I’ve mentioned several times recently that a robust lien policy can be an enormous benefit to a company’s overall credit management effectiveness and the company’s bottom line, as long as that lien policy is routinely followed. While this is great news, and very beneficial to companies in the construction industry, the unfortunate truth is that continually sticking to a thorough lien policy can be difficult. Drafting the lien policy is the easy part – strictly following a lien policy in the course of business is considerably more difficult. A crucial part of an effective lien policy is making sure to comply with all necessary preliminary notice requirements. In fact, my opinion is that the most important part of a proper lien policy is making sure that preliminary notice requirements are strictly adhered to and executed flawlessly, every time. But
Notice and Lien Requirements Are Very Technical
There is no single blanket “preliminary notice” form that can be used irrespective of the state in which the project is located and the project tier of the noticing party. Notice requirements vary depending on where you’re working, what type of project you’re working on, and on what tier you fall. These variables make for confusing requirements – different notices are not only needed state to state, but also project to project. In addition, timing requirements are equally variable.
Other complexities are the requirements of the wording, font size, and margins. Often, states require notices to contain specific language in a certain font-size, bold and/or in all caps, failure to adhere to these technical requirements can lead to the invalidation of any subsequent lien. While it seems ridiculous that a lien may be invalidated because a sentence on a preliminary notice was not in all-caps, mechanics liens are creatures of statute, and failing to strictly follow the statutory requirements (no matter how inane they seem) puts a lien claimant at risk. Statutes are also picky about how notices must be sent, who they must be sent to, and how you will need to prove that you actually sent the notice along. If a notice is required to be sent by certified mail, you do not want to figure that out when a lien is challenged because you sent the notice by regular US mail.
For example, California requires a 20-day preliminary notice required on private construction projects. The notice must contain a statement identical to the one required in California Civil Code §3084 in “10-point boldface type.” Plus, §3084(a)(6) also requires that the sending party maintain a “proof of service adavit” and any records of mailing. Since lien law is constantly changing and evolving, it puts a strain on a notice compliance department to keep up with the minutiae of every requirement in every place a company may do business.
Preliminary Notices Take Time
An important factor in determining whether to keep notice and lien compliance in-house is accounting for the time it takes to accomplish the process correctly. If your business is large enough that you can have full-time employees or even an entire department (credit management department) solely focused on lien policy compliance it may be feasible, but expensive, to keep the work in-house. The time required, however, is probably too much for a multi-tasked employee or employees to accomplish, especially considering the research required into the corresponding statutory requirements.
Outsourcing these procedures is likely beneficial to most companies from a time standpoint. It makes little sense to task an employee not familiar with these procedures and requirements with the highly time consuming and technical task of complying with all the differing specific rules. And, because a quality lien and notice policy is a crucial foundation of the company’s credit policy as a whole, the job is much too important to be only casually attempted. If liens and notices are outsourced there is no lost time, and the procedures are overseen by individuals well-versed in the technical aspects required.
More Cost Efficient to Outsource Lien Policy, or Keep In-House?
it is safer, more efficient, and more cost effective to outsource notices and liens. In addition to time, an important consideration to make when deciding whether to outsource notice and lien policy or keep it in-house is the cost. Clearly the most cost beneficial option is the smart choice for a rational business professional. While the cost analysis is clearly something that must be undertaken on a case by case basis, and includes a variety of factors, it is generally more cost effective to outsource the preparation and service/filing of liens and notices. The actual cost of outsourcing or keeping the process in-house is more than the initial cost per notice or lien, however. An important factor to consider is the potential cost if the notices or liens are drafted, served, or filed incorrectly. The potential exposure is large, and it can only take one mistake to severely impact a business’s bottom line.
I personally feel that it is safer, more efficient, and more cost effective to outsource notices and liens. The final decision clearly must be made by each individual company through the lens of each individual situation. Since a robust lien and notice policy must be strictly adhered to to be effective, and it underlies the entire credit policy of the business, this decision is an important one.