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This one’s a bit of an archiver, but it’s important. I talk often about the importance of lien and bond claim compliance–I founded a business around it.
“When it comes to bond and lien notices, the details matter. They really matter. Contractors, subcontractors, and suppliers that miss the details can pay a severe price.” That’s Daniel M. Carrico writing in the Surety Bond Quarterly, and I couldn’t have said it better myself.
Let’s take a look at a real example of why this is true.
Lien Compliance Case Study
What’s the story? Niles-Wiese was hired by a Minnesota city to build a runway. Niles-Wiese hired Safety Signs LLC as a subcontractor. The city paid Niles-Wiese, but Niles-Wiese defaulted on their payment to Safety Signs. Per Minnesota law, Safety Signs sent the required notices to the GC (Niles) and Surety before filing a bond claim to get paid. Their claim was rejected and they went to court.
The verdict? Safety Signs lost!
Why did they lose? Safety Signs did everything right, except for one little thing. When they sent notice to Niles-Wiese, they used the address listed on the subcontract, not the address listed on the payment. Minnesota law states that you must send to “addresses as stated in the bond.” So even though Niles-Wiese received the notice, even though Safety Signs followed all protocol, they lost their right to file a claim against the bond completely.
How much did they lose? The case I’ve described above was an appeal by the surety company after Safety Signs won in a lower court. Safety Signs’ original award was $27,119.64 (for work performed), plus 18% interest, and $33,899.68 in attorneys fees.
That totals out to $38,781.22, and sadly it’s far from the largest dollar amount I’ve seen a company lose out on.
Lessons Learned
- It’s all in the details.
- Liens and bond claims are a good avenue for protection, if you use them right. Safety Signs LLC was originally awarded the money it was owed, so the process of obtaining your payment through this channel is legitimate, albeit complex (though it can be quite easy). Handled properly, liens and bond claims do work to secure your payment.