Georgia Construction, Bond & Lien Law Blog


Cobb to Speak at CSA Roundtable

Posted in Creditors' Rights,Honors & Awards,Materilamen's Liens by Blue Blog on the November 4th, 2014

We are happy to announce that Mark Cobb will be speaking on creditors rights to a group of lumber and building supply owners at a roundtable forum sponsored by the Construction Suppliers Association (CSA) on Monday, November 10, 2014 and hosted by Fuller Building Supply Company.

Georgia Material Suppliers Association Lien Info

Mark will be discussing several topics related to material suppliers and their rights under Georgia law including the following:

Credit Applications and Personal Guarantees: Mark will discuss the importance of gathering information from the very beginning of the credit process to make debt issues easier to collect in the future. Mark will offer tips on

  • How to create a more thorough credit application
  • How to get updates for your credit applications and personal guarantees
  • Easy ways to verify the information on the credit application
  • Personal Guarantees greatly increase the likelihood of recovery
  • Terms and conditions can make it easier and less expensive if you have to collect bad debt

Georgia’s Statutory Construction Notice Scheme: Mark will lead the discussion on the advantages and disadvantages of the Georgia’s notice scheme including:

  • Useful information found on the Notice of Commencement
  • When to send a Notice to Owner/Notice to Contractors (Notice of Furnishing)
  • Practical tips to make the process smoother

Georgia’s Lien Waivers: Mark will introduce the attendees to the only authorized forms (for interim and final lien waivers) as well as:

  • Conditional waivers v. unconditional waivers
  • Lien waivers potentially shorten the deadline for filing a Georgia materialmen’s lien
  • What to do if you don’t receive payment within 60 days
  • Georgia Affidavits of Nonpayment

Georgia Preliminary Liens: Mark will introduce the collection process by clarifying the following:

  • The difference with preliminary liens and standard materialmen’s liens
  • Who should file the preliminary lien
  • When should a creditor use / file a preliminary lien
  • When preliminary liens expire

Georgia Materialmen’s Lien Law: Because of the numerous advantages to creditors in Georgia who supply materials (or labor or services), Mark will give an in depth presentation on Georgia’s lien laws including the following:

  • When to file a lien in Georgia?
  • The deadline for filing a lien
  • What amounts are lienable?
  • The statutory requirements for filing a lien?
  • How to enforce a lien?
  • Why does lien enforcement usually take two law suits?

Collection Suits: Although many materialmen’s lien claims are resolved without have to enforce them, sometimes creditors must take the next step. Mark will discuss:

  • When is Georgia Magistrate Court appropriate?
  • Venue and jurisdiction
  • Types of judgments (i.e., judgment liens)
  • Lawsuits to foreclose a materialmen’s lien
  • Other collection lawsuits (e.g., garnishment of wages, bank accounts, etc.)

Claims Against Public Works Projects: Since construction liens cannot be placed against publically owned projects (projects owned by the federal, state or local governments), Mark will discuss the basics of payment bond claims:

  • Payment bonds covering private construction projects in Georgia
  • Payment bond requirement under federal law
  • Payment bond requirements under state law
  • Deadlines for making payment bond claims for nonpayment
  • The claims process for payment bond claims (surety claims)
  • Suits to enforce payment under a payment bond

Although the roundtable is open only to CSA members, Mark can prepare a similar presentation for you or your organization. For more information, please click here > > or email Mark today.

 

Recent Case Hurts Supplier’s Enforcment of Lien

Posted in Case Law,Materialmen's Lien (enforcement),Practical Tips by Blue Blog on the October 30th, 2014

When a building material supplier has not been paid for labor or materials used on a Georgia construction project, that supplier may place a materialman’s lien against the owner of the improved real property; this is true even if the owner has no contractual relationship with that supplier. Such a lien essentially transfers liability from the party contracting with the supplier (such as the general contractor) to the owner since the supplier’s goods and services improved the value of the owner’s property.Supplier cannot claim interest in lien amount

In Hill v.  VNS Corporation d/b/a Choo Choo Lake Oconoee, et al, a case decided earlier this month by the Fourth Division Court of Appeals of Georgia, the plaintiff, a building supply company, sued the property owner to enforce a materialman’s lien against that property, but the court of appeals did not agree with the activities of the trial court and reversed the trial’s court’s decision.

