Construction professionals at work

Historically, companies in the construction industry have been either reluctant or unable to fully utilize the security granted to them by statute. The complexity of the rules and requirements associated with remaining in a secured position made it difficult, if not impossible, for national (or even regional) companies to keep in compliance. These rules and requirements can change based on the secured parties role in the project, the project type, the project location, and more. This complexity resulted in it being nearly impossible for construction industry participants to remain fully secured, and as a result, construction companies were forced to write off too much debt.

Security Is Getting Easier to Use

These historic challenges to the use of security rights for companies in the construction industry are rapidly becoming obsolete, however. The frustration, and obstacle, of dealing with the laws and related requirements that must be met. Compliance with these regulations was both time and cost prohibitive, and as such, the benefit gained by securing every extension of credit could be “reasonably” offset by the associated costs.

In the past, managing and tracking mechanics lien requirements was hard to implement and required bulky and cumbersome in-house departments or equally inefficient third-party outsourcing, which made it impossible to leverage security on all projects. Unlike banks, which can rely on either the relatively simple UCC process (for securing loans for moveable property) or the universally accepted mortgage requirements (for securing loans on real property) – construction companies were forced to deal with situations in which any of thousands of different requirements could apply, dependent upon numerous and various variables. This made it difficult for construction industry participants to create smart effective policies to use the security available. This is no longer the case. Emerging software has the ability to decode and streamline security circumstances and requirements for parties at both the top and bottom of the payment chain.

Parties at the top of the payment ladder are already using technology to determine which subs and suppliers are “risky” and which are not. That is, to prioritize payment to parties who have secured their extensions of credit, and to track the security status of all the parties below.  Now, cloud-based technology offers a solution to automate security requirement compliance for the parties lower on the payment chain.

Does Mandating Use Follow Ease of Use?

Emerging technologies and the newfound ability to track requirements and secure extensions of credit throughout the country will lead to a change in the normal business practices of companies in the construction industry. When the correct and effective use of security becomes commonplace in the space, its use will, for all intents and purposes, be mandated. While simple failure to follow industry best practices is not necessarily a breach of any duty, practices become “best practices” for a reason. Information regarding the effectiveness of security is widely and readily available, and is increasing every day. The ability of any financial manager to claim that the benefits and availability of security in the construction industry are unknown, or not reasonably able to be known, is fading rapidly. Given this changing atmosphere, the prudent officer, director, or financial manager will set a company policy of consistent and broad use of security devices available to secure extensions of credit on every project, including mechanics liens.

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