Essential Construction Notices That Help You Get Paid Faster

• Comprehensive overview of lien claims and bond claims
• Who needs to file preliminary notices and when, according to state
• What notices to use on public vs. private projects
• Followed by a Q&A!

Transcript

Kathryn Barona: (00:04)

Good afternoon everyone. Um, my name is Catherine Berona with level-set and I work with our attorney network of construction lawyers. And today we have a webinar with Mike Fortney he’s in Ohio, and he’ll be talking about essential construction notices that help you get paid faster, and I will turn it over to Mike. And, um, if you have any questions throughout the presentation, feel free to put it in the chat box and I’ll see that. And, um, get that over to Mike. And thanks for being here. We hope you enjoy the presentation. We know you’ll learn a lot.

Mike Fortney: (00:44)

Thanks, Catherine. Uh, good afternoon, everyone. Uh, like Katherine said, my name’s Mike, uh, I am an attorney, uh, up in the Cleveland area in Ohio. I practice construction law and I typically represent subcontractors and suppliers on construction projects. And, uh, one of the, one of the big issues that I, that I always face when talking with clients, especially those subcontractors and suppliers is, you know, uh, a lack of notice on the project, which by the time they’re responding to me or, or contacting me, it’s already too late, uh, you know, such as they haven’t been paid on a project or they’re looking to file a lien or, uh, looking to initiate litigation. And there are certain notices on construction projects that are required by subcontractors and suppliers. And if those notices aren’t followed it severely hampers subcontractor’s ability to get paid on projects in the event, the general contractor doesn’t pay according to the contract. So with that being said, uh, let’s get started here.

Mike Fortney: (02:06)

The first thing that I want to talk about, we’re going to talk about two different subjects today. Uh, we’re going to talk about lanes and, uh, and specifically the notices related to liens and the notices related to bonds, liens or mechanics liens typically relate to private projects. So, you know, hotels, restaurants, things of that nature bonds typically re relate to public projects, schools, you know, infrastructure projects, things of that nature. Uh, the difference between private projects and public projects, like I said, is, is the mechanics lien versus the bond. The mechanics lien is an extraordinary remedy provided by the law. You know, it’s set forth by the state legislature in, in various States. And it gives a, the subcontractor, an extra remedy saying that if the general contractor on a project doesn’t pay, as he supposed to, then the owner of that project has received a benefit, the subcontractors.

Mike Fortney: (03:26)

So because of that, uh, the state legislatures have decided we’re not going to let the owner off the hook because the owners received a benefit. So, so long as the subcontractor follows the procedural requirements, which is what we’re going to talk about today, then the subcontractor has a right to place a lien on the property for any amounts that the subcontractor has not been paid, uh, on a private project you’re dealing or on a public project. I’m sorry, you’re dealing, dealing with public property public, but he’s owned by everyone. So it doesn’t make sense for a subcontractor to be able to lean a public project and lean public property because everyone has an interest in that. So instead, typically what happens on public projects and a lot of you are probably familiar with this, the general contractor or the prime contractor, as they’re usually called on a public project is forced by the owner by the public authority to procure bonds for that project.

Mike Fortney: (04:33)

And typically those bonds are a performance bond and a payment bond, the performance bond, uh, in the amount of the contract value warranties that the prime contractor will perform the project. The guarantee is the full amount of the project, so that, uh, any, any work to be done under the contract is perfect, formed and completed under the contract. The payment bond is what we’re concerned with today. The payment bond is also in the S in the full amount of the contract value. And the payment bond provides for payment of subcontractors and suppliers who perform work or supply materials to that public project. So rather than placing a mechanics lien on the property, subcontractors and suppliers are able to place a lead on those funds and or a lien on the payment. So that’s what we’re going to be talking about today. Now, as it relates to private projects and mechanics liens, there are two types of notices that States implement related to, uh, uh, subcontractors preservation of rights to leave property.