Background & Facts:  The owner had contracted with a custom home-builder general contractor, who in turn purchased materials from the plaintiff for use in constructing a house on the owner’s property. The general contractor failed to pay the supplier for all the materials, which led to several legal claims. The supplier filed a materialman’s lien under the Georgia’s Mechanics and Materialmen’s Lien Law against the real property where the project was located, sued the general contractor and loan guarantor for breach of contract, and sued the property owner on the basis of a materialman’s lien against the property.

Supplier Prevails Against GC and Guarantor:  The plaintiff won a summary judgment against the general contractor and guarantor for payment which included prejudgment interest, and attorney fees pursuant to the building supply company’s credit application’s terms and conditions.

Supplier Prevails Against Project Owner:  The trial court also ruled in favor of the plaintiff in the claim against the owner, granting summary judgment for the materialman’s lien and also making an award for the supplier’s prejudgment interest.

Project Owner’s Appeal:  The owner appealed the lower court’s decision, contending that factual questions remained regarding the amount of the materialman’s lien sought. If there is a genuine issue of material fact, such as the actual amount owed on a lien, summary judgment is improper. The appeals court agreed with the owner that there was an unanswered question of fact, finding that the plaintiff has the burden of proving the lien amount due at the trial court level. The court also noted that a materialman’s lien against the property owner will fail if the owner can show that payments were properly made and applied to the payment of the plaintiff for the labor and materials at issue. The appeals court also reversed the lower court’s award of prejudgment interest, which may not be claimed if the lien amount is not fixed and agreed upon, and attorney fees, which are not lienable items under Georgia law.

Practical Tips For Suppliers and Other Georgia Lien Claimants:

1. File a Timely Lien:  If you as a supplier have not been paid by the party with whom you have a contract, you may place a materialman’s lien against the real property owner if your labor and materials improved that property. This does not require you to have a contractual or any other relationship with the property owner, who has benefited from your materials and work.  Remember that all Georgia construction liens must be filed within 90 days of the last day in which the lien claimant actually worked on or supplied to the project or within 60 days of the date of the lien waiver–whichever deadline is shorter!

2. Document and Prove the Amount Claimed in the Materialmen’s Lien:  If you as a supplier have a valid materialman’s lien against improved property, the amount of the lien must be fixed by agreement or proven in court.

3. Property Owners Should Track Their Payments:  If you are a property owner being sued to enforce a materialman’s lien against your improved property, try to show that you made payments properly to the contractor for the payment of third party supplier’s labor and materials.

4. Interest and Attorneys Fees are Not Includable in Lien Amount:  If you are a defendant in a materialman’s lien suit, note that attorney fees and prejudgment interest are not lienable items under the Georgia lien statutes.

Waiver of Sovereign Immunity in Georgia Contract Claims

Posted in Case Law,Performand Bonds,Public Works Projects by Blue Blog on the October 1st, 2014

On September 22, the Supreme Court of Georgia ruled that the state’s sovereign immunity is waived for a surety’s claim against a contract with the state in State of Georgia Department of Corrections v. Developers Surety and Indemnity Company.

What is Sovereign Immunity?

Soverign Immunity and Georgia Construction Contracts

Generally, sovereign immunity protects the state and other government entities (such as the federal government) from being sued without consent. This doctrine comes from British law and embodies the idea that the government (or, originally, the monarch) cannot commit a legal wrongdoing. Governments may waive this defense of immunity – thereby agreeing to be sued – so that citizens with claims against them may seek proper recourse.
Before the United States began waiving its sovereign immunity, would-be claimants’ only recourse was to get Congress to pass a bill in their favor. The unwieldiness of that process eventually brought about sovereign immunity waivers for particular types of claims – such as contract disputes, import duties, and internal revenue complaints – in specialty courts, allowing the government to be sued. Today, governmental entities – from local municipalities to the federal government – voluntarily waive their immunity in a variety of situations.

How Does the State of Georgia Approach Sovereign Immunity?

In 1939, the Georgia Supreme Court recognized the historical presence of sovereign immunity in the state and noted that if the citizens preferred to allow suits against the government, they should seek the removal of the immunity through their elected legislators.  However, the people of Georgia embraced sovereign immunity by approving a constitutional amendment in 1974. Today, the Georgia Constitution allows for the state’s sovereign immunity to be waived by the General Assembly in specific situations and explicitly waives it for claims stemming from a breach of a written contract entered into by the state.

How Does Sovereign Immunity Impact Construction Contracts on Georgia Public Works Projects?

