Contractors: Collecting Lien Waivers from your Direct Subs Is Not Enough

Lien waivers grease the wheels for construction payment. They act like a receipt and ensure that payments can be made without fear of payment claims derailing the job. When utilized properly, waivers are a win-win situation. However, contractors should keep something in mind: collecting waivers from your direct subs isn’t enough. No, waivers should be collected from everyone along the payment chain.

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Collecting Lien Waivers

As mentioned above, lien waivers smooth out the payment chain. Construction projects are home to a number of separate, independent personalities. Contractors hire subcontractors, those subcontractors hire their own subs, and many of these parties will contract with material suppliers, too. Many of these parties (if not all of them) will have the right to file a lien if they go unpaid. Naturally, this can be a terrifying prospect for contractors. Liens can pop up even when a contractor has played by the rules and paid everyone on time.

To fend off potential lien claims, contractors collect lien waivers. It’s a fact of life. But who must lien waivers be collected from? Chances are, they should be requested by more parties than you’d think.

Collect Lien Waivers all the way down the Chain

What’s the point of a lien waiver? To protect the job against liens. But to fulfill that goal, a lien waiver should be collected from every party entitled to lien rights. And that’s typically a LOT more than just first-tier subs.

So who is entitled to lien rights?

Glad you asked!

The answer varies state by state. Generally, though, it’s safe to assume that second tier subcontractors and suppliers to first tier subs will have lien rights. Often, though, lien rights will extend further. In many states, subcontractors of virtually any tier can file a lien. It’s not uncommon for suppliers to suppliers to have lien rights. Even laborers or W2 workers might be able to file a lien.

Everyone Submits a Lien Waiver

A lien waiver should be submitted in exchange for every payment made. Contractors should demand that their subcontractors collect lien waivers from all of their subs and suppliers, and they should make sure that the subcontractors and suppliers hired by their subs and suppliers submit lien waivers, too. Every party who receives payment as a result of providing services, labor, or materials to a job should be required to submit a lien waiver in exchange for payment.

Down the Chain Parties will actually be Happy

You might be thinking, “Those down the chain parties won’t be happy!” But you’d be wrong.

Mechanics lien waivers speed up payments. It’s that simple. Money will flow more easily from party to party when there’s no fear of a mechanics lien popping up. Literally everyone hates mechanics liens (except for a few lawyers, maybe). They’re a pain in the rear to file, and for top of the chain parties, they have the potential to derail the whole job. If you explain to subcontractors and suppliers that signing a waiver will make payment come faster, they’ll jump at the chance to do it. When utilized properly, exchanging lien waivers for payments is fair and it just makes sense.

Keeping Track of it all

Sounds like a lot of paperwork, right? Wrong again.

Believe it or not, this can be achieved without any paperwork at all – and you might even reduce the stain waivers put on your business. By marrying mechanics lien waivers and technology, everyone wins. If you’re being honest, keeping track of lien waivers has probably been a pain point, and embracing technology is the best way to make things easier.

Want to find out more about how to make your lien waiver process easier? Get in touch with us — we’d be happy to help.

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Summary
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Contractors: Collecting Lien Waivers From Your Direct Subs Isn't Enough
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Collecting lien waivers is a frustrating, but incredibly important, part of the job for many contractors. However, many contractors might not realize lien waivers should be collected from every party on the chain - not just the contractor's subs.
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levelset
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