A Contractor’s, Subcontractor’s and Supplier’s Step-By-Step Guide to Getting Paid - Alabama - Webinar

In this blog, presented by SunRay Construction Solutions and Adam Jarvis, Attorney, Jarvis Law Firm P.C., construction professionals in Alabama can learn in detail about these provisions and how to use them so that they can get paid quickly.

What Should You Check for in Your Contract?

The first and foremost tool or provision that can help contractors, subcontractors and suppliers to get paid is their contract. You don’t need to prepare long and fancy contracts. If your contract details all the required information, it will be enforceable. Here are some of the key items that you should bear in mind while preparing your contract:

• Ensure that you have a written contract.
• The contract should clearly identify all the parties involved, such as who is the property owner, the general contractor, etc.
• Define the scope of work clearly so that everybody is aware of their contractual obligations.
• You need to clearly state all the pricing details.
• Finally, the contract should be signed by the owner.

As per the regulatory contract requirements:

• Alabama Home Builders are required to use a valid written contract which includes the offer and acceptance indicated by the signing of all the parties.
• It is a straightforward requirement which is easily followed; however, the main problem arises when it comes to change orders.
• Make sure that when you have change order involved:
• Your change order is in writing.
• It has been signed by both the parties, and if it is financed by a financial institution, such as the bank, then the bank should also sign it.
• Finally, whenever possible, try to get the change order payment before the work is performed. This is because the change order is technically a separate contract from your initial base contract. So, it is better to get the change order paid upfront before the job is done.

There is one major change that you must make in your contract.

• If your contract ideally starts its life as an estimate and it has the title as “Estimate” with an acceptance and authorization to proceed signature block for the owner to sign, then it needs to be titled as “Contract”.
• A good practice would be to include the language, “upon signing below, this document becomes the exclusive contract between the contractor and the owner.”
• This way, there will be no doubt later whether it is truly a contract or not. It makes it easier for the Judge to decide if there is a written contract.
• One of the reasons why this is important is because under the Alabama Payment Prompt Act, you need to have a written contract to get the interest and attorney’s fees under the statute.

How to Secure Your Lien Rights?

Here are a couple of things that you need to consider to secure your lien rights.

• It is recommended that when you are in a situation where you need to get your lien filed, it is best to still go ahead and complete the project. This is because, typically you are expecting progress payments and when those payments don’t come in, you stop the work because the owner has breached the contract. But when you go to the court, the Judge will see that both the parties have breached the contract, even though what you have done is correct. This is why, if you can afford to complete the project, go ahead and do it as it will be easier to enforce your lien rights.
• Now along with completing the work, you also need to ensure that it is free of defects. So, before you go ahead and put a lien on the property, make sure that all the work has been completed in a good and workmanlike manner.
• You need to pay close attention to your statute of limitations period. Once you pass the statute of limitations, you can do a breach of contract, but you cannot file a lien on the property. So, a good practice would be, if you are a subcontractor, and you see that an invoice has not been paid for 60 days, then go ahead and start the lien filing process. If you have a direct contract with the owner, then you have about 120 days from the unpaid bill.
• If you are a subcontractor or material supplier, you need to give a Notice of Intent to Lien before you go ahead and file your lien. This notice should be given to the owner and the party who owes you the money.
• If you are a subcontractor, materialman, or laborer, find out if there is an unpaid balance owed to the prime contractor. This is because your lien rights extend only to the amount of money that the owner is still holding, and which has not been paid to the general contractor or the homebuilder in the chain above you.
• If the general contractor or homebuilder has been paid in full, then you don’t have any lien rights against the property owner. Ideally, you will need to go after the contractor up the chain who is holding the money.

How to Secure Your Bond Rights?

When it comes to bond rights, they typically work like your lien rights. For example, even for securing your bond rights, it is best if you have finished the project, it should be free of defects, in a good and workmanlike manner, etc.

There are a couple of differences between bond rights and lien rights, such as:

• Lien rights are property rights on the land where the project is located whereas bond rights are contractual rights with surety.
• The lien rules are codified in statute, Ala. Code § 35-11-110 et seq. Bond rules are typically found in the bond document itself. So, all the key information, such as, time periods, what information is required for making the bond claim, etc., will be detailed out in the bond document.

What are Some of the Lien and Bond Rules & Exceptions?

Here are some of the lien and bond rules and exceptions.

A) Statute of Limitations for Lien Filing – Ala. Code § 35-11-215

• If you are the prime contractor or have a direct contract with the owner, then you have six months from the last day that work was done or materials were supplied to the project, to file your lien.
• If you are a subcontractor, then you have four months from the last day that work was done or materials was supplied to the project, to file your lien.
• If you are a laborer, you have 30 days from the last day that work was done or materials was supplied to the project, to file your lien.
• Since the deadline is specific to the last day that work was done or materials was supplied to the project, you need to go back and check if there was any punchwork done, etc., to make sure that you have the exact date of when the last work was performed, or materials was supplied.

B) Notice Requirements – § 35-11-218

• If you are the original or prime contractor, then you don’t have to send out any notice prior to filing the lien. Although, it is recommended that you do send out the notice even if you have a direct contract with the owner because it often results in getting the payment immediately.
• If you are a subcontractor, materialmen, or laborer, then you must send out the Notice of Intent to Lien to the owner before you file the lien. There is no specific timeline on by when the notice should be sent. The only requirement is that it is sent before the lien is filed.
• The notice should:
• Be in writing.
• It should be sent to the owner, proprietor or his agent.
• Fact that you claim a lien on the land, building, improvements.
• The exact amount that is owed to you.
• The work that you have performed. You don’t have to provide detailed information and you can simply put it as foundation work, roofing work, electrical work, etc.
• Identify the party who owes you the money.
• Use certified mail and keep a copy of the notice and the envelope with postage on them.

