Because gaps in the construction payment chain often lead to nonpayment, contractors, subs, and suppliers focus on reducing the risk that they will be the odd man out. Due to these unique problems in the industry, new legislation pops up regularly in an effort to patch holes up and down chain. To that end, in 2016 the State of Pennsylvania rolled out a Construction Notices Directory, making it easier for (some) owners, contractors, subs and suppliers to communicate. However, when a property owner files a notice with the directory, it affects the lien rights and responsibilities of everyone on the project.
Pennsylvania State Construction Notices Directory
On December 31st, 2016 Pennsylvania launched the Pennsylvania State Construction Notices Directory. The directory is not for all projects, however, and the basics of the rollout are broken down below.
What is the Notices Directory?
The Pennsylvania State Construction Notices Directory will allow property owners with projects exceeding $1.5M to register their project with the state online. By filing a Notice of Commencement with the online directory, property owners can create an online documentation of their project that will include all parties with lien rights on their project.
Who is the directory for?
Only Pennsylvania projects exceeding $1.5M in value may use the new directory system.
Even still, the system is optional, and property owners will be able to decide whether or not to use the directory system. Utilizing the system will have benefits for both the property owner and contractors, subs and suppliers, which will we discuss more below.
There will be a fee for those owners registering a Notice of Commencement with the online directory.
How does the directory work?
In order to utilize the system, an owner must register by filing a Notice of Commencement with the directory. This notice will include contact information for the owner and general contractor, project title and location, the legal description of the project property, surety information (if applicable), project identification number (assigned to the Notice), and the building permit.
When an owner opts to use the directory, the owner must post the Notice of Commencement in an open and obvious manner at the job site before any work commences in order to notify all parties working on the project. This notice must remain posted at the site until the completion of the project. The project owner must also ensure that the Notice of Commencement is made part of the contract documents provided to all parties working on the project.
Those working on the project must then file a Notice of Furnishing through the directory. A failure to file a Notice of Furnishing within 45 days will result in a forfeiture of lien rights. No party (owner, contractor, sub, supplier, etc.) may suggest, request, encourage or require another party not to file a Notice of Furnishing. This Notice of Furnishing form is included in the Pennsylvania mechanics lien statute. General contractors need not provide a Notice of Furnishing in order to preserve their lien rights.
Who benefits the most from PA’s Notice Directory?
Those property owners on projects exceeding $1.5M stand to benefit the most. Should they use the online directory, the owner will be apprised of every party working on the project.
Those parties who do not file a Notice of Furnishing (and therefore do not show up on the online directory for the project) will no longer have lien rights, further protecting property owners. This means that the use of the directory could prove fatal to those subcontractors, suppliers, sub-subcontractors, and really any party down the chain who may assert lien rights upon nonpayment could lose their ability to lien.
For this reason, it is imperative that all parties up and down the chain fully understand their lien rights.
While parties down the chain are at risk for losing their lien rights, the directory will benefit subs, suppliers, and sub-subcontractors to some degree. The directory will provide a clear payment chain, and it will be open and obvious how payments should move down the chain. Also, because surety information must be included, it will be easier for parties to make claims on payment bonds for those projects where a surety is present.
If you have questions about the changes to Pennsylvania lien laws, consult an attorney familiar with Pennsylvania lien laws.
Naturally, members to the construction industry should be skeptical of any limitation of lien rights. In this regard, the state has placed a burden on those subcontractors, suppliers, and sub-subcontractors who have less resources or may be less sophisticated. When a project has been filed with the State Directory, these individuals now have an active duty to file a Notice of Furnishing in order to protect their lien rights. Though this has been mitigated to some degree by the mandatory notice given in the contract language and mandatory posting on the job site, there is still plenty of reason to be apprehensive. Considering how prevalent oral contracts are in the construction industry, the state will need to address how parties down the chain will be protected. Further, there are other implications down the chain regarding pay if paid and pay when paid contracts that were not addressed in the statute.
Altogether, though, the idea of better communication on construction projects is a positive. Being able to see every party on a construction project from an owner to a supplier of a sub-subcontractor will be huge. As we have discussed before, transparency and communication are the guiding lights toward a construction payment utopia.