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Phil Martini, P.E., is president of C.R. Meyer and Sons Co. Martini has a B.S. in civil
engineering and has worked in heavy
construction and
construction
engineering for more than 25 years.
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CONSTRUCTION MANAGEMENT
Storm water discharge control planning
Liens are yet another element in the list of potential construction complications. Lien laws exist for a reason, since problems, although infrequent, can arise when subcontractors or materials suppliers are not paid by the general contractor, or another subcontractor, on behalf of a mill. If a lien is filed, results are unpleasant. For example,
the mill may not have clear title to the entire project, even after it has been completed and paid for.
SIMPLIFYING LIEN TERMINOLOGY. The word lien, which is derived from the word ligare, meaning "to tie" or "to bind," is defined as the right to take and hold or sell the property of a debtor as security or payment for a debt. The need for liens and lien waivers is derived from these two elementary presumptions:
1. Business owners want assurance that they will be paid for supplied materials and services.
2. A party, when paying a bill, usually wants assurance that the debt he or she has just written a check for has been eliminated.
To simplify lien definitions, it may be helpful to relate them to the concepts of home construction. For example, suppose a new house is being built. There is a kitchen in the house, and in that kitchen there is a sink. The owner has paid the home builder for all of the materials and completed work in the house, including $100 for the sink. The builder, in turn, has paid the plumber who purchased and installed the sink. Although the plumber has received payment, he has not paid the sink supplier. After a certain amount of time and several attempts to collect payment from the plumber, the sink supplier may file a lien on the home. The lien says, in effect, "I, the material supplier, have not been paid for the material that is in that building; therefore, I claim a portion of that property."
If, as in most cases, the plumber had paid the sink supplier, the supplier would give the plumber a lien waiver, which says, "I have been paid for the material in that building and I, therefore, release my rights to ever file a lien against it."
CAUSE FOR CONCERN? Yes. Lien laws protect the supplier of a material or service, not the purchaser. Unfortunately, liens are not usually filed over the price of a sink. Instead, they are filed for larger amounts-like all of the piping or rebar in a project. Costs may reach five, six, or seven digit figures, or even higher.
Usually, the problem of non-payment occurs at a level removed from the general contractor. For example, the material supplier to a subcontractor of a subcontractor may not have been paid. The exposure to lien potential is far reaching on any project.
If a lien is filed, the mill does not have unencumbered title to the completed project. This will cause financing problems if a project must rely on a loan using facilities for collateral. If the mill is to be sold, there will be legal and financial challenges for mill management.
PROTECTING THE MILL. To limit liability, mills usually secure a construction professional to manage construction and identify all lien risks. If a mill opts to manage construction contracts itself, it bears the responsibility of liens.
In addition to ensuring timely completion of schedules and budget management, the general contractor usually assumes all contract administration risk, protecting the mill from the headaches associated with liens and payment of all levels of subcontractors. A competent construction professional will make sure that, upon completion, the mill will own its project-with no construction liens against it. There are a few ways the general contractor is able to do this:
1. A qualified general contractor knows the subcontractors and materials suppliers in the area. It is the general contractor's business to know which firms in a region are reputable, which are strong, and which have a history of non-payment or late payment.
2. A capable general contractor will maintain constant communication with suppliers and subcontractors at all levels. On any project, non-payment can happen. A good general contractor will stay on top of payment situations so a lien never has to be filed. Using preventive devises, such as a dual check, a construction firm may prevent a valid lien filing.
3. Lien laws vary from state to state. A knowledgeable, full-service construction firm will be aware of the ins and outs of filing times and lien legislation. The party that benefits from this knowledge is the mill.
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