The State of Georgia Claimed that Performance Bond Company Could Not Sue State Agency due to the Doctrine of Sovereign Immunity:  In the case decided last week, the Georgia Department of Corrections – a state agency – contracted with a roofing company for work on a prison. The company obtained the required payment and performance bonds from a surety company. In addition, the roofing and surety companies signed an indemnity agreement that assigned the roofer’s right to payment under bonded contracts to the surety. The state allegedly restricted jobsite access to the roofing company, contrary to the contract terms, which inhibited the roofing company’s ability to perform under its roofing contract with the state agency. When the roofing company failed to perform under the contract, the surety fulfilled its performance bond obligations by providing another company to complete the roofing work. The surety later sued the state for breach, claiming it had no obligation under the payment and performance bond issued to the roofing company due to the state agency’s duty to provide access to the site.

Performance and Payment Bonds on State Prison ProjectSurety Prevails In the Lower Court:  The trial court ruled in favor of the surety, concluding that the state waived sovereign immunity by contracting with the roofing company and that the surety could stand in place of the roofing company since it assumed the obligations under the bond. The state appealed on the basis that the surety (the performance bond and payment bond company) was not a party to the roofing contract and therefore, it claimed, the state’s waiver of sovereign immunity for breach didn’t apply to the surety. The appellate court affirmed the lower court’s findings.

Surety Prevails on Appeal to Georgia Supreme Court:  On final appeal to the Georgia Supreme Court, the state lost again by the same reasoning: (1) the stated waived sovereign immunity by entering into a written contract, and (2) after paying the debts of the contracting party, the surety may stand in the place of that party for rights under the contract. As the Court noted, the constitutional waiver addresses the suit – not the party suing – against the state.
This decision comes just a week after the Texas Supreme Court addressed the sovereign immunity issue in Zachry Construction Corporation v. Port of Houston Authority relating to a general contractor’s delay claims against a local government entity. The Court held that the government could not claim an absolute defense against the contractor’s claims, although the Court was divided on this point. A Texas statute waives sovereign immunity for a contract claim for “balance due and owed.” The Court was split as to whether delay damages were “due and owed” under the contract since the no-damage-for-delay clause prohibited such damages.

 

It Is Time to Update Your Credit Applications

by Mark A. Cobb

Isn’t it generally true that the best time to ask for something from someone is when they want something from you in return. It doesn’t matter whether it’s your spouse, your neighbor or your boss, if they need a favor from you, they are more likely to grant your favor in return.  Thus, the best time to get pertinent information from a customer is when they want to purchase something on credit from you!  And yes, by utilizing materialman’s liens and payment bonds laws you can substantially reduce your exposure.  However, getting the right information in the beginning can help you immeasurably.

credit risks are high on construction projectsLook at it this way, when a potential customer contacts you and requests to purchase materials for use on a construction project, use this opportunity to get information which will make collection faster and easier in case you have future payment issues with this customer. Similarly, when an existing customer contacts you and requests an increase in their credit line, guess what?  It’s another opportunity to (i) add useful information to their credit file and (ii) update the borrower’s information in their file.

As the (recent) recession has taught us so well, even the best customers can become credit risks.  In this day-and-age, even one bad construction project can topple an otherwise good company.

What Kind of Credit Information Should A Material Supply Company (or Equipment Rental Company) Request:

 

Written Credit Application:  Credit Applications are an easy and ideal way to collect all of the information used to determine a customer’s credit worthiness to your firm and to assist you in pursuing bad-debt. Standard forms can be uploaded to your company’s website which allow prospective purchasers to easily assess your forms.  Although there are some very good, useful template credit application forms available, it is worth the investment to use the template as a starting point–use it to build an application based upon (i) your specific industry and (ii) real-life situations your company has experienced.  Also, don’t let the form become static; instead, mend the form every time you think about or learn about additional, useful information.

Yes, you are likely already asking the question “What Information is Important to Know to Determine Credit Worthiness?”, but you should also be asking the question, “What Information Will Help Us Collect Our Money If The Borrower Defaults?”  Adding this perspective can make the difference between collecting your open accounts and forfeiting your money.

