Webinar: Guide to Preliminary Notices

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Preliminary Notices are also called also called pre-lien, notice to owner, 20-day notice or monthly notice, depending on which state you’re in. They are a document usually sent at the beginning of a construction project to promote visibility and let everyone else on the job know who you are and what you do on the project. The Preliminary Notice requirement varies state by state, but it’s always a good practice to send them to speed up payment and secure your lien rights. In this webinar, we’ll cover answer lots of questions about Preliminary Notices such as:

What is a Preliminary Notice?

– Why is getting paid so hard in construction?

– When to send Preliminary Notices?

– Who should send Preliminary Notices?

– What happens when you send Preliminary Notices?

– What happens when you don’t send Preliminary Notices?

– Common reasons why Preliminary Notices aren’t sent on a construction project.

Full Webinar Transcript

Piper: Hey everyone. My name is Piper. I’m on the customer education team here at Levelset.

Matt: And I’m Matt, I’m a lawyer on Levelset’s legal team.

Piper: And we are here today to lead you through our guide to Preliminary Notices, what they are, and why they are so great, and why you should send them on every single job.

Matt: And we’re also going to dispel some of the myths and connotations you may already have with Preliminary Notices.

Piper: Matt, we throw around the word Preliminary Notice quite a bit. What is a Preliminary Notice?

Matt: Preliminary Notices are called different things depending on what state you’re in. There are a ton of different names. People call them pre-liens, notice to owner, notice of furnishing, 20-day notice. Depending on the state you’re in, they could be called anything that pertains to that state’s specific notice. We don’t really like the word Pre-lien in terms of a notice because that kind of draws in the idea that a lien is going to be filed anyway and Preliminary Notices aren’t that; they’re a friendlier document and they’re just meant to communicate.

Piper: The construction industry is unique in that it is a very hard to get paid.

Matt: It is. There’s a lot of different people trying to get paid and payment must go from one party to the next party to the next party all the way down the line without problems in order for everyone to get paid and paid on time. And naturally when you’re dealing with multiple different identities and different businesses that have different interests, it gets hard.

Piper: Right? Because on a large construction job, you might have a property owner, you could even have someone above them, a lender perhaps. Then they hire a general contractor, sub contractor, sub sub contractor.

Matt: Each of these subcontractors may have their own suppliers, they may have their own sub sub. You could even have the project with multiple prime contractors. It multiplies really quickly.

Piper: And everyone needs to get paid obviously. And so if something happens up here with the money, how’s it going to get all the way down to the supplier?

Matt: Exactly. And another problem that, you know, some construction businesses might not think about as much, is that a problem on a completely unrelated job could affect your job. So if a GC’s not getting paid on job A and they’re doing work on job B, yeah, you might have to, you might be in a situation where you rob Peter to pay Paul.

Piper: Right. It could have nothing to do with the work you’re doing because it’s just, you know, cashflow issues coming from a different job. Even on a simpler job, let’s talk about restoration contractors. We work with a lot of restoration contractors more and more every day. They are contracting maybe directly with the property owner. Maybe that property owners is a homeowner and they’re not very familiar with, you know, the expectations of them and how to make sure that their contractors have lien rights, all of that, you know, they might not be familiar with the construction industry. Or perhaps there is another tier above them. Again, a lender or something and the same things can happen. Yeah. Insurance Company, right. It can just get complicated. And if any issue happens there, then, then they’re not going to get paid.

Matt: Yeah. It’s something that we see regularly. I talk to contractors often who, they’ve done everything right. They’re on schedule, they’ve done everything, you know, up to code and the property owner is perfectly happy with them. But because the insurer has an issue with this contractor, or maybe the insurer doesn’t have an issue, they’re just not paying out on time. The contractor may have to assert their rights because they’re on the clock. Mechanics Liens have strong deadlines and they can’t always afford to wait.