Mike Fortney: (05:55)

The first is 10 can be basically known as a notice of right to filed lien. And what that sort of means is you are letting the owner of the property know that you’re performing work on that property so that the owner of the property has an opportunity to check out your work, see your contract with the general contractor, get a lien waiver from you. If they’re paying payment to the general contractor, it’s all about providing notice to the owner that someone they’re not in contract with the owners typically only under contract with the general contractor. So this is just a method for subcontractors and suppliers to broadcast to the owner. I’m here, I’m doing work on your property. I just thought I’d let you know. So that’s, that’s the notice of right to file a lien and in cases of a notice of right to file, it has to be filed most, most often before starting work on the project here in Ohio.

Mike Fortney: (07:08)

Uh, we, we call that notice. We notice of Ohio’s a notice of right to file state and in Ohio, it’s called a notice of furnishing. That terminology is used in a number of other States as well. And in Ohio, at least the notice of furnishing has to be filed within 21 days after starting more. So you have a little bit of a grace period, but it does have to be filed pretty immediately after starting work on a project. And it can also be served even before starting work on the project. Now, the other notice related to mechanics, liens is a notice of intent to file lien. This again, is a notice to the owner, uh, letting them know that there is an issue with payment from the general contractor. So the notice of intent to file in those States, a notice of intent is required to be served on the owner before actually filing the lien.

Mike Fortney: (08:11)

Typically that’s a shortened period, you know, 30 days, 60 days, sometimes 90 or 120 days, but there’s some set period of time prior to actually leaning the property that you must provide notice to the owner. And that’s again, a benefit to the owner. It’s it? The, the purpose behind those statutes is to let the owner know there is some issue with the general contractor paying its subcontractor, and then the owner has the ability then to go to the general contractor, ask what is happening, make sure that the subcontractors not been paid. If the subcontractor contractor hasn’t been, then the owner can put pressure on the general contractor to pay in order to stave off any liens related to the owner’s property. So again, both of these notices, they take place at different times. The idea behind both of these notices is to allow the owner of the property, uh, to have a little bit of notice as to who is performing work on the property, because the general contractor, as we all know, subs out the majority of the work to various entities. And so it’s just a benefit to the owner to be aware of all of the different entities performing work on

Speaker 3: (09:39)

The project.

Mike Fortney: (09:42)

And then as you see on the bottom of the slide, if any of you subcontractors who are, who are listening in or any general contractors listening into this webinar, typically in most States, these notices only need to be filed since they’re a benefit for the owner for unknown entities performing work, they typically only need to be filed by subcontractors or suppliers. The general contractor who is under contract with the owner typically doesn’t need to serve any of these notices because obviously the owner knows that the general contractor is there doing work

Speaker 3: (10:20)

On the project,

Mike Fortney: (10:25)

The right to file notice, like I said, uh, is also known as a notice of furnishing in some States. I know in, in my, in the block there, on this map of Indiana, Michigan, and Ohio, I know all three of those States in my area refer to a right to file notice as a notice of furnishing. Like I said, typically notice, notice as a furnishing or right to file notices, have to be served at some point before starting work or shortly after commencing work on the project. And if they aren’t filed, they are fatal to a mechanics lien. Meaning if you do not give the owner notice before starting work on the project, you will not be able to record a mechanics lien later on. Uh, and, and obviously if the general contractor goes belly up for some reason, and you still are owed money on a project, having the ability to lean the project in your back pocket is supremely important.

Mike Fortney: (11:34)

So in a notice of furnishing, you know, a right to file notice like this, it’s, it’s an easy step and level set, or your attorney can help out with filing a notice of furnishing, but it is, it is imperative says it’s a necessary step that you have to implement. You have to put it somewhere in your processes on every single project to make sure that you’re complying with any right to file notices out there. Uh, this map shows to the best of my knowledge, all of the States in the United States who use a right to file notice. So take a look at that map and these slides will be sent out afterwards. So you can, you can have that map as well. And if you do work repeatedly in one of these States, it would be in your interest to do some, do some digging noodle around on the internet and learn a little bit about what’s required of the right to file notice in your state.

