Anyone know what it means if a subcontractor sends you a copy of the preliminary notice for a lien on a project your working on. it lists my office last as the construction lender, or reputed construction lender. the owner is listed first, then the GC, then the sub, then us.
how could we be the construction lender, it was a public bid job for a public school.
I'll reading up on mechanics liens laws, but i'd like to know the what the potential main liability is now. last time i saw one of these the GC said he would Bond around it, i never really understood what that meant, but the problem went away.
newfuture
Sep 18, 15 10:07 am
I don't think the sub can place a lien on public buildings. What state are you in?
JeromeS
Sep 18, 15 11:02 am
If its a public job the Contractor likely a Performance Bond was required by contract, unless your documents were shite. Often public work in my area the GC also provides a Payment Bond, which guarantees payment to the subcontractor in the event of default.
Likely, you liability is essentially nil. That doesn't mean you (and the sub, in this case) don't have hoops to jump through.
Subs can file liens against the GC, and notify the owner and architect of the same. Doesn't mean anybody understands the difference.
Everyday Intern
Sep 18, 15 11:24 am
Liens from a subcontractor are basically saying that the GC hasn't been paying them for their work or materials. Lien laws in your state might prevent them from being able to do this on a public building, but check the laws. I would suspect if they are this far along to provide a preliminary notice, they have the ability to put a lien on the project.
Owner and Contractor will primarily be the ones to sort this out with their legal council and sureties for bonds. You should review any bonds required in the contract (performance bond wouldn't help as that ensures that the work will get done if the contractor defaults). You should look at the required payment bond (or labor and materials payment bond), they will ensure payment to subcontractors.
Your liability as the Architect might come in with regard to approving application for payments, but I don't think you would generally have much to worry about. Again, this is probably an issue where the sub didn't get the money from the GC they were entitled to for work done, and they are protecting their financial interests in the project.
Good luck, let us know how it turns out.
gruen
Sep 18, 15 12:48 pm
Long ago, an office I worked in had a public project. A subcontractor - the ironworker - was upset over payment and removed the steel handrails they had installed by cutting them off with a torch. Needless to say, they didn't get paid.
Probably worth a call to your lawyer to sort this out, but I doubt you have anything to worry about.
Jackfrost19
Sep 18, 15 6:05 pm
Thanks, I appreciate the brainstorming, gives me a few things to focus on when reading up on this.
Cheers
Carrera
Sep 18, 15 6:40 pm
Too dependent on which state. Most states require public projects to have payment bonds, as the architect you should know if there is one. Liens are filed against property not companies or people and there are procedures for who gets notified, think you are just being notified. Think the word “lender” is simply an error on the form because most projects have lenders.
Bennythejetr
Sep 18, 15 7:31 pm
From my experience working with a GC, a preliminary notice is just a standard form that subs or vendors need to send. Without it, they can't file a lien in the event they have to. It doesn't mean they have filed one. It just means they now have a right to file one.
Hope that makes sense.
Everyday Intern
Sep 18, 15 8:00 pm
Just throwing this out there, not as something the OP needs to worry about, but rather as something that might be interesting to follow up on.
Many Owners require, as part of the applications for payment, submission of waivers of mechanic's liens from subcontractors, material suppliers, etc. covering the portions of the work included in the pay app. Whether or not this is allowed and would hold up in court if challenged would vary depending on the state's lien laws.
I've always wondered how this holds up where you are asking for a waiver of lien rights, before the subcontractor would receive payment. In practice, if a GC skipped paying a sub for work that was included in the pay app, how would the sub be able to assert lien rights if they've signed a waiver? It seems sketchy unless the GC is paying the subs before receiving payment from the Owner. I suppose the more likely alternative is that the language in the waiver is such that for the waiver to be effective, payment must be received.
Carrera
Sep 18, 15 8:50 pm
Think Benny has it right for the OP.
Everyday, since when does a GC pay his subs before he gets paid? Mostly never. These procedures of demanding wavers before payment are a fantasy. What would happen if the sub isn’t paid is that the GC could be held liable for fraud, but easily resolved with payment to the sub.
I used to get wavers from the subs first, then I’d give a waver and the money would trickle back. If I got stuck with nonpayment then I wouldn’t get stuck paying the sub. Not that the sub couldn’t sue to get paid he just couldn’t use a lien to get the owner to force me to pay him.
A deeper issue is the subs paying their bills. It’s one thing to get the sub to sign a waiver but what about his subs & suppliers? I resolved this with what’s called an Affidavit of Payment where the subs attest that they have paid things to date. If they lie and a supplier files then that too is a felony against the sub (only happened to me once).
Another thing I did was add a sentence under my signature on the waver stating what I was waiving, which excluded the current payment. No one ever read it.
Remember too that everyone is waiving the right to lien, not get paid, they are just giving up the leverage.
Noah Walker
Sep 18, 15 11:20 pm
A lien is placed against the property being improved, not the GC or the Architect.
A preliminary notice is just a piece of paper. Its sole purpose is to let the owner know that the sub is working on the job, since they don't hold contracts directly with the owner. This notice is required if the sub ever needs to record a lien. A GC would not need to bond around a lien notice, but could around a lien itself.
Re. the sub's vendors and suppliers: often suppliers will will issue a preliminary notice. If you get one you can call the supplier to be sure they've been paid by the sub. If not you can issue a joint check. Subs hate this, but it ensures that the supplier will get paid.
