In this blog, presented by SunRay Construction Solutions and Mark Cobb, Attorney, Cobb Law Group, construction professionals in Georgia can learn in detail about how they can get paid successfully during the various phases of the construction project, such as during the preliminary stage, project life, and project completion.
What Are Some of the Preliminary Considerations that You Need to Look Out For?
There are quite a few initial risks that construction professionals often overlook. Paying attention to these risks in the initial stages of the project can reduce your risk of non-payment greatly and can also ensure that you do get paid timely and successfully. Below are the five preliminary considerations that you need to pay attention to:
A) Building Relationships
- The first consideration is building relationships. It is very important for you to build relationships with your clients and ensure that you are aware of their contracts, payment history, reputation, etc.
- When you build a successful relationship with your clients, you are not only aware of their payment history, reputation, etc., but your client will also have a fair idea of the quality of work that you provide, your scheduling, etc.
- You can easily avoid non-payment issues when you have a clear understanding of your clients.
B) Understanding/Defining Scope
- The next area of preliminary consideration is understanding or defining the scope of work/materials being supplied.
- You need to avoid change orders, especially those which have not bene approved in writing by all the parties.
- When you have an undefined scope, it is quite common to get involved in payment issues. So, it is better to deal with the exact scope of work upfront and have everything clearly spelled out to all the parties involved.
C) Understanding Your Limits
- The third preliminary consideration is to understand your own limits. By limits, we mean that you are not able to perform the work, you cannot do it as per the schedule, etc.
- Although you may be good at what you are doing; however, due to various reasons, if you end up stretching your resources and fail, then it has a domino effect on the project, and you slowly end up not getting paid.
- So, make sure that you understand what your limits are and perform your work accordingly.
D) Due Diligence
- The next preliminary consideration is performing due diligence which many of the construction professionals often miss out on.
- You must have all the basic information, such as the legal name, entity type, tax ID number, owner’s name and address, owner’s contact information, social security, current bank account information, etc. Having all these details will make it easier to prove who you are working with, who owes you the money, how to collect it from them, etc.
- Sometimes, if you have the owner’s information, then you can let them know in advance that you have not been paid. In some cases, the owner may be holding retainage, they may be already aware of payment issues with the contractor, etc. You can let them know that your payment issues can be resolved withing having to spend any money on legal fees.
- You also need to look for prior or pending lawsuits. Doing this due diligence can help you avoid many problems and give you an idea about the client and their payment history.
- It is also good practice to check for prior liens. Typically, a good contractor is someone who does not have any liens on them and those who have payment problems will have a lot of liens on them.
- It is also important to understand that if a contractor is filing a lien themselves, then they have probably not done due diligence on the owner. This means that the contractor might be legitimate, but the owner may have financing issues. This in turn can affect the construction professionals who are downstream.
- Next item under due diligence is to check if the project is bondable. The ability to bond depends on someone’s credit, rating, reputation, etc. to complete the project. So, if you have a general contractor who has bonded projects, then there is a higher chance of successfully completing the project and getting paid.
- Finally, you need to check for the success of past projects. Having this information is a great way to build confidence and avoid the risk of payment issues.
- It is very important that you read your contract thoroughly and understand the risks involved. You also need to understand your potential liability for liquidated damages. If there is no liquidate damage, then you need to check if you are responsible for all damage or just damage resulting from some defects.
- You need to check the contract to understand the payment process. If it says that your payment is subject to interest, then that’s good news for you. But if it doesn’t, then that’s bad news. Ideally, you can specify the interest rate in your contract. You also need to have a clear understanding of how to resolve amounts in dispute, etc.
- Another key point to look for in the contract is the dispute process. You need to look for mediation, arbitration, deadlines, attorney’s fees, jurisdiction, choice of law, etc. Mediation is typically a voluntary settlement where all parties come together to resolve the issue. Arbitration also is a quicker way to resolve payment issues and it is also less expensive than going to litigation. So, the recommended option for dispute process is mediation followed by arbitration.
- You can also ask for Personal Guaranty. It is good to include a Personal Guarantee in your contract because if you are facing a payment issue, then you can point to this provision, and you will typically get paid because nobody wants to be personally liable for that debt.
- It is also a good option to put in the Joint Check Agreement provision in the contract.
What Are the Key Points to Consider During the Project Life?
Here are some key points that you should consider during the project.