Since we are a law firm focusing on Georgia construction law, and more to the point Subcontractor Law, we regularly have to file, enforce and foreclose upon liens to get our client’s their recovery.  A very common scenario exists where our client received a monetary judgment for the amount the are owed, but the judgment must be collected. Frequently, the first (and most useful) information comes from the judgment-debtor’s (your customer’s) application for credit. Consequently, we have seen countless credit applications, and we encourage that at a minimum your credit application includes the following:

  1. the Customer’s full, legal name (a step which is almost always omitted but very important is the credit analysis’ verification of the name with the Georgia Secretary of State’s business registration records);
  2. Entity type (corporation, LLC, partnership, sole proprietorship); if it is a partnership, follow-up with the customer prior to extending credit to get the names, addresses and social security numbers for EVERY partner;
  3. the Customer’s tax ID number (do not confuse this with the owner’s or guarantor’s social security number);
  4. the business owner(s) full name and Mailing address;
  5. the business owner(s) physical, Residential address; in Georgia, service of process is accomplished through the Sheriff or other court-approved process server physically providing service on the individual names in the lawsuit; thus, having (and confirming) the residential address can save a lot of time and money (this means street address only–not a post office box and, more importantly, not a fictitious business location with a mail-box drop);
  6. the business owner(s) Social security number (in addition to the business’s tax ID number);
  7. the owner(s) Spouse’s name and social security number;
  8. Current bank account information;
  9. require your customers to update their credit applications regularly to keep the information current; and
  10. make sure it is LEGIBLE!  When it comes down to locating a customer, nothing is more frustrating than an illegible social security number!

Written Account Terms:  Depending upon the nature of your agreement (such as open account or written contract), you should always have every customer sign an agreement of your written terms. Having your customer’s consent to your terms is invaluable to asking a court for recovery-in-full.  For example, seeking attorney’s fees on collection matters can be much easier to get if your customer has agreed (in writing) to paying for your attorney’s fees.  Please consider including the following terms on your contract or open account agreement:

  1. a Joint-check provision to allow you to request a Joint Check from the general contractor; if payment from a particular project is not flowing-down to you, this provision can give you some authority (and the GC some firmer ground) to circumvent your client and seek payment directly for the prime contractor; this can give you easier access to the project’s retainage;
  2. Jurisdiction and venue consents can save you money as it can allow your collection lawyer to file all suits in the same convenient location; this promotes lower fees and a more predictable (dare we say favorable?) court;
  3. jury trials can add expense and delay recovery; Waiver of jury trial can be an effective way to avoid these problems;
  4. include provisions that allow you to collect Interest, Attorney’s fees and collection costs;
  5. Liability for theft, inclement weather, of other loss to your materials on the jobsite; this provision clears up any gray area as to whom is responsible for your materials after delivery; and
  6. periodically have your customer update their consent to your terms (you don’t really want to try and enforce a provision signed in 1981!)

Georgia Law Permits Multiple Personal Guarantee AgreementsPersonal Guarantees:  Most customers are willing to provide personal guarantees prior to receiving the materials which you are able to provide them, but it’s almost impossible to obtain a PG after credit has been extended.  Pursuant to Georgia’s Statute of Frauds, a personal guaranty MUST be in writing in order to be enforceable.  Here are some ideas which you should consider adding to your PG:

  1. make sure your guarantee meets Current legal requirements to be an enforceable guarantee; during the recession there was a great deal of litigation surrounding PGs and your document should reflect some of the changes in the laws;
  2. although you don’t want to be onerous, there is no legal limit on how many personal guarantees you are allowed to require in order to extend credit;thus, it is OK to require More than one person to submit a guarantee; this is particularly helpful in situations where your customer is a partnership (get all of the partners to submit to a credit check and a PG) or where the owner of the business has moved his or her assets into a spouse’s name to avoid collection of their debts;
  3. obtain the Guarantor’s social security number, mailing address and physical, residential address; and, like the credit app recommendation above, verify that this information is legible;
  4. get a copy of the guarantor(s) Drivers license; this contains useful information including (i) driver’s license number, an example signature, and a photograph (we shouldn’t have to remind you, but check to make certain the photo ID and signature match with your account app, contract terms, PG, etc.;
  5. get the personal guarantee Witnessed by someone who can later testify that the guarantee personally signed it;
  6. UPDATE the guarantees and re-verify the credit worthiness of your personal guarantees.

Use Georgia’s Statutory Construction Notice Scheme for your Benefit:  As you likely know, third-tier subcontractors (which are generally sub-subcontractors and material suppliers to subcontractors) must comply with Georgia’s statutory construction notice scheme; although it may seem cumbersome because it may require you to send notices to the project owner and the general contractor, there are advantages to compliance; when you supply at a third tier level, it is important to meet all of your notice obligations; although your customer may not have all of the necessary information, you should try to get the following from them before you supply to them (or extend them credit):

  1. Keep in mind that in order to file a valid materialmen’s lien or payment bond claim, you must demonstrate that the materials, labor or services which you provided were used on the project against which you claim a lien (or payment bond claim); thus, you must get the information necessary for your construction notice compliance on each “purchase” or “rental”;
  2. You need to know the project’s name;
  3. the project’s location;
  4. the prime contractor’s name and address;
  5. the project owner’s name and address;
  6. your customer’s payment bond information (if applicable);
  7. the general contractor’s payment bond information (remember that payment bonds are required on most municipal, state and federal projects, but many private construction projects are ALSO covered by a payment bond);
  8. a copy of the Notice of Commencement.