Mike Fortney: (12:40)

Uh, the other notice we talked about the intent to lien notice used by fewer States used by a lot of Southern States. Uh, and again, the intent to lien notice, typically it doesn’t have to be served before starting work on the project. This is a notice that served later on after there is some payment dispute on the project. Uh, but again, this, this is a mandatory notice requirement that has to be followed prior to recording a mechanics lien against the property. So the intent to lien notice typically runs in parallel with the timing requirements of the mechanics lien law of your state. So it’s important to be able to get that intent to lien notice filed timely so that you can file your mechanics lien timely and protect your right to get paid in the event that you are not paid on a certain project. And again, the map is up there showing the States to the best of my knowledge that use an intent to lien notice. So these slides will be shared, like I said,

Speaker 3: (13:59)

Um,

Mike Fortney: (14:01)

Let’s switch gears now. That’s, that’s all I all I have on mechanics liens. But before I do that, one, one other item to note is, you know, th this webinar’s related to notices, but you can also think of the mechanics lien itself as a notice. And in that regard, mechanics liens are very statute sensitive and very time sensitive. Each state is different as far as the timing to file a mechanics lien. And generally speaking, mechanics liens the time to file runs from the last date of work or supplying materials to a project. Some States like my state, Ohio, I believe is the, the lowest, the shortest timeframe Ohio. You must have your lien recorded within 75 days of the last date of work on a commercial project. Some other States, uh, the, the timing is 90 or 120 days. Some, some States six months to a year, uh, and some States like Illinois can be as high as two years for certain portions of the mechanics lien law to be effective.

Mike Fortney: (15:20)

So you, again, if you haven’t been paid on a project, it’s important to make sure that you follow notice requirements and it’s supremely important that the second you realize you haven’t been paid you, double-check the timing and the timing requirements for filing a lien, filing a notice of intent to lien any of these items that we’re talking about today. Timing is always of the utmost importance. So we’re going to switch gears now and talk a little bit about public projects. Like I said, uh, at the top public projects, you’re typically not filing a mechanics lien, rather you’re filing a, what’s called a lien on public fund or, or something similar leans on public funds are typically, uh, dealt with by statute dealt with, by the state statutes and typically have similar notice requirements. They may require a notice of furnishing. They may require a notice of intent to lien, but, but again, you’re not filing a mechanics lien, you’re filing a lien on the public funds themselves.

Mike Fortney: (16:36)

And in addition to a lien on the public funds, you can also, uh, send out notices related to the bonds on those projects. And typically notices are required by the bonding companies. Some notices related to bonds are required by state statutes as well. Uh, on commercial projects, like, like I said, at the top commercial projects, um, contractors are protected by the mechanics lien law. So on private projects, there is no mechanics lien protection. So instead we rely on bonds and the affidavit, uh, related to the public funds. So let’s move on. Talk a little bit more about notices related to bonds. Again, there are two types of notices and they’re very similar to the two types of notices related to mechanics lanes. Uh, most more often than not. There’s a preliminary notice prior to filing a claim on the bond. So if you’re thinking about it from a mechanics lien perspective, you can think that the claim on the bond is similar to the mechanics lien.

Mike Fortney: (18:01)

So prior to filing the actual claim on the bond, there is more often than not some notice that is required. Some States require a notice in order to preserve your right to file the claim. This is similar to the notice of furnishing, uh, you know, a preservation of rights you’re putting the public authority, the public entity on notice. Just, just like we talked about with the private projects, the public authority, for all things, you know, they’re only contracting with the prime contractor. Sometimes there are multiple primes, but, but typically only the prime contractor. Sure. So because of that, the public authority has an interest in who else is working on the project and they, they want to know who else was working on the project. So again, notices are required to be sent to the prime contractor and to the owner, letting them know I’m out here.

