If you’re a material supplier in the construction industry, when it comes to securing your payments on a construction project, we have good news and bad news.
First the good news: generally speaking, material suppliers do have lien rights or bond claim rights in most cases (though these rights typically come with strict preliminary notice requirements).
Now the bad news: if you are a supplier to suppliers, chances are you will not have lien rights or bond claim rights in most cases.
For an explanation as well as a state-by-state guide for suppliers to supplier lien and bond rights, please read on.
What Is a “Supplier to Suppliers?”
Well, we all know what a material supplier is, right? A material supplier sells construction materials to a contractor, and that contractor then incorporates those materials into a construction project.
So, what is a supplier to suppliers? Just as it sounds, a supplier to a supplier sells construction materials to another material supplier, and then that second supplier turns around and sells those same materials to a contractor who then incorporates them into a construction project. See the difference?
This scenario happens fairly often in the real world — if a supplier is ever about to lose out on a sale because they’re out of stock for something, they will typically try to call around to other material suppliers to find whatever it is they’re out of. This way, they get the sale and they’re able to keep their customer happy and maintain a good relationship. In short, everybody wins.
It works out pretty well for the supplier to suppliers, too — they get a sale that they otherwise would not have gotten (had the original material supplier not ran out of stock). The only problem for the supplier to the supplier is that they will likely not be able to secure their payments on those materials. More on that in the next section.
Map of Payment Rights for Suppliers to Suppliers
In the following two maps, we’ve broken down suppliers to suppliers for mechanics lien claims on private projects.
As you can see, suppliers to suppliers typically do not have lien rights on private projects, nor do they typically have bond claim rights on public projects. Furthermore, there are a bunch of states where the determination is “maybe.” Why “maybe?” That’s because each “maybe” state’s mechanics lien law does not explicitly address the payment rights of suppliers to suppliers.
However, it’s important to note that a “maybe” might as well be a “no” — it’s probably not safe to risk it in a “maybe” state. Bottom line: Supplier to Suppliers will have a hard time securing their project payments in just about any state. Therefore, any material supplier that finds themselves in this position should take extra care when it comes to making sure they get paid on the project.
Chances are that the average material supplier in the construction industry plays both roles described above on a regular basis — it’s just an everyday aspect of the supplier business (this is true for any industry, really). Because lien and bond rights are typically so readily available for material suppliers, it might be easy for these folks to let their “payment projection guard” down in situations where they’re making a sale to another supplier. However, as the maps above show, extra vigilance should be taken in these situations since the ability to secure the payments through a lien or bond claim is probably not available.