Don’t Forget!  In order to take advantage of some of the useful collection techniques permitted by your industry, you must make certain that your internal accounting procedures comply:

  1. keep track of supplies by customer and project
  2. apply payments properly
  3. have a calendaring system which alerts you to deadlines

New Home for the Braves Underway!

Posted in Georgia Projects by Blue Blog on the September 16th, 2014

Through our blog, the construction lawyers of the Cobb Law Group try to provide industry professionals with the latest information, case law, trends and interests.  Although there are some very sizeable construction projects going on throughout Georgia including the work for Plant Vogtle and work for the Georgia Port Authority, there may not be any more “interesting” project than the new stadium for the Atlanta Braves which, as announced earlier today, will be known as SunTrust Park.

Atlanta Braves new stadium

SunTrust Park rendering from http://atlanta.braves.mlb.com/atl/ballpark/home-of-the-braves/renderings/

Although there has been some preliminary site work, construction of the new Atlanta Braves stadium complex in Cobb County officially began with the September 16th ceremonial groundbreaking. The general contractor, joint venture American Builders 2017, is on schedule to complete the project for Opening Day 2017. The county is funding $300 million of the $672 million project. “This new ballpark will be a world-class venue that will give Braves Country the ultimate fan experience, both inside the park and out,” said Braves Chairman and CEO Terry McGuirk.

The designs call for 41,500 seats distributed over three cantilevered decks designed to bring each fan closer to the action, a canopy three-times larger than average, wide concourses with field-views, and indoor viewing areas. Fans will have fourteen access points to enter the park and parking will be evenly distributed around the complex.

But this 74-acre mixed-use project is for more than just baseball fans. According to the September 2nd press release, the “project will be the first of its kind – a lifestyle destination that will seamlessly integrate a state-of-the-art baseball stadium with an engaging multi-use community.” Shops, restaurants, and entertainment venues on the property will be open year-round, even on baseball-free days.

In April of this year, the Braves and Cobb County detailed the construction schedule. This initial schedule calls for clearing to be completed in October, grading to be completed in December, and stadium structure construction to begin in early 2015. The selection committee considered proposals from interested general contractors who had built at least three major sport facilities – including a new Major League Baseball stadium – in the past decade. American Builders 2017, a joint venture between Brasfield & Gorrie, Mortenson Construction, Barton Malow Company and New South Construction Company, won the bid for general contractor. Fuqua Development LLC will serve as the retail development partner; Pope & Land Enterprises, the office development partner; and Pollack Shores Real Estate Group, residential development partner. JLL (Jones Lang LaSalle) has been named the project manager and The Jerde Partnership will serve as the master land planner on the development.

Although American Builders anticipates completing the stadium by April 2017, there are construction concerns. They expect to encounter a shortage of skilled labor, due in part to the construction of the Falcons’ downtown Atlanta stadium. Project director Len Moser expects peak construction to require over 1,000 workers on site. In addition, American Builders noted the new Braves’ site is rocky and will need extensive grading given the dramatic elevation changes.

One of the first construction tasks will be to relocate three natural gas lines that run under site of the planned stadium project. The lines run about 8 feet underground for one-third of a mile on the site. Stretching from New England to Louisiana, these pipes run under I-285. However, structures cannot be built above them for maintenance access purposes. Relocating the lines will cost Colonial Pipeline Company and Atlanta Gas Light Company, who own the lines, approximately $14 million, but they will be reimbursed from the project’s funding. The work will be contracted out and requires three phases. Plateau Excavation, Inc. has been hired to complete the initial clearing and grading work, which started in May. The second phase involves digging trenches to place the pipes; the third, removing the current pipes. Relocation is expected to be completed in November.

