This week’s question comes from a supplier. It can be difficult to understand where you fit into the hierarchy of a project, especially when you run into confusing payment requests. Construction lawyer and payment expert Alex Benarroche weighed in to offer advice on where suppliers fit into a project’s payment hierarchy.
Question: We are a supplier/manufacturer. We have a contract with a subcontractor to provide some material. We do not have a contract with the GC. Our customer has been asking for a lien waiver but keeps insisting we need to sign off on it as if it says we are dealing with them and with the GC (They want us to sign a notary statement about their payment applications to the GC.) This doesn’t seem right since we are not a party to the prime contract. What are our next steps in this situation?
Answer: “Lien waivers are an important part of the construction payment process, and should be executed with caution,” says construction lawyer Alex Benarroche.
Lien waivers are often the last roadblock to getting paid on a construction project, and usually, they’re nothing to be concerned about. But if you’re unsure of your role on a project, it can be difficult to figure out whether you should be comfortable signing one.
“That being said, lien rights exist on the project as a whole,” Benarroche continues. As long as the waivers are accurate and portray the situation accurately, signing a lien waiver on a project is standard practice on projects with an extended hierarchy.
“A general contractor is typically the one in charge of requesting waivers from all their subs, who in turn, collect waivers from any of their subs and suppliers, to reassure the property owner that no liens will be filed against their property,” Benarroche continues.
For those who still might be uncomfortable with simply signing a lien waiver, though, there’s a compromise in the conditional lien waiver. Generally speaking, a conditional lien waiver is only effective if the signing contractor receives payment in the amount that’s listed in the waiver itself.
Either way, it’s pivotal to focus on the details of the waiver. As construction attorney Matt Viator says, you should be careful to only sign an unconditional waiver after receiving payment — if you sign an unconditional waiver, you’re giving up your rights regardless of what you’ve been paid.
“Think of all the ways that receiving a supposed ‘sure-thing’ payment can go wrong: The check could bounce; a credit card charge could be disputed; an ACH payment could be reversed. Anyone of those things happens and your lien rights will be irreversibly lost if you signed an unconditional lien waiver. For these reasons, contractors should always use conditional lien waivers,” Viator says.
If there’s any reason the payment isn’t already in your possession, it could be a bad idea to sign an unconditional lien waiver.
At the end of the day, though, this supplier should be protected, as what’s being requested of them is totally normal.
“As a supplier to a subcontractor on the project, you are presumably entitled to file a mechanics lien if you are unpaid for the materials furnished,” Benarroche says. “A subcontractor requesting a lien waiver from their supplier in exchange for payment is fairly standard practice.”
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