Piper: In construction, the average time to get paid is 83 days, 2 and a half months. That’s a really long time. And you know, even beyond that with our customers, we found that the average is actually closer to 90 days when they’re coming in. When they’re coming in, they’re like, it has been a long time since we’ve finished this work and we have still not been paid. So the first thing we do is talk about Preliminary Notices and how much that can help. And we have found that when our companies start to send these Preliminary Notices on every single job, that is getting cut down in half. Yeah. It’s getting way faster. They are experiencing payment just at rapid speeds.

Matt: And one thing that we hear from these customers is that because the payment’s coming more quickly, they can focus on their business more.

Piper: There was one customer that we worked with who said once she started sending Preliminary Notices, she was getting paid so fast that her head was starting to spin. And that to me sounds like a good problem to have.

Matt: In most states, the Preliminary Notice requirements are done at some point near the first month of the project. It could be shorter, it could be a little bit longer. But they are most effective when they’re sent early on in a job. That way you can avoid problems throughout the job as opposed to sending one later.

Piper: The reason that we send them at the beginning of the job is to promote visibility, right? We call them visibility documents. They’re under that umbrella. And that’s because on this document ,it gives all of your information, how to contact you, what kind of work you’re doing, anyone else you know who’s on the job. It’s just a great way to open up the lines of communication. So if something happens along the way, we know how to talk to each other and we know how to work it out and we know how to pay. One of the most frequently asked questions I receive when I am talking with customers, training them on Levelset is who is sending these documents. And my answer is always everyone, and I’m not just saying that it’s true. Over 85% of our customers are sending these Preliminary Notices on every job. And that’s because A, they’re so useful as we’re talking about promoting visibility, but they are often required.

Matt: Yeah. So a lot of times in order to preserve lien rights later on on a job, this Preliminary Notice, it has to be sent at the beginning and a problem that arises three or four months later that you might not have foreseen, all the tools that you need to get paid might not be available to you because there’s one document that wasn’t set at the beginning of the job and it’s easy to overlook these things at the beginning of the job, you know, you have, you’re mobilizing, you’re getting ready for the job site and you’re collecting all the equipment you need. Sending a Preliminary Notice is just one more tool that you need for the job.

Matt: When businesses begin sending Preliminary Notices, some funny things start happening. Again, a lot of people think of these notices as preserving the right to file a lien later, but actually these companies find they don’t have to file as many liens. Their payment process speeds up all on its own. It’s, it’s funny whenever you actually have preserved the right for later on, you don’t have to use that right as often. Contractors should really love receiving these Preliminary Notices because they gained the benefit of visibility as well. It’s totally common for a contractor to not know who their sub contractor’s supplier is or if there’s a sub sub on the project. They may not know that that work is actually being subbed out. So it helps them keep track of what’s going on beneath them. That way they can confidently release payments down the chain,

Piper: Everyone is empowered with these documents. The people sending the documents and the people receiving them, they are empowered to know who else is on the job, who they have the requirement to pay. So they’re just great documents all around for everyone involved. Highly recommend. Matt, what happens when construction companies do not send these Preliminary Notices?

Matt: A lot of times they’ll be fine. If there’s not a payment problem on the job, you may be okay without sending your Preliminary Notice. But also whenever you don’t send this Preliminary Notice, other construction businesses don’t know that you’re on the job. And whenever they do, your invoice tends to flow towards the top of the stack. People know you’re there, you know you’ve preserved your rights and they know that, you know, if all else fails they need to make sure that this company is paid. And whenever you haven’t sent that Preliminary Notice, that same type of feeling just isn’t there.

Piper: Right. It really brings peace of mind that you’re going to get paid and quick.

Matt: And then if the problems do arise later on on the job, your recovery options, they change dramatically. Whereas you know, if a notice is sent, you might be able to file a Mechanics Lien if you have to. If you haven’t sent that notice and you can’t file a lien, the recovery process might be more legal oriented. When you have to get the lawyers involved, things take more time. They cost more money and nobody really likes to go to litigation other than attorneys.

Piper: True, true. We’ve been talking a lot about what these documents are and why they are so useful to send on every single job. So why are they not being sent on every single job all the time? You know, what are the kind of myths around these documents that we hear all the time?

