While many contractors and subs consider a mechanics lien the nuclear option when it comes to recovering payment, this is typically just a figure of speech. However, this has become all too literal for subcontractors working on a pair of nuclear projects in South Carolina and Georgia. Following the bankruptcy of the general contractor, Westinghouse, these projects now face mechanics liens. It’s not just this project that’s in trouble, though. According to Yale Environment 360, this may be another step toward a nuclear industry meltdown.
Nuclear Projects Gone Awry
Westinghouse is a general contractor and subsidiary of Toshiba (yes, that Toshiba). The contractor was tasked with building nuclear plants in both Georgia and South Carolina. Due to underestimated costs and unexpected delays on the projects, they resulted in huge losses for Westinghouse, who claims to have lost over $6B on the projects. According to estimates, the price of completing the projects could cost six times as much. Westinghouse filed for bankruptcy in March, but not before Fluor Enterprises, a subcontractor on the project, filed just under $60M in liens. Other claimants followed suit, and the project faces over $75M of liens in total.
For more details on the debacle, the Aiken Standard has been covering the story.
As we have discussed before, mechanics liens will prevail in most bankruptcy situations. What’s more, mechanics liens serve as great protection against bankruptcy up-the-chain. When bankruptcy is filed and an automatic stay is instituted, a virtual barrier is created around a creditor. After the stay, creditors are prohibited from bringing new claims and attempting to recover. However, mechanics liens get special treatment in bankruptcy, making them invaluable in the event of an automatic stay. Coupled with the fact that mechanics liens are not discharged, lienors are in good shape during bankruptcy proceedings. With so much money on the line with the lien claims against the Westinghouse projects, the preferential treatment liens receive in bankruptcy is crucial for creditors such as Fluor.
It’s worth noting that Fluor, a lienor in this instance, is rarely in such a position. A massive, international company, Fluor is more often the GC than a subcontractor and is regularly in charge of projects worth hundreds of millions of dollars. That such a company must look to the same laws to protect itself as a mom and pop subcontractor or supplier down the street says a lot about the construction industry – everyone is in it together. That’s why it will take cooperation all across the payment chain to reach construction payment utopia.
Mechanics liens are a powerful tool, and whether they’re being utilized to enforce rights through massive bankruptcy proceeding or being used to leverage payment on a small residential property, mechanics liens are the best tool builders have at their disposal when it comes to getting paid. No matter the owner, those who face mechanics liens brace for impact when their title is on the line.
For more on Georgia or South Carolina lien law, here are our Georgia Construction Payment Resources and South Carolina Resources. For more on bankruptcy and construction payment, head over to the bankruptcy tag on the blog.