There are many jobs within a construction project: From the builder and sub-contractor to the laborer and materials supplier – the facets and layers of a building project are many. While creating something from the ground up is rewarding, you should always be paid for your work.
Also known as a construction lien, artisan’s lien, or laborer’s lien – a mechanic’s lien is a way to have assurance that you will be paid for the job if someone reneges on your compensation.
There is a lot to know about filing a mechanic’s lien and here is a comprehensive guide that will get you started – including information about construction contracts.
Where do I Find a Construction Contract?
A Cost-Plus Contract
There are a few versions of this contract, also known as a cost-reimbursement contract. This type of contract is where the contractor is paid according to a prior negotiated limit and includes all of their expenses related to the project. In addition to this payment, there is payment set forth for profitability.
For instance, the job will cost $50K in expenses and the prior negotiated limit is $100K, which allows for any extras that arise – plus the profit amount to the contractor.
Fixed Price Contract
In this type of contract, known as a lump sum contract, there is a total price paid to the contractor and this predetermined amount is set other than an addendum such as penalties or incentives.
This type of contract comes with advantages and disadvantages. For instance, it is beneficial due to the stability of knowing the cost no matter what. Yet, the seller may realize the risk that he is taking by fixing a price
and charge more than he would for a fluid price or a price that he could negotiate with the seller on a regular basis to account for the greater risk the seller is taking.
Time and Material Contract (Not to Exceed)
According to an article at Forbes
, this is a contract to be wary of for the following reasons:
Time and Material (not to exceed) means that you bill based on effort… up to a point. Some confuse this with fixed price projects. Not so much… The fixed price project rewards you if you perform efficiently. T&M NTE provides no reward if you perform ahead of schedule. But, it provides a penalty if your effort goes beyond the maximum effort. So, you get your normal margin if things go as planned, and every hour beyond the maximum erodes your margin until you end up losing money on the deal. With no upside and only downside, you should never agree to that model.
With this contract, the contractor is paid for materials used and work performed with no regards to how much time it actually takes. This is a contract that is not recommended for the reasons mentioned. You may end up losing money and there is no reward for finishing early or doing a good job.
How to Collect On a Construction Project
You’ve spent many labor hours working on a construction project and have spent out-of-pocket money on the job when the payment doesn’t come. Whether the entity who hired you has lost their funding or refused to pay, you need recourse in collecting on the project.
There are a few major factors that determine the eligibility in collecting on a construction project:
- The timeline to file
- Your relationship to the project
- If you have sent a notice or given notice
While there are options for do-it-yourself mechanic’s liens, it is imperative to use a professional who knows all the details in this type of process. In fact, mechanic’s liens need very specific details that if not done correctly, can delay or even kick out the lien and require you to start over. Or in a worst-case scenario, miss your deadline for filing in the first place.
A contractor might file a mechanic’s lien if a property owner reneges on paying a portion of the amount due for the work performed. A subcontractor could likewise file a mechanic’s lien if a primary contractor fails to make proper payment for their work and materials.
For example, a contractor may hire a subcontractor to deliver and pour concrete to finish a portion of a construction project. The subcontractor has an agreement with the contractor but not the property owner. The subcontractor can file a mechanic’s lien if the contractor fails to pay for the concrete they provided for the project. The lien would be against the property, which would force the owner to get involved. A separate breach of contract lawsuit could be filed directly against the delinquent contractor.
What To Know Before You Start
After that, the steps are to create the lien, record the lien, notification of the lien, and then complete the process or extend the lien if the deadline is approaching.
These steps are simplified by asking the following questions:
- Does your state allow you to file a mechanic’s lien? While all states traditionally allow contractors, materials suppliers, and sub-contractors to file, there are sometimes exceptions such as suppliers to suppliers.
- Was a preliminary notice required? Be sure that you have sent a preliminary notice if required. Otherwise, you will forfeit your rights.
- Are you within the lien deadlines? States vary on their deadlines but typically they are all tied to when the job was completed or the last day your provided materials or your labor. Pay attention to these deadlines because they are of the utmost importance.
How Do I File a Lien?
One of the first things you need to be aware of is the mechanic’s lien deadlines
. This is why a professional is a crucial part of the process. Companies must comply with mechanic’s lien laws when it comes to both notice requirements and deadlines. Here is an example of some of the deadlines to know for the state of Louisiana.
- General Contractors or Prime Contractors. For the contractors, you must file a mechanic’s lien within 60 days of filing the Notice of Termination.
- Parties Other Than Prime. For parties who are not general contractors or prime contractors, you must file a mechanic’s lien within 30 days of filing the Notice of Termination, if a notice of contract was filed and 60 days if notice of contract was not filed. Confusing right?
- Material Suppliers. You must file a mechanic’s lien within 60 days of filing the Notice of Termination. However, for Louisiana, there are notice requirements for suppliers.
There are other considerations to keep in mind. For instance, for general contractors or prime contractors, if no notice was filed then the date is considered when the project was completed substantially.
For parties other than prime, if no notice was filed then it must be filed within 60 days from that same substantial completion mentioned in relation to general and prime contractors.
Last but not least, for residential material suppliers, if no notice was filed then the specific time frame starts from either substantial completion of the project or abandonment of the project.
The Notification of Liens
This is a relevant part of the process where all parties must be either notified that a lien has been recorded or all parties must be served if they are subject to the lien. Depending on the state where the lien is recorded, you may have a grace period but in some states, the notification has to go out as soon as the lien is recorded.
Parties may include but are not limited to the lender, contractor, hiring party, surety, and/or the property owner.
Who is Eligible to File a Mechanic’s Lien?
- Prime contractors, general contractors, and/or subcontractors
- Architects, surveyors, and/or engineers
- Laborers and other employees
- Equipment Lessors
- Suppliers of materials
A mechanic’s lien can be complicated and time-consuming. However, it is an important process in recovering your losses, both monetarily and labor-related, depending on your circumstances.
You must know all of the details and do your research first before you start. The good news is that a legal professional helps in taking some of the burden off of you. While you still must supply the specifics, the laws and deadline dates are known by an attorney so that you won’t have to worry about missing a minor (or major) detail that causes your lien to be invalid or kicked out of the system.
Here at the Smiley Law Firm, we have helped hundreds of construction professionals file construction liens. We understand the processes involved and can work to ensure your rights are protected. Contact the Smiley Law Firm
for a free consultation today.