The 3rd annual ENR Construction Risk Summit is approaching, providing contractors, owners, sureties, attorneys, and other construction stakeholders a forum to discuss and debate industry risks. The event’s agenda promises to help all stakeholders better “manage costly risks to achieve project success.”
Catering to the summit’s 2015 locale being in Dallas, one focus on the agenda is on subcontractor risks in Texas. Levelset’s CEO, Scott Wolfe (hey, that’s me!), is sitting on a panel to discuss subcontractor risks in Texas, and the role of lien rights in the larger risk picture. This article gives a preview of the 2015 summit and that topic. Also, follow the conversation about the summit with #ENRRisk, with top tweets provided below:
The Risks Faced by Texas Subcontractors and The Role of Lien Rights
The 3:45pm afternoon session at the 2015 ENR Risk Summit focuses on subcontractor specific risks and risk management strategies in Texas. Moderated by ENR RiskReview editor Richard Korman, four diverse panelists, including myself, will discuss the following topic:
In Business Friendly Texas, Why Aren’t Subcontractors Dancing in the Streets?
Texas may look like heaven because the state has prompt-pay statutes, limits on indemnification and tort reform. But subcontractors still face an unusual amount of financial risk lurking in misunderstood indemnifications, overly positive audits and clients that may go bust without a subcontractor being notified in time.
Those familiar with the construction industry won’t need an education into the various risks faced by subcontractors in any state. Subcontractors are famously squeezed from the top of the chain (i.e. by general contractors) and the bottom of the chain (i.e. by suppliers). They have significant working capital challenges, limited contract negotiation leverage, and because of risk-shifting devices, bear an out-sized amount of a project’s risk burden.
It’s probably impossible to distinguish between the risks faced by Texas subcontractors and those faced by subcontractors elsewhere. Differences really begin to surface in the remedies or protections available to those subcontractors. As subcontractors cross over state lines, the protections against risks vary depending on the state’s policies.
Texas, as the ENR Risk Summit topic suggests, is “business-friendly,” but does that mean the state is “subcontractor friendly?” And what does that even mean?
Across the entire United States, there is a general public policy in favor of protecting subcontractors against non-payment. That’s why nearly all states have prompt payment legislation, misappropriation of fund crimes, and other legislative protections. The key policy legislation for subcontractors, however, is the mechanics lien law.
The history of mechanics lien law is simple and telling. It was invented by founding fathers Thomas Jefferson and James Madison for the explicit purpose of protecting contractors, and specifically, to eliminate financial risks for those parties. Texas is no different from every other state in that it has a mechanics lien statute…but what role do these lien rights play in a subcontractor’s risk management?
Why, in other words, aren’t subcontractors “dancing in the streets?”
Maybe it’s because the Texas lien laws are the most complicated in the world rendering them nearly incomprehensible. Maybe it’s because Texas gives lien claims only limited priority over pre-existing mortgages and liens. Or, maybe it relates to the Texas lien waiver process that nearly cost one Texas contractor over $30,000,000 (since then, Texas legislature overhauled the lien waiver rules).
Or maybe it’s simply because general contractors, owners, and other top-of-the-chain stakeholders try to bully subcontractors out of their lien rights.
This session of the 2015 Summit promises to be a lively discussion around how risks can and do get shifted onto subcontractors, what is fair, and what subcontractors can do in Texas to overcome its risks and succeed.
About the ENR Risk Summit
The 3rd Annual ENR Risk Summit will be in Dallas, Texas, on June 16, 2015. The summit is described as follows:
Construction projects can be extremely complex and fraught with uncertainty—elements that can have damaging consequences for construction projects. Discover how to manage costly risks to achieve project success at ENR’s 3rd annual Construction Risk Summit. Join top risk experts and industry practitioners who will discuss some of construction’s top legal and financial disasters of the last year, review changing legal requirements and present solutions to new regulatory burdens and emerging issues you need to be aware of.
The ENR Risk Summit is becoming a great forum for different stakeholders to get together and debate how risk is allocated on a construction project. This is an enormously important topic in an industry that is pretty suffocated by risk-shifting practices, leverage tactics, and unfairness.
Two years ago, at the first summit, general contractors and subcontractors dug into one of the most significant and common project problem areas: payment abuses. In fact, the debate over payment regulations and abuses was highlighted by ENR’s Richard Korman in his summary of the first summit here: “Views Differ from Places on the Payment Flow-Chart.”
As per Korman in that article, the general contractor representatives fixated on “staying ahead” of subcontractors in payments, while the subcontractors were “kicking and screaming” for payment reform.
This friction is at the heart of the opinions and debates on construction industry risks, and it’s what makes the ENR Risk event so interesting and important to the industry.