Earlier this year we reported that the Oklahoma legislature was considering some amendments to its mechanics lien laws, and those amendments were signed by the Governor in April 2013 and slated to take effect on November 1, 2013. The new law changes very little about how contractors and suppliers must proceed to comply with the Oklahoma mechanics lien scheme, but does significantly alter the scope of a claim, as post-November it will be clear that “profit and overhead costs” may be included in a lien claim.
Overhead and Profit Costs – The Gray Area Oklahoma’s New Law Addresses
Time and time again courts have been called upon to decide whether contractors could include overhead and profits in their lien claim, and time and time again they have decided this question inconsistently. In theory, the right to file a mechanics lien arises not out of any contractual rights, but out of a legal theory that entitles those who furnish labor or materials to a construction improvement to acquire a security interest equal to the value of the contribution. While these laws have flourished in America for over 200 years, it’s surprising how poorly defined the term “value” is among the states. Time and time again courts have been called upon to decide whether contractors could include overhead and profits in their lien claim, and time and time again they have decided this question inconsistently.
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“Overhead and profit costs” are a legal gray area because these costs strictly arise out of a a contractual right and are not the actual “value” of the labor or materials furnished to the project. Some rules actually go out of their way to seemingly cut out a claimant’s ability to claim overhead and profit costs, such as in California where the law allows claims for “the reasonable value of the work provided by the claimant or the price agreed to by the parties…whichever is less.” Emphasis ours. See our article: The 5 Biggest Mistakes You Can Make When Filing A California Mechanics Lien.
I think attorneys and judges are being a little ridiculous when they strip overhead and profit from a lien claim. In truth, the “cost” or “value” of work should include overhead and profit simply because it can’t be replaced without paying overhead and profit to someone. Accordingly, just like markups and profits get added to the manufacturing of equipment, materials, and labor of everything involved with building or maintaining anything in the world, the overhead and profit at the very end of the chain of production is just as integrated into the “value” or “cost” as it is at the very start of the chain.
Oklahoma legislatures perhaps agree with me and that is why they passed this recent amendment (House Bill 1087). This state is actually not the first to the dance, as Georgia just changed their laws to allow overhead and profit on mechanics lien claims that took effect July 1st.
Oklahoma Contractors Can Include Overhead and Profit and All Amounts Due in Their Mechanics Lien Claim
House Bill 1087 in large part amends 42 O.S. § 141 (related to general contractors) and §143 (related to subcontractors) to add language making it explicit that contractors can recover overhead and profit.
The safest practice for contractors in Oklahoma is to include overhead and profit costs without hesitation, but to not get greedy and jeopardize the lien claim by seeking pie in the sky damage amounts. The statutes previously provided that a mechanics lien could be filed simply for the “amount due for such material, equipment, and labor,” but this was apparently not clear enough to the court that the “amount due” could include overhead and profit. The new law adds text to make this explicit, now reading that the lien may be filed for “the amount due for such material, equipment, and labor, as well as any applicable profit and overhead costs due to the person.”
It’s very interesting to compare the slight difference in language between §141 and §143.
§143, which governs a subcontractor’s lien, allows a lien for the “amount due…as well as…overhead and profit.” §141, which governs a general contractor’s lien, appears to go further allowing a lien “in an amount inclusive of all sums owed to the person at the time of the lien filing, including, without limitation, applicable profit and overhead costs.”
After the Georgia lien law changes many legal commentators wondered whether the door was open for contractors to claim delay damages, consequential damages, and more on their mechanics lien claims. At least with respect to §141 in the Oklahoma law change, and possibly with the accompanying §143, the same questions are present. It will be interesting to see how broadly the courts interpret this new language.
In the meantime, the safest practice for contractors in Oklahoma (and in Georgia) is to include overhead and profit costs without hesitation, but to not get greedy and jeopardize the lien claim by seeking pie in the sky damage amounts.