On large construction projects or even medium-sized ones, the amount of paperwork that is exchanged is staggering. Keeping track of important documents, like preliminary notices, is vital to the construction payment process, and any lack of organization or a missed deadline can be costly.
One way of tracking preliminary notices is to store the documents in a cloud storage system, such as Google Drive, Box, One Drive, or Dropbox. These platforms provide a low-cost way to store documents where everyone can have access to them from virtually anywhere.
Let’s look at what these preliminary notices are, why they are being sent, why they need to be tracked, and the pros and cons of using a cloud storage system.
What are preliminary notices?
A preliminary notice (also called a Pre-lien, Notice to Owner, Notice of Furnishing, Prelim, or Lien Notice), is simply an informational notice that is usually sent to the project owner, and sometimes other project participants, such as the general contractor and the lender. It tells these parties that a specific company is providing material or labor to the project and who ordered it. These notices can be sent by GCs, subcontractors, sub-subcontractors, material suppliers, equipment rental companies – really, just about any type of project participant might benefit from sending preliminary notices.
Anyone who is expecting to be paid money on the project, can and may be required by law to, send this type of notice. In some cases, the failure to send a preliminary notice can result in a serious loss of rights – most commonly, the right to file a mechanics lien. Because sending a notice can be such a crucial factor, they are generally sent via mail in a way where proof of delivery can be established, like certified mail or return receipt requested.
Preliminary notices in Texas are referred to as monthly notices because they need to be sent every month that the project is unpaid. Managing these monthly notices can be even more time consuming and difficult to track, regardless of the services you choose to use.
Why are they being sent?
In most states, preliminary notices must be sent within a certain timeframe in order to manage and maintain lien rights. Companies might give up their right to file a mechanics lien if they don’t send one of these notices. This means that they are unable to secure the amounts owed to them, and their only recourse to recover payment may be a lawsuit, which is expensive and time-consuming.
In other states, notices aren’t required to maintain lien rights and are more of a courtesy to let the owner, GC, and lender know that a company is on the job, and establish channels for communication to exchange information. The notices indicate to the paying party who they need to collect lien waivers from, and since these companies are often paid first, preliminary notices can be very helpful in securing payment, even when they aren’t specifically required.
Why do they need to be tracked?
It’s important for everyone to know who is on the job and who has lien rights. The GC and owner will want to verify that all parties are paid since the owner doesn’t want a lien filed and the GC is often tasked with protecting the owner from liens through the primary contract. Subcontractors will also want to make sure that all their suppliers have been paid.
As mentioned above, companies that have filed a prelim are generally paid first, to help ensure that they don’t file a lien. Even when notice is not required to establish lien rights, the owner and GC are still more likely to make sure that a subcontractor or supplier they know about gets paid. If they don’t know a company is on the job, however, there is no way for the GC or owner to follow up to determine if they have been paid.
Owners and GCs will want to make sure they collect lien waivers from their subcontractors and any suppliers or providers who have filed a prelim notice. They will want documentation that all companies who have lien rights are paid in full and will not be filing a lien. This is why it is important to know which suppliers and subcontractors have filed prelims, and track who needs to pay who to make sure a lien isn’t filed. It is a good idea for everyone to file a preliminary notice even it if isn’t required, so the GC or owner will know you are on the project and will be motivated to pay you sooner.
Using cloud storage to track prelim notices
Preliminary notices can be stored in a cloud file storage system such as Dropbox, One Drive, or Google Drive. The documents will need to be scanned and saved in a folder system. An example folder system for an owner or GC would be to have a folder for each job, then a folder for each subcontractor or direct supplier, and then save the notices from suppliers and equipment companies under the subcontractor’s folder. A subcontractors folder system may have one or two folders for prepared and sent folders or a folder for each of the general contractors they work with. In either case, managing these folders while keeping them organized and up to date will be very important for keeping everything in order.
Tracking the date that works started and the date the prelim notices were sent is important too, as legal deadlines are set based on when work started. Companies have to file a preliminary notice a certain number of days before or after work starts (the number of days varies by state). If a company misses the filing deadline, their preliminary notice will be void and they may not have lien rights for the project, depending on state laws.
Using cloud storage to track preliminary notices – Pros
It’s simple to set up. Prelims can easily be saved in a cloud storage platform. Simply scan the document and save it to the appropriate job folder in the cloud. It’s simple and easy to implement this type of system, and very little training is required.
It’s free. Most companies already have some sort of cloud storage system. Typically, cloud storage will be part of some software packages, or you can sign up for a free account from many providers. Either way, there doesn’t have to be any additional cost to get cloud storage space. Keep in mind that once you have racked up a number of notices, a payment application, waivers, and the other documents you are likely uploading to your cloud storage of choice, you will need to upgrade your account to a paid version.
It’s secure. Cloud storage services offer multiple backups in multiple locations, making the total loss of your data fairly unlikely. Most platforms also have security protocols and encryption that help to keep your data safe.
It’s available everywhere. Another advantage of this system is the ability to access the documents from anywhere with an internet connection. Most platforms have apps for phones and tablets, allowing you to see your files on the go.
Using cloud storage to track prelim notices – Cons
There is a lot to track. When there are a lot of subcontractors and suppliers on a job, tracking notices becomes complicated. For example, there may be up to 20-25 subcontractors on a project, and each of them may have 3 or more suppliers, and maybe one has a sub-subcontractor and an extra supplier. Doing the math, there can easily be 75-100 companies who might be sending notices in order to preserve their lien rights. And these days, more companies are sending notices, even if they aren’t required (it’s the smart thing to do!). Developing a file system to file notices and keep them all straight, and knowing who is supplying to who, could be difficult, and possibly crazy-making.
It doesn’t track deadlines. There are strict timelines dictating when notices need to be sent, and most are tied to the first day a contractor starts work or a supplier delivers material to the job. In some states, notices need to be filed before work starts, and in others, companies have up to 60 days after starting to send the prelim notice. Scanning and saving notices in cloud storage does not help track start dates and confirm the notice was filed in time. It’s also important to track the receipt of lien waivers throughout the project and know when a company’s rights have expired (usually so many days after their last day of work on the job), and this system doesn’t track either of these.
It won’t send reminders. There is no way for this system to remind you of key dates or deadlines unless you set up another software program to remind you. This is yet another step that you’ll have to remember. Even if you use a reminder software or set calendar reminders for these deadlines, they can be missed causing payment issues down the chain. While missing notice deadlines can be fatal to filing a lien, there are still other options available for getting paid when the notice was not sent on time. Generally, they are not as simple or ideal as filing a lien.
Levelset can help
We have developed a robust software platform that allows you to send preliminary notices correctly, track all of the preliminary notices you receive, get reminded of key dates & deadlines in any state, and quickly organize your project so you can see all of the players and know who needs to be paid by who. Instead of folders, documents can be sorted by contacts, projects, or upcoming deadlines. When you are doing work in multiple states, with multiple different prelim deadlines, these sorting functions can do wonders for your payment and paperwork processes.
The first step is to set up the project that will act as the ‘folder’ for documents from all stakeholders (GC, subcontractors, sub-subcontractors, and suppliers). Then add suppliers for each subcontractor as the notices come in. As the project progresses and payments are made, you can quickly see which suppliers need to be paid, what payment documents to send or collect, and set reminders to follow up with them. If there is confusion or something missing you can communicate and collaborate with the project stakeholders to resolve issues before there’s a lien filed.
Our system has all the ease and security of the cloud, without the hassle of figuring out which supplier goes to which subcontractor. We keep everything organized for you and send you reminders so all you have to worry about is getting the project done.