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What do we need to consider for material releases?

The GC is not paying us - we are a second tier sub - and we have bad material from our supplier that is no longer on the job. The supplier filed a notice on 7/25 which we did not receive a copy of. The GC is now asking for releases which we cannot provide because we have not been paid and we had to pull all the bad product (their product is not on site anymore because it all failed). We filed our notice upon contract execution and they filed their notice 7/25. We had used them on the job in June, April, and prior to july. Now that there is none of their product onsite due to failed material, and our GC isn't paying us because we cannot provide lien releases from the supplier (we haven't paid because we are owed a credit from the supplier for bad material, and we haven't been paid by the GC). How should we proceed? Does the supplier have lien rights?

2 replies

Oct 11, 2019

If a California preliminary notice isn't sent within the first 20 days of furnishing labor or materials, it will only be partially effective. Late notice will only preserve the right to file a mechanics lien for the work performed in the 20 days prior to sending the notice, and the work that's done after it. So, in a situation where a supplier only sends their preliminary notice more than 20 days after they've completed their work on the project, the supplier wouldn't be entitled to file a valid and enforceable mechanics lien. What's more, if a supplier isn't actually owed payment for the materials they've supplied (for whatever reason), then that supplier will generally not be entitled to file a valid and enforceable lien anyway. Further, if the materials supplied aren't actually used in the improvement, that'd be even more stacked against a supplier's potential mechanics lien rights. Options for proceeding and obtaining payment The first option for getting paid should usually be trying to discuss the matter calmly with the customer and explaining the situation with them. If the GC fully understands how and why a supplier's waiver can't be obtained, they may come around and decide not to require on. Further, providing a GC with some assurance that a lien can't be filed - like showing some documentation or communication that indicates the supplier isn't actually owed payment - could help move the needle there, too. Additionally, offering to submit a conditional lien waiver before payment is even made might help - and, when a conditional waiver is used, no rights are actually waived until payment is received. So, it shouldn't be all that scary to sign one before getting paid. If the contractor really won't budge, then convincing the supplier to sign a waiver may be an option. If it's clear that the supplier is going to have to eat the cost of the job due to bad materials, they wouldn't be owed and unpaid on the job anyway. So, asking a supplier to sign a lien waiver might work - especially if the supplier has admitted and accepted that it's not owed payment on the job. Yet another option may be to escalate the dispute with the GC to try and compel them to make payment. Sending demand letters or Notices of Intent to Lien will often speed up payment. It's common for a contractor to want to withhold payment from their sub until all down-the-chain waivers are collected. However, when a contractor is being unreasonable, threatening to utilize a formal recovery process - like a mechanics lien - might help to obtain payment. And, if necessary, proceeding with a lien claim could do the trick.

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Oct 14, 2019

As usual, fantastic advice from Mr. Viator. If you are done with your work on the project, a mechanics lien for the value of your labor and materials incorporated into the project (exclusive of this supplier's materials that were not used and consumed in the job) may be an option to move things forward and secure your claim. It sounds as though you will need to put some pressure on your supplier to get them to acknowledge the credit. If they will not, perhaps you can reassure the contractor that you will indemnify the contractor and project owner for any claims made by your supplier against the project. Of course, that obligation may exist in your subcontract already. I would also suggest contacting a construction lawyer to discuss your specific situation and give you guidance to try to resolve this issue as expeditiously and cost effectively as possible.

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