As mentioned earlier, your lien amount is specific to the unpaid balance remaining in the hands of the owner or proprietor owed to the general contractor. Below is an exception the unpaid balance rule:

• If you are a material supplier, then you can file a full price lien of unpaid materials, if:
• You send out a notice that you may put a lien on the property for the materials that you are going to deliver before you furnish any of the materials.
• The notice should be provided to the owner or his agent.
• It should be in writing.
• You need to provide information on what materials will be furnished.
• You need to state the number of materials being furnished.
• A confirmation that the owner has no objections to receiving this notice.
• If all the above criteria are met, then material suppliers can retain their lien rights for the full price of the unpaid materials and not depend just on the unpaid balance.

C) Time for Filing Suit to Enforce the Lien

• You have six months from the date the entire balance was due to file a suit to enforce the lien.
• However, it is recommended that you don’t wait until the last moment to file the suit. Ideally, once you have given notice to the owner and the general contractor that you have filed a lien, and if you don’t see the check arriving in a week or two, go ahead and file the suit. This will ensure that you are not close to missing the statute of limitations.  

D) Timeline for Filing a Bond Claim

• The exact timeline for filing a bond claim will be stated in the bond document. This is why it is important that you get a copy of the bond at the beginning of the project and read it thoroughly.
• Generally, you can make a bond claim one year before the general contractor is paid in full.
• There are some notice requirements that you will need to follow to make your bond claim. These requirements will be provided in the bond document itself.
• Generally, you will need to send of the bond claim via U.S. Certified Mail to the:
• Surety
• Owner
• General Contractor
• Any other subcontractor up the chain from you
• Bank
• Architect (if applicable)

What are Some of the Lien Law Traps that You Should Avoid?

Below are some of the lien law traps that you should avoid:

A) Don’t file liens when you don’t have lien rights – You need to make sure that you have performed all the required action items before you go ahead and file the lien.

• You need to ensure that you have fully performed the work as per the contract.
• Check if there are any uncured defects in your work.
• Keep a close eye on the statute of limitations and make sure you have not passed the time to record the lien.
• Do you have the correct license for your work?
• If you are an out-of-state contractor, make sure that you are registered with the Secretary of State to do business in Alabama. You need to ensure that you have Alabama’s General Contractor License or Alabama’s Homebuilders license. Another key point to remember is that if your contract for commercial work is more than $50,000, then it is mandatory to have an Alabama General Contractor’s License to enforce your invoices.

B) Get the details correct on your Verified Claim of Lien Document – You must ensure that all the details provided on your lien document are correct because if there is any discrepancy, and you are close to the statute of limitations, then you might not have enough time to rectify it, and thus, you will lose your lien rights.

• Check if the details are correct for the owners and the party who owes you the money and their addresses.
• Make sure that you have correctly identified the property on which you are putting the lien:
• Street address
• Parcel number
• The legal description of your tax assessor’s website may not be identical to the legal description on the deed for the party.

What is the Right Way to Exchange a Release for a Check?

Ideally, if all the parties involved are local, then the best way to exchange a release for a check is to do it in person. Although this may be time-consuming and a bit expensive, it is better to get it done personally.

However, if all the parties are not local, then:

• The best option is to first talk to each other over the phone to check if both the parties have the release and the check ready respectively.
• Once both the parties confirm that they have their respective documents ready, you can scan and send them to each other.
• You can also ask them to scan the envelopes used to mail the release/check with postage so that you can confirm that all the address and other details are correct. The information can also be used for tracking purposes.

So, these are some of the tools and measures through which construction professionals in Alabama can ensure that they are getting paid for the work they perform. It is very important to be aware of all your lien and bond rights and also what steps to take to preserve those rights, so that you can benefit from these measures. Don't risk payment delays! Secure your rights with SunRay's legal experts. Call 800-403-7660 today and get paid what you deserve.

FAQs

Till when is a lien valid in Alabama?

If the debt isn't paid, a lien stays attached to the property. It expires after 10 years.

What are the two different types of lien in Alabama?

In Alabama, there are two main types of mechanic's liens: a full-price lien and an unpaid balance lien. A full-price lien permits eligible parties, such as the original contractor and material suppliers who provided a preliminary notice, to file a lien for the entire contract balance owed for the project. On the other hand, an unpaid balance lien is employed by subcontractors and other parties without a direct contract with the owner. This lien allows them to recover the remaining balance for materials supplied or services rendered up to the filing date, without the need for a preliminary notice to the owner.

Who can file a mechanics lien in Alabama?

The Full Price Lien in Alabama may be filed by the following parties:

1. General Contractors
2. Parties who supplied materials to a project and submitted a Notice to Owner.

The Unpaid Balance Lien, meanwhile, may be filed by the following parties:

1. Parties who don’t have a direct contract with the property owner (subcontractors and material suppliers).
2. Parties who didn’t serve a Notice of Owner but supplied materials to a project.

What are the Preliminary notices in Alabama?

Alabama requires two crucial preliminary notices: the Notice to Owner and the Notice of Unpaid Lien. The filing of these notices plays a pivotal role in determining the eligibility to file a mechanics lien. It is important to highlight that those in direct contracts with the owner, such as general contractors, are exempt from the obligation to serve either of these Alabama preliminary notices.