Although the move of the team from Atlanta to the metropolitan suburbs of Marietta, the team has defended its decision.  The Braves have no ownership or management rights in their current facility, Turner Field, which they lease from the city. Turner Field was built for the 1996 Olympics and has hosted the Braves since 1997. Although the team has invested nearly $125 million for maintenance and improvements, Turner Field still requires approximately $150 million in infrastructure work and another $50 million on fan experience improvements. Additionally, the stadium is poorly situated for modern transit and logistical concerns such as insufficient parking and highway access. When the lease expires in 2016, the city and the Atlanta-Fulton County Recreation Authority will decide the fate of Turner Field.

We wish all the participants in this exciting project all the best, that construction delays will be minimal, that payments will be timely, that there are no performance issues, no materialmen’s liens filed or payment (or performance) bond claims needed; we hope the weather will cooperate and that the scheduling will be met.  Good luck! And, good luck to the Braves this and every season!

 

 

Legal Fees and Construction Lawyers

Posted in Business Law,Current Legal Issues by Blue Blog on the September 8th, 2014

Georgia Construction Law Firm Offers Very Competitive Rates for Filing Liens

We are thrilled to confirm that Cobb Law Group’s rates are among the most competitive in the nation! In the September 2014 edition of the ABA Journal (the official journal of the American Bar Association), reveals the national averages of attorneys’ hourly rate.

At large law firms (those with 400 or more attorneys), senior partners charge an average of $724 per hour! At smaller firms, senior partners bill an average of $445 per hour. Since we are a small firm offering “big firm” services, our clients will be pleased to learn that we are significantly lower than the $445 average rate for a firm our size, and we are nowhere near the costs associated with hiring a large law firm.

The poll, also include the typical rates for “partner” and associates. The partner rates range from $385 to $581 per hour. We are pleased to say that even our “senior partner” rates are significantly lower than other, comparable firms “partner”rates! And the associate rates which range from $274 to $400 per hour are not even in our vocabulary.  In other words, in every category, we offer much better rates than our peers.

We knew that we offered top-notch legal services at an exceptional value, but the report (issued by BTI Consulting Group) confirms this for us. One thing that the ABA Journal article did not discuss was the fees for those attorneys specializing in a particular area. Even thought this article did not mention this topic we are confident that firms which focus in particular areas and become know for their innovative work are able to charge more. Thus, our legal fees are likely even better if we could compare them side-by-side with a true competitor.

As our existing client pool understands, our firm is very unique: not only do we focus on our clients’ needs, but by limiting our practice to Georgia construction law, we are able to know and understand one area very well–we are not having to”reinvent-the-wheel”.   In addition, we speak regularly at local, state and national continuing education events.  That is why clients who hire us to draft their construction contracts, to file mechanics and materialmen’s liens to help them collect the money they are owed, to make payment bond claims or to handle a Miller Act claim find that we are able to assist them more quickly and with fewer problems because we spend so much of our time doing the same thing for other clients.  All of this experience leads to lower over legal costs.

True, legal fees can be expensive, but the staff and lawyers at the Cobb Law Group are constantly striving to reduce our expenses and pass the savings on to our clients. Our employees are rewarded for innovative or streamlining procedures which can reduce workload and improve client satisfaction.

In addition to learning from our employees, we also welcome ideas from our clients and try to implement them to work more efficiently. For example, recently, a client wanted us to create a “form”demand letter to send to its past due customers; plus, they wanted us to produce a quick, but affordable alternative to a customized letter. We were able to create a unique letter for that client and offer the form at a reduced rate in exchange for a high-volume.  We strive daily to offer the best services at the best rates.  And, if you have any questions regarding our rates, please contact us today.

Subcontracting Law Book Gets Great Review

Posted in Honors & Awards,Subcontractor Law by Blue Blog on the August 26th, 2014

Georgia Subcontractor Law Handbook

In the Summer 2014 edition of The Construction Lawyer (Volume 34, Number 3), noted construction attorney, Adrian L. Bastianelli, III wrote a glowing review of Construction Subcontracting: A Comprehensive Practical and Legal Guide which was published in April.

The Cobb Law Group’s founding partner, Mark Cobb, was a contributor to this book exploring the unique needs and obligations of subcontractors and material suppliers. As Mr. Bastianelli points out:

“Subcontractors are the backbone of the construction industry. For every prime contractor, there are multiple subcontractors. . . The law dealing with the prime/subcontractor relationship generally is well developed and can be unique, complicated, and unpredictable.”

The review continues to laud the editors and confirms that the book met its editors and authors’ goals in that it

“It covers the full landscape of subcontracting issues. The book not only provides a detailed discussion of the legal principles and case law relating to subcontracting, but also offers sound practical advice for both prime contractors and subcontractors on how to dal with problems and avoid disputes.”

