Contractors and suppliers, now more than at any other time in memory, must be proactive to protect their right to be paid for their labor and materials.
COVID-19 is dramatically challenging virtually every industry in America. And the construction industry is not being spared. Scheduled construction projects are being postponed or canceled altogether. Many projects that have started are being abandoned. And most alarmingly, contractors are completing their work on projects after advancing their own money for their labor and materials, only to find out that there are no funds left to pay them.
CRM Lien Services and Cummins & White LLP have partnered for many years to make sure their construction customers and clients get paid for their work. We recently collaborated on a Webinar we called “5 Tips For Achieving Quicker and More Reliable Payments During COVID-19.” Our “5 tips” morphed into eight tips, and we found even then we did not have enough time to present all the information we believe contractors and suppliers need to know to protect themselves. Therefore, we decided to “augment” our Webinar with a series of articles.
In our webinar, CRM’s Aaron Blum presented the first three tips relating to Preliminary Notices. It is not an exaggeration to say that properly serving an accurate Preliminary Notices is the single most important thing contractors and material suppliers can do to protect their right to payment for their contributions to a construction project. And yet, seemingly every day, a supplier delivers materials to a construction project, or a contractor begins work, without serving a Preliminary Notice.
We hear many reasons why the Preliminary Notice was not served when the contractor or supplier seeks our assistance in collecting what is owed to it. We have heard that the person who was supposed to make sure the Preliminary Notice was prepared and served was on vacation, off work at the time, or just too busy. Often we hear that it is because the customer was well known to the contractor or supplier, and had always paid before. Sometimes the contractor simply did not believe the repeated time and expense necessary to serve a Preliminary Notice was justified. The reasons are many, but the result is always the same.
If a properly prepared Preliminary Notice was not served and the customer cannot pay the bill, collecting what is owed to the contractor or supplier becomes at best very difficult and expensive, and often simply impossible. On the other hand, if the contractor did serve a valid Preliminary Notice on all the parties that are required to receive notice, and the Contractor is properly licensed, payment is almost assured. Preliminary Notices are the cheapest “payment insurance” there is.
In California and almost all other states the law provides that if the owner of the property where a construction project is located, the lender on the project (if any) and in the case of public works the bonding company have been served with a valid Preliminary Notice, the contractor or supplier can look to those entities for payment if their customer did not pay them. But if those entities were not served with a Preliminary Notice, they have no obligation to pay the contractor or supplier who contributes to the construction project.
In the articles that follow we will discuss how to preserve lien rights with Preliminary Notices and other tips a proactive contractor or supplier can use to make sure it gets paid.
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