- You need to comply with Georgia’s Statutory Notice Scheme. If you are a prime general contractor or a subcontractor/supplier working directly with the general contractor, then you don’t have to comply with the statutory scheme. However, if you are a sub-subcontractor or supplier supplying to a subcontractor, then you need to comply with the statutory scheme. This means you need to send a Notice Owner and a Notice of Contractor within 30 days of starting your work on the project or supplying materials for it.
- This notice lets the owner and the general contractor know that if you don’t get paid, you will preserve your lien rights. If you are required to comply with the statutory scheme and you fail to do so, then you will not have any lien rights. When you send this notice, it greatly reduces your risk of non-payment because the owners will track the payments to make sure that they go downstream.
- When you don’t have a direct contract with the owner or the general contractor, then you must file the Preliminary Lien within 30 days of beginning your work on the project or supplying materials for the project.
- You should always complete and submit your payments promptly. Make sure your staff is trained in what to do and how to do it regarding payment applications.
- Keep a lookout for Georgia’s Lien Waivers. Typically, on most large projects, you must provide lien waivers – either interim or final one. The lien waivers are conditioned upon payment for the first 90 days, but from the next day, they convert to unconditional. So, if you submit a lien waiver and you are not paid, you have 89 days to file an Affidavit of Nonpayment.
- If you fail to file this affidavit, then the lien waiver becomes unconditional after 90 days, and you cannot file a lien for those amounts. So, if you are dealing with someone who is slow in making payments, keep monitoring and regularly file your affidavits of non-payment.
What Are the Key Points to Consider at the Time of Project Completion?
If you have reached the end of your project and unfortunately you haven’t been paid yet, then this is the time to consult your lawyer. Below are some of the other action items for you to undertake:
- It is highly recommended that you file a Materialman’s Lien, especially if you are a subcontractor or supplier. Ideally, you will have a contract claim with the prime contractor and that will help you get paid; but if you also have a Materialman’s Lien, then you can also hold the owner responsible for payment of your work/materials supplied. It is like a personal guaranty which increases your chances of getting paid.
- The Materialman’s Lien should be filed within 90 days of your last work performed on the project or materials supplied to the project.
- If you are working on Georgia government projects, then you cannot file a lien; however, you can make a payment bond claim. This claim should be made within 90 days of your last work performed on the project or materials supplied to the project. The payment bond is like an insurance instrument that guarantees payment.
- On most large projects, it is usually required to post a payment bond. So, if you are not paid, then you have a contract claim, you may also have a Materialman’s Lien, and a payment bond as resources to maximize all your rights.
- Liens are generally valid for 364 days from the date of filing. To extend the deadline, the claimant must “Commence an Action” and file a Notice of Filing of Action to Enforce Lien.
- Finally, you need to file a suit or if the contract requires, make a demand for arbitration. All these action items should be performed as per the specific deadlines.
What Are the Important Deadlines to Follow?
Here is a quick snapshot of all the key deadlines that you need to keep in mind:
- Send the Notice to Contractor (Preliminary Notice) within 30 days from the start of work.
- File your Preliminary Lien, if required, within 30 days from the start of work.
- If you file a lien waiver and haven’t been paid, you need to file an Affidavit of Nonpayment within 90 days from the date of lien waiver.
- If you have completed your work and still not been paid, then you must file your lien within 90 days from the last day of your work.
- If you have to make a bond claim, then you must do it within 90 days from the last day of your work.
- To make your lien last more than a year, you will need to Commence an Action on Lien within one year of filing the lien. However, if the general contractor files a Notice of Contest of Lien, then the one-year deadline is reduced to 60 days.
- Finally, to perfect your lien after you file the lawsuit, you must file the Notice of Action within 30 days from the lawsuit.
Focusing on these three stages, i.e., preliminary considerations, project life, and project completion can greatly reduce your risk of getting involved in non-payment issues as well as, depending on the stage of the project, they can also help you in getting paid quickly and successfully. Secure your payment rights with SunRay's legal experts. Call 800-403-7660 today and get paid what you deserve.
What is a Claim of Lien?
A Georgia Claim of Lien must be filed by the subcontractor within 90 days of last furnishing of labor or materials to the project.
When to send the Notice to Contractor?
If the General Contractor has filed a Notice of Commencement in Georgia, any subcontractors on the job must respond with a Notice to Contractor within 30 days of first furnishing of labor or materials to the job. Because it can be hard to tell when there is or is not a Notice of Commencement you should always file a Notice of Contractor to be safe.