In this blog, presented by SunRay Construction Solutions and Ted Laperouse, Firm’s Managing Shareholder Laperouse, APLC, contractors and subcontractors in Louisiana can learn the importance of contracts and how to effectively use liens and bonds to secure their payment rights for the work they perform on a construction project.
In most of the states, including Louisiana, it is important to have a binding contract in writing when you are bidding and working on a construction project. Some contractors and subcontractors find this easy but some of them find the process of preparing a contract tedious. But you need to realize that having a written contract is an absolute necessity as it can be the difference between being in business and losing your business.
a. What is a contract?
In simple terms, a contract is an oral/written agreement enforceable in Court. It is essentially a law between the parties for that particular transaction. This is why it is highly recommended that you have it in writing so that you have all the details up front if a problem arises. Having a written contract ensures that you do not have to look for proof to prove what the law is between the parties.
b. What terms should be used in a contract?
Your contract must contain basic terms like payment terms, scope of work, timing deadlines, etc. You also need to include additional items like any additional work will be done only if a written change order is provided, terms on stopping work if not paid, delay damages, etc. Also, remember that in Louisiana, if you do not mention in your written contract that you are entitled to recover your legal fees, then you may not be able to recover them at all if you are forced to sue.
c. Breach of Contract
A breach of contract is a legal cause of action, and it is a term used when someone breaks one of their contractual promises. When a breach of contract arises, your attorneys can sue to enforce the contract.
So, contractors and subcontractors must have a written contract ready before they start working on a construction project. This will ensure that everybody is on the same page if any problem arises during the work.
Now in addition to your claim for breach of contract, Louisiana, like most states, also offers a special or additional remedy to contractors and subcontractors who work on a construction project. This remedy is known as a lien.
a. What is a lien?
In essence, a lien acts as collateral. It is a claim to a property right that attaches to the piece of property that you performed work on. So, if you are a contractor, subcontractor, or supplier, and whether you have a contract with the owner, you are granted special rights that will enable you to secure your payment.
If the judgment is ruled in your favor, then in theory, the property can be seized and sold at judicial sale and proceeds will be paid to you to satisfy your debt.
b. Lien Requirements
Because a lien is considered as an ‘extraordinary’ remedy, the law has some strict requirements in place which must be adhered to in order to claim your lien successfully. These requirements are related to timing deadlines and content requirements. If contractors, subcontractors, and suppliers fail to comply with these lien requirements, then they can lose their lien rights.
Also, it is recommended that you seek professional help in filing your lien claims because if you miss even one thing, you could lose your lien right.
Similar to lien claims, contractors, subcontractors, and suppliers can also have bond claims while working on public projects (surety bond) and private projects (payment bonds). What this bond does is that instead of giving you a claim over the property, it gives you a claim on the bond. So, the surety bond takes the place of the collateral and serves as a collateral. A surety company guarantees the debt of the general contractor or subcontractor to their downstream partners.
In order to claim your bond rights, you need to comply with content requirements and timing deadlines. Again, failing to comply with these requirements will result in you losing your bond claim rights.
As per the Louisiana law, in order to protect the owner’s property from lien claims by bond, the payment bond should be filed either with the contract or with the Notice of Contract before commencing work. If it is not filed before work starts, or if it is not in the correct format, or it does not include the proper amount, then it does not serve in removing the owner’s property from being liened or subject to lien.
Required Notices to Secure Your Lien Rights
Here are some of the important deadlines and requirements that should be followed in order to successfully claim a lien.
a. General Contractors
As a general contractor, in order to have a lien claim, you should file a Notice of Contract before you start the work. If you do not file the NOC, then you lose your lien rights. Also, since general contractors are the ones who actually procure the bond, they do not have any claim on a payment bond. You may have bond rights on private projects but not on public projects.
For subcontractors, many of the deadlines depend on whether or not the general contractor files the Notice of Contract and/or the Notice of Termination. Typically, the Notice of Termination is known as a Notice of Substantial Completion. If the NOC is filed, then the subcontractor has 30 days from the substantial completion of the entire project to file a lien. If the NOC is not filed, then they have 60 days from the substantial completion of the entire project to file a lien.
c. Second-tier Subcontractors
If you are a second-tier subcontractor and if you have a direct contract with the subcontractor but not the owner or the general contractor, then you need to send a notice to the owner and contractor of your claim for non-payment at least 30 days before initiating the lawsuit.
As a supplier, you need to send notice of non-payment to the owner and the general contractor within 75 days of the last day of the calendar month in which you furnished your goods. If you have provided goods in several months, then you must send the notice as per the deadline for each of the months that you were not paid.
e. Rental Equipment Companies
Rental equipment companies must send a notice to the owner and the contractor that you are leasing equipment for the construction project within 30 days after the equipment is on the job site. If you have a contract with the general contractor, then you need to send the notice only to the owner. However, if you have a contract with only the subcontractor, then the notice should be sent to both the owner and the contractor. Also, depending on the owner or general contractor’s request, you will need to specify what equipment is being leased and to whom.
f. Residential Contractors
In order to have lien rights, residential contractors must provide a Notice of Lien Rights to the residential owner and get it signed by the owner. If the residential property has more than one owner, then all the owners must sign the notice.
For bond claims also there are several requirements, and you also need to send notice to the surety; however, you have a time period of one year from the lien filing period to file a suit against the surety.
So, these are just some of the notice requirements and deadlines that are required according to the Private Works Act which is LA R.S. 9:4801 et seq. Since many of these requirements and deadlines can be confusing and complicated, the best option is to seek professional help so that you do not lose your lien or bond claim rights because of a small mistake.
As a contractor, subcontractor, or supplier, you may feel hesitant about filing liens or bond claims because you may be worried about ticking off a contractor or owner with whom you work regularly. However, you must understand that the law offers you lien and bond claim rights to protect you and your payment rights if you comply with all the timing and content requirements. Also, owners and general contractors understand that liens and bond claims are all part of the business, just like getting paid for the work you perform. So, do not hesitate if you need to exercise your lien and bond claim rights.