercial project, there are no notice requirements.
If the materials sold are incorporated into a residential project, and you would be liening a residence, LA RS 9:4802(G)(2)-(3) requires that you deliver a notice of nonpayment to the owner of the property at least ten (10) days before filing the lien. The notice must:
- Be served by certified mail, return receipt requested;
- Contain the name and address of the seller of movables (you);
- Contain the general description of materials / movables provided;
- Contain a description sufficient to identify the immovable property against which the lien may be placed;
- Contain a written statement of the seller’s rights (your rights) for the total amount owed, plus interest and recording fees
If you sold the materials/movables to a subcontractor on the project, the notice must be sent certified, return receipt mail to both the owner and the general contractor.
Conclusion
This blog post discusses the most important and prominent notice requirements within the Louisiana Private Works Act. If you are looking to lien a non-paying construction project, you should familiarize yourself with the Private Works Act and consult with an attorney to ensure that you meeting all the requirements to filing.
Links:
What Subs Should Know about Liens
While subcontractors often feel that they are at the bottom of the construction world’s food chain, nearly every state protects them against non-payment with powerful lien laws. To utilize the force of these laws, however, its imperative to understand their scope and requirements.
In Louisiana, the Private Works Act allows a subcontractor to lien a project to ensure prompt payment from both general contractors and property owners. While the actual filing of a lien is important, it’s only the first step and it alone may not result in payment.
There is really no way to “enforce” a lien. A lien is simply a way for the contractor or subcontractor to protect its rights for payment. The step itself, however, is very important. Filing a lien formally notifies the property owner that the general contractor is not timely paying its laborers, and more importantly, that legal action can be commenced against them if a payment is not timely received.
Accordingly, if a subcontractor does not timely file a lien on a project, it cannot later seek payment from the owner of the property for the unpaid work. However, if a lien is timely filed, not only can the subcontractor bring suit against the general, but it may also sue the property owner directly. The lien, in other words, puts all parties on notice that there is unpaid work.
The significance of knowing and following lien laws is it will help your company to be more efficient in the collection of payment on projects. Lien laws are very technical and strict in Louisiana. The Private Works Act requires liens to be in writing, signed by the person asserting the claim, reasonable as to the amount owed with the amount itemized as best as possible. The lien must include a legal property description and description of work completed, and filed with the clerk of court or recorder of mortgages in the parish where the property is located.
While the Lien Laws are crafted to strongly favor subcontractors in a construction project, they do require careful attention to detail. It is very important to file the lien within the appropriate amount of time, which, depending on the project, is either thirty or sixty days, and to follow-up after filing.
When used correctly, liens are a powerful tool for subcontractors, and properly filed liens will ensure that those parties controlling the money do not abuse those who are working hardest on the projects.