Mike Fortney: (19:03)

Okay, Mr. Subcontractor. And I am performing work on this project and that’s, that’s typically all that’s required of those notices, but just the fact that it’s sent out, that’s the big requirement. There’s no, there’s no real nuance to the, to the letter itself. It’s just the fact that it’s sent and you always want to keep a record of any of those preliminary notices that you send out. So that in the event you end up in litigation, you can be sure to let your attorney, I already know that you have copies and evidence of the delivery and the service and everything else. And again, some States require a notice of intent to make a claim on the bond before filing the bond claim. Again, that that’s a very similar notion to the notice of intent to a lien, a project. Again, you’re putting the public authority on notice I’m out here, I’ve done this work on the project, under a contract with this prime contractor.

Mike Fortney: (20:07)

I have not been paid. I, you know, and because of that, I’m about to file a claim on the bond or a claim on the public fund. And I want you to know that gives the public yeah, authority a little bit of extra time to sort out its affairs and figure out why the subcontractor on the, the project hasn’t been paid. Uh, and then, like I said, uh, similar to mechanics lanes, the last step for your, for your bond claim is to actually file the notice of claim. Bonds are typically not shared with as part of the cup of the contract documents, however they are available. So, uh, another best practice to follow is any public project that you’re working on. Make sure to ask for that bond, ask for the performance and payment bonds right away, upfront, so that you’re aware of the language so that you’re aware of the timing. Some bonds require a claim on the bond to be filed within six months within three months. You know, again, there are deadlines and failure to abide by those deadlines can be fatal to your claim against the bond, the obviously travelers and other sureties, other bonding companies don’t want to pay out on the bond if they can help it. So again, it’s very important to make sure you are aware of the timing requirements and that you follow through on those timing requirements.

Mike Fortney: (21:48)

That is all I have today on these notices. I think I saw a couple of questions pop up. If you have any other questions, feel free to send them out. And I will take some time now to respond to these questions.

Kathryn Barona: (22:09)

Yeah. So, um, we do have a couple of questions. Mike, John asked, what about a subcontractor doing work or a GC on a job on a military base? How does the Miller act affect this?

Mike Fortney: (22:27)

Oh, great question. Uh, the, the Miller act. So the, the public project statutes that I was referring to are also known as little Miller act. So basically the Miller act is very similar to all of these other state acts, the Miller act. I should’ve added these slides. I apologize, but the Miller act applies like you said, to federal projects. And typically again, on federal projects, there will be a performance bond. There will be a payment bond. So the first step is to request those items from your prime contractor say, Hey, I’d like to see the bonds in place. Sometimes bonds, uh, on federal projects especially are secured also by letters of credit. So those items can typically be, uh, you, you can typically get those items from your prime contractor on federal projects. There’s also a contracting officer who’s in charge. You should have that contracting officer’s information as well. And the contracting officer can provide all of those documents too, but, but again, it would be the, the notices would be laid out by the bond itself. So very important to get a hold of the bond and check out that.

Kathryn Barona: (23:59)

All right, sounds good. And then he asked a follow up question. Do you have to send the right to file prior to work

Mike Fortney: (24:09)

That I I’m sorry, John, I do not know the answer to that off the top of my head. I’ll have to review the Miller act and then maybe I can get your email and respond to you privately through Catherine.

Kathryn Barona: (24:21)

Sounds good. Yeah, John, you can, um, send an email to Mike his address there. Uh, we’ll just wait a second and see if there’s any other questions out there. And, um, if not, thanks everyone for joining today. And it was a really informative presentation on notices. I’m sure you got something out of it and you’ll get the recording of this webinar and some resources in an email probably on Friday. So, um, any other questions? Well, uh, thank you so much, Mike, and

Mike Fortney: (25:03)

You’re very welcome. Thanks everyone.

Kathryn Barona: (25:07)

Thank you. Have a great day.