we are having some trouble at the office. when we have a customer open a sales order for material we create a prelim for $400 dollars on top of the original sale price. Once we invoice & get paid we technically consider the project done. There is cases where the customer returns and wants to add more material to that same project because it hasn't closed on their end and we also haven't given a final release. In this case we create a new sales order normally we don't prelim again. I was under the impression that the original prelim can be used to cover the amount currently open as long as there is not a significant amount over the initial value. Now someone said to me that I would have to Ammend the prelim because it is not ok to use the same prelim since the lump sum of both sales orders (the closed & Open) is significantly over the initial price. So with that being said could you advise if it is necessary to take into account the total (close & open) amounts into consideration and create a new ammended prelim or will the initial prelim cover me on all transactions currently open?
Good morning. There is no statutory or case law requirement for a claimant in California to send out a new or amended preliminary notice even though the estimated value of material has increased on the project. There is a requirement that the original estimate be made with a "rational basis" and cannot just be made up (See Rental Equipment, Inc. v. McDaniel Builders, Inc., 91 Cal. App. 4th 445, 109 Cal. Rptr. 2d 922 (2001) - https://caselaw.findlaw.com/ca-court-of-appeal/1300176.html). Some practicioners in California, however, point to the purpose of preliminary notices, i.e., to protect owners, direct contractors, and others from "secret liens." Thus, some would argue what good is a $5,000 preliminary notice if you really furnished $500,000? I prefer sending out an Amended/Supplemental Preliminary Notice when you exceed 130% of the original estimated value. This is similar to the rule adopted by Arizona (which used 120% as the threshold until a few months ago when A.R.S. § 33-992.01 was revised up to 130%).