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The construction industry has similar payment problems all over the world, no matter where the project takes place. It doesn’t matter if the project is in Boston, Bangkok, or Berlin, the sheer number of parties on the job, and the credit-heavy nature of the payment scheme, can make payment slower than desired for many participants.
Just because the payment problems are similar, however, doesn’t mean that the solutions are the same. In fact, the mechanics lien as it currently exists was specifically developed in the United States in part because of the relatively liberal attitudes about (real) property ownership – which was different than in many other parts of the world. (Note, however, that a similar lien-like privilege existed in civil law countries – and Louisiana).
In the age of globalization, with companies routinely doing business in countries other than the one in which the company is located, what are the protections available for an American construction company participating on a project in a foreign country? And what about materialmen specifically – can a U.S.-based material supplier sending materials to a foreign country (a scenario that’s very easy to imagine) file a lien to secure the amount due?
Mechanics Liens are (generally) an American Remedy
The invention of the modern mechanics lien is generally credited to Thomas Jefferson. He did introduce the first mechanics lien legislation in the 1790s, and no such lien rights existed at the time in England where America’s legal concepts are rooted.
While there was, as mentioned above, already a lien-like privilege already in civil law countries (that the legislators working on the original U.S. mechanic lien laws likely referenced) the American version of the lien gave builders a much more robust right that attached to the property/land itself instead of an interest in just the improvement’s value.
The Lien Right Attaches to the Property Itself
Because a lien gives the claimant a right to the property itself – liens are controlled by the laws of the jurisdiction where the property itself is located. For example, take a hypothetical situation in which a Louisiana company contracted with a Texas company to supply building materials to a project in California. In this case, the laws governing to mechanics lien (and any associated notice and timing requirements) would be California’s.
When viewed in this light, it’s easier to see why the protections against non-payment when materials are delivered to a project located outside the United States must be something other than U.S. mechanics lien laws.
Download a resource that’s perfect for Office Managers (and anyone that’s responsible for getting money in the door) in the construction industry:
What Is the Protection for a U.S. Company on a Foreign Project?
Since U.S. mechanics lien laws don’t control the ability to protect payment when the job site is outside of the United States, what remedies are there? The answer to that question depends upon several factors, one of which is where the project is located.
Some countries, like Canada, have enacted lien protections very similar to the United States. While the requirements will be governed by the particular province where the project occurred, the protection is relatively similar. Other countries have alternative solutions, like Australia‘s payment/progress claim.
An interesting case is one in which a U.S. company is supplying labor or materials to a U.S. project in a foreign country. In these cases, like work on an embassy or a military base, the federal Miller Act would likely apply, and the claimant may be protected by the project’s bond.
You Can Always File Suit
In relatively all situations, if a party remains unpaid in breach of a contract to supply materials or provide work to a project, there is a legal remedy attainable by filing a lawsuit (though this potential solution may also be a pricey one). While filing suit against foreign parties can be a hassle, it can be the most effective way to recover the amount owed since liens or similar protections may not be possible.
The takeaway here is to understand the avenues through which payment can be recovered in the countries in which you are doing business. If there is a lien right, fantastic – just be sure to follow all the rules and requirements just as you would if the project was in the U.S. If there is no lien right, examine the potential ways to recover in the event of slow or non payment, and prepare accordingly.
While lien rights may or may not be available in foreign countries, they are available for construction companies here, in all 50 states and all U.S. Territories. All construction industry participants should familiarize themselves with these powerful tools that can be the best remedy for a payment issue on a project.