Mark Cobb participated in writing the section of the book focusing on payment issues, and the reviewer confirms:

“Payment is always a key topic of concern for subcontractors and an area where there has been considerable litigation. The authors discuss pay-if-paid versus pay-when-paid clauses, prompt payment statutes and laws, setoff, and the impact of flow-down payment clauses. Intertwined with the payment chapter are separate chapters on liens and bonds.”

Mr. Bastianelli concludes his thorough and glowing review of the book with the following statement:

“The editors and authors should be commended for producing an important, comprehensive book on a subject that is of such great importance to the industry. The book will be an important tool on the construction lawyer’s bookshelf and should be a book that prime contractors and subcontractors regularly use.”

We greatly appreciate Mr. Bastianelli’s kind words and the time he took to read and assess the 628-page book. Mark was honored to be a part of this notable project and to work with some of the greatest living construction lawyers in the country.

For those interested in more information on the book or who wish to purchase a copy of the book directly for the American Bar Association’s Forum on the Construction Industry, please click here > >

20 Early Warning Signs for Payment Issues

Posted in Commercial Collections,Creditors' Rights,Good Business Practices,Practical Tips by Blue Blog on the August 21st, 2014

Material Suppliers and Customers Credit Changes

by Mark A. Cobb

It doesn’t matter whether you are a material supplier delivering products to a subcontractor, a subcontractor performing work directly for a GC, or a GC building a structure for an owner, you expect to be paid for the labor, materials, and equipment which you provided. In fact, without payment, it could send your business plummeting downward if you cannot pay your own bills.

We highly recommend that before entering into any construction contract, you perform proper due diligence and protect yourself as much as possible. No matter how thorough you are, however, as the project continues, one of the parties involved with the project might experience a material change in their business or their cash-flow which can directly impact you and make recovery of the money you are owed more difficult.  Thus, you want to keep evaluating each customer’s credit-worthiness.

For over 20 years, clients have shared with us some of the early-warning signs (which they largely ignored) which indicated that their customer might be a payment risk after the initial credit-check, and we thought our readers might like to see this list (and add to it themselves!)  The following is a checklist of situations which may indicate that you are working with a potentially distressed party:

1. A change in your customer’s bank account may indicate many things including accounts closed, banking problems, a garnishment, etc.

2. Your customer pays you from different bank accounts (unless its accounts are separated by project, escrow, etc.); this is unprofessional and may indicate spreading out their assets to avoid garnishment or to rely upon the float by the banks.

3. Significant fluctuations in your customer’s inventory may indicate volatile business practices, changes in credit with other vendors, etc.

4. An unusually large order may indicate that the customer has undertaken a project larger than its capabilities.

5. Unexpected / unplanned growth of your customer’s business; great businesses maintain and update business plans; unplanned growth can cripple a business, overextend its employees and assets, and cause the business to fail to meet its new obligations.

6. High debt to equity ratio; customers in this position are a credit risk.

7. When your customer loses a major job or client; if too much business comes from one relationship, then the loss of that business can be devastating.

8. A generally disorganized approach to its business, accounts payable, accounts receivable is scary; likely, that business does not understand the extent of their liabilities, realistic expectations of income, etc. and that could put you in a dangerous position if you need to implement collection procedures.

9. Rumors; my Mother always told me that “where there is smoke, there is fire.”

10. If you hear comments from other construction industry professionals that your customer isn’t charging enough, then it might indicate that your customer is trying to get business on any terms in order to improve its panic for cash-flow; inevitably, they will run out of money and someone (hopefully not you!) will be left holding the bag.

When subcontractors become credit risks

11. Requests to extend payment terms may indicate that your customer needs more time to “shuffle” its assets to pay you.

12. Liens (including state and federal tax liens which are all public record); a 10-second check on-line can indicate the fiscal health of your customers.

13. Slow payments: creditors and debtors typically establish a billing and payment practice over time, when they deviate, it may indicate a potential problem.

14. Employee layoffs; if possible, visit your customer at their office, a reduction in their workforce could hint of problems to come.

15. Key employee changes dramatically alter the bottom-line and the business practices; when changes in management occur, they may use other vendors (forgetting to pay you), may emphasis other payment policies, could indicate that top management was receiving their paychecks or benefits.

16. Family and health issues related to owner or key employee (or their families) such as divorce, death or serious illness can greatly impact a business relationship.