Piper: The first, the one that I get all the time when I’m training customers and trying to tell them about these Preliminary Notices is that they are nervous to send them to their customers because they think they’re going to damage their relationships.

Matt: That’s a notion that we kind of would like to dispel to some degree is that you’re sending me a Preliminary Notice, you don’t trust me? It’s not a trust factor. It’s just a, we’re all working together. This document’s required. If there is trust here, you know, that I’m going to do the job, I’m going to, you know, stay within my rights and I’m going to act responsibly whenever it comes time for payment. And it’s just a reassurance of that.

Piper: Right. And there are a couple of things that we’ve done at Levelset to kind of make this process a little easier and stress free. The first of which is actually changing the document itself. We’ve changed the layout of it, the look of it. So it’s really clear that it is a friendly professional document. The first page is all about you, your company. There’s a, you know, a logo section, a company description.

Matt: It’s an introduction. Yeah. And a lot of these forms do have that required legal language and that required format. And we’ve preserved that. We’ve just also introduced the form a little bit more so that it’s not jarring. You’re not looking at the document and saying, what is this? As opposed to now with these formats, you’re able to kind of ease your way in. You realize what’s going on and why the document’s being sent.

Piper: Right. Right. And then even when they get to the, to the back page that has the, you know, statutorily required language, it is nicer to look at and it’s clear that it doesn’t signal any payment issues. In fact, they’re there to do the opposite to make sure that doesn’t happen. Exactly. The second misconception I hear a lot is that, oh, I only need to send this Preliminary Notice on problem projects. Yeah. Right. And that’s not true.

Matt: It’s not, it’s not. In fact, all the time a problem occurs, you may already be too late to reap the benefits of sending that preliminary notice. It should really just be a blanket process at the beginning of every job, a Preliminary Notice is sent.

Piper: And lastly something we hear a lot is I don’t have time to send these notices, which we understand you guys are very busy. There’s a lot to do on a construction job so people don’t want to necessarily worry about these Preliminary Notices if there aren’t problems. That’s where we come in. Yeah.

Matt: It’s understandable that you might be hesitant to send a Preliminary Notice because there are certain pieces of information that have to appear. You may or may not know the property owner on the project. You may not know how long this project’s going to last and you may not know the actual legal description of the property. Sometimes it’s required. And so tracking down that information is time consuming and construction back offices don’t always have the time or the luxury to do that.

Piper: Right. And that’s where we come into play. We have got a team of scout researchers here at Levelset when you are entering in your projects into Levelset, when you are ordering documents, our research team is actually going to be not only just kind of automatically running them through our comprehensive database of construction projects, but they’re actually going to be going in themselves and doing some investigation on the project, making sure they’re filling, not only filling in gaps but checking over the information you have. Yeah because that happens a lot is people are receiving incorrect information.

Matt: Right. And if there’s any incorrect information on these forms then the form might be not be effective to do anything. It’s still great for visibility and communication, but if you need to preserve those rights, if the information’s wrong on that, then the rights not might not be preserved anyway.

Piper: Right. So when you order these documents through Levelset, you can have peace of mind that our research team is going to make sure we have the correct information. So these documents are going out to who they need to go out to. And with the correct information,

Matt: These construction businesses, we get it. You don’t have a professional research team, but we do and they’re using industry best tools to track down this ownership information, this property information and they can make things a lot simpler. Yeah. And there’s one thing I didn’t mention earlier that I think is another barrier to sending these Preliminary Notices is that there are certain mailing requirements. They may have to go via certified mail, they may have to be in the right envelope, they may have to be sent, you know, within a certain timeframe. And it’s not easy for these construction businesses to know these these things. And that’s where all, that’s what we do here every day.

Piper: Thank you guys so much for tuning in today. Sticking with us as we walk you through this guy to Preliminary Notices. We obviously are very excited by Preliminary Notices and you know, we hope you learned something today and that you’re excited as well.

Matt: Absolutely. And if you have any other questions, you can always reach out to us on the site, on our experts center, we have live chat every day. There’s plenty of ways to contact us if you have any questions about how these notices should be sent or if you’re interested in Levelset.

Piper: And remember, payment help is here.