Re GCs getting payment before paying subs: there are two kinds of waiver: conditional and unconditional. A conditional waver is only an indication from the sub that payment is expected, not that they've been paid, which is basically a promise of release upon payment. This is as good as an unconditional waiver if paired with evidence of payment, like a cancelled check. GCs don't like to pay out to subs before they get paid because it shifts the financial risk onto them. That's why sometimes in subcontractor agreements you'll see early payment clauses, since the GC is often basically acting like a bank until they get paid paid by the client.
Anyone know what it means if a subcontractor sends you a copy of the preliminary notice for a lien on a project your working on. it lists my office last as the construction lender, or reputed construction lender. the owner is listed first, then the GC, then the sub, then us.
how could we be the construction lender, it was a public bid job for a public school.
I'll reading up on mechanics liens laws, but i'd like to know the what the potential main liability is now. last time i saw one of these the GC said he would Bond around it, i never really understood what that meant, but the problem went away.
I don't think the sub can place a lien on public buildings. What state are you in?
If its a public job the Contractor likely a Performance Bond was required by contract, unless your documents were shite. Often public work in my area the GC also provides a Payment Bond, which guarantees payment to the subcontractor in the event of default.
Likely, you liability is essentially nil. That doesn't mean you (and the sub, in this case) don't have hoops to jump through.
Subs can file liens against the GC, and notify the owner and architect of the same. Doesn't mean anybody understands the difference.
Liens from a subcontractor are basically saying that the GC hasn't been paying them for their work or materials. Lien laws in your state might prevent them from being able to do this on a public building, but check the laws. I would suspect if they are this far along to provide a preliminary notice, they have the ability to put a lien on the project.
Owner and Contractor will primarily be the ones to sort this out with their legal council and sureties for bonds. You should review any bonds required in the contract (performance bond wouldn't help as that ensures that the work will get done if the contractor defaults). You should look at the required payment bond (or labor and materials payment bond), they will ensure payment to subcontractors.
Your liability as the Architect might come in with regard to approving application for payments, but I don't think you would generally have much to worry about. Again, this is probably an issue where the sub didn't get the money from the GC they were entitled to for work done, and they are protecting their financial interests in the project.
Good luck, let us know how it turns out.
Long ago, an office I worked in had a public project. A subcontractor - the ironworker - was upset over payment and removed the steel handrails they had installed by cutting them off with a torch. Needless to say, they didn't get paid.
Probably worth a call to your lawyer to sort this out, but I doubt you have anything to worry about.
Thanks, I appreciate the brainstorming, gives me a few things to focus on when reading up on this.
Cheers
Too dependent on which state. Most states require public projects to have payment bonds, as the architect you should know if there is one. Liens are filed against property not companies or people and there are procedures for who gets notified, think you are just being notified. Think the word “lender” is simply an error on the form because most projects have lenders.
From my experience working with a GC, a preliminary notice is just a standard form that subs or vendors need to send. Without it, they can't file a lien in the event they have to. It doesn't mean they have filed one. It just means they now have a right to file one.
Hope that makes sense.
Just throwing this out there, not as something the OP needs to worry about, but rather as something that might be interesting to follow up on.
Many Owners require, as part of the applications for payment, submission of waivers of mechanic's liens from subcontractors, material suppliers, etc. covering the portions of the work included in the pay app. Whether or not this is allowed and would hold up in court if challenged would vary depending on the state's lien laws.
I've always wondered how this holds up where you are asking for a waiver of lien rights, before the subcontractor would receive payment. In practice, if a GC skipped paying a sub for work that was included in the pay app, how would the sub be able to assert lien rights if they've signed a waiver? It seems sketchy unless the GC is paying the subs before receiving payment from the Owner. I suppose the more likely alternative is that the language in the waiver is such that for the waiver to be effective, payment must be received.
Think Benny has it right for the OP.
Everyday, since when does a GC pay his subs before he gets paid? Mostly never. These procedures of demanding wavers before payment are a fantasy. What would happen if the sub isn’t paid is that the GC could be held liable for fraud, but easily resolved with payment to the sub.
I used to get wavers from the subs first, then I’d give a waver and the money would trickle back. If I got stuck with nonpayment then I wouldn’t get stuck paying the sub. Not that the sub couldn’t sue to get paid he just couldn’t use a lien to get the owner to force me to pay him.
A deeper issue is the subs paying their bills. It’s one thing to get the sub to sign a waiver but what about his subs & suppliers? I resolved this with what’s called an Affidavit of Payment where the subs attest that they have paid things to date. If they lie and a supplier files then that too is a felony against the sub (only happened to me once).
Another thing I did was add a sentence under my signature on the waver stating what I was waiving, which excluded the current payment. No one ever read it.
Remember too that everyone is waiving the right to lien, not get paid, they are just giving up the leverage.
A lien is placed against the property being improved, not the GC or the Architect.
A preliminary notice is just a piece of paper. Its sole purpose is to let the owner know that the sub is working on the job, since they don't hold contracts directly with the owner. This notice is required if the sub ever needs to record a lien. A GC would not need to bond around a lien notice, but could around a lien itself.
Re. the sub's vendors and suppliers: often suppliers will will issue a preliminary notice. If you get one you can call the supplier to be sure they've been paid by the sub. If not you can issue a joint check. Subs hate this, but it ensures that the supplier will get paid.
Re GCs getting payment before paying subs: there are two kinds of waiver: conditional and unconditional. A conditional waver is only an indication from the sub that payment is expected, not that they've been paid, which is basically a promise of release upon payment. This is as good as an unconditional waiver if paired with evidence of payment, like a cancelled check. GCs don't like to pay out to subs before they get paid because it shifts the financial risk onto them. That's why sometimes in subcontractor agreements you'll see early payment clauses, since the GC is often basically acting like a bank until they get paid paid by the client.