17. Excessive downtime may indicate unexpected reduction in your customer’s revenues.

18. You customer’s business is for sale or sold; there may be ways for a new purchaser to avoid debt incurred prior to the sale; it can also indicate financial or industry-specific problems; also, it may result in a new corporate atmosphere which may make collection more difficult; frequently, the new owners tell you the former owner is responsible for the debt, but the old owner tells you that the new owner assumed the obligations.

19. You receive excessive inquiries for credit references for your customer; this might be a customer who is trying to expand their credit in order to generate funds to pays others (“borrow-from-Peter-to-pay-Paul syndrome).

20. Excuses for nonpayment or slow payment (lost invoices, “check is in the mail”, skipped invoices, unsigned checks, NSF checks, “no one is available to sign the check”, etc.); excuses are never a good sign.

Good credit management means vigilance. Do not agree to extend credit, perform work, or supply materials unequivocally on a long-term project without some follow-up to see if your customer’s financial position has changed. If it changes, and if you react promptly enough, it will make recovery of your money easier and reduce your exposure. Fortunately, you have several options including filing a preliminary lien, obtaining personal guarantees, and requiring stricter terms. In next week’s blog we will explore some of the options you may want to consider when you see indicators that a customer may become a credit-risk to you.

If you have other early-warning signs that alert you to potential payment issues, please leave a comment below.

New Arbitration Rules for Construction Cases

Posted in Arbitration by Blue Blog on the August 15th, 2014

Georgia Construction Arbitration

by Mark A. Cobb

Beginning this summer, there is a new set of supplementary rules for the arbitration of construction cases. The American Arbitration Association (AAA) promulgated these rules in an attempt to lower participants’ costs and to fast-track certain construction matters.

The new rules do not apply to arbitration claims less than $75,000; similarly, they do not apply to arbitration claims more than $5 million. Thus, the intentions are to make the process more efficient for the middle ground claims.  Some of the changes include the following:

  • there are schedules (based upon the amount of the claim) which cap the AAA Administration fees
  • statements of claims and counterclaims are limited to five pages or less
  • amendments to the complaint must be completed within 30 days of the counterclaim (unless the arbitrator extends this time)
  • within 3 days of the filing of the Demand for Arbitration, the AAA and the parties will participate in an administrative conference
  • the AAA has 2 days following the administrative conference to provide a list of at least 10 potential arbitrators to the parties
  • the maximum days for an arbitration hearing is limited to 10 days
  • the arbitrators’ study hours are capped at 40 hours
  • arbitrators’ study hours have a maximum rate of $350 per hour
  • an award must be given within360 days of the date the claim is filed
  • total arbitrator fees are capped at $52,000 (not including travel, costs & expenses)
  • conference call arbitration fees are capped
  • post-hearing reviews fees are capped
  • site visit fees are capped (for claims over $1 million, for example, site visits are limited to 8 hours of time at a maximum rate of $350 per hour)
  • parties are to provide the name of a representative (other than their attorney) to be included in all communications (it may be an officer, in-house counsel, etc.)

How Do I Claim the Benefits of the AAA Supplemental Rules? If you are interested in taking advantage of the new supplemental arbitration rules for your construction claims, then we suggest that you include a specific provision in your construction contract which states that the fee caps of the supplemental rules will apply to matters originating from your contract.

If you are already involved in an arbitration matter, then the parties to the arbitration may choose to proceed under the supplemental rules by a joint submission to the AAA.

This is just a very general overview of some of the changes which contractors involved in arbitration will see in the future, and it will take some time to determine whether the AAA’s goals of shortening the arbitration process and capping the fees on certain construction claims has been met.

If you have any comments regarding arbitrating claims between $75K and $5M with the new rules, please let us know below.

Contracts, Nonpayment and Georgia Liens

Posted in Materilamen's Liens by Blue Blog on the August 6th, 2014

Mark Cobb is excited about speaking to Atlanta architects and engineers at a Construction Law continuing education seminar sponsored by HalfMoon Education.  Mark is speaking on IMPROVING THE PROJECT OUTCOME WITH ACCURATE AND EFFECTIVE CONSTRUCTION CONTRACTING in which he will address the basics of general contract law, the unique aspects of construction contracts and how to avoid non-performance.

One aspect Mark will address are non-payment issues including the filing of a Claim of Lien against the project.  Here is a sample of the summary of Georgia’s lien laws which he will present:

Questions About Georgia's Lien Law

Who Can File A Lien?

∙    Architects and Engineers, Surveyors, Foresters
∙    Contractors in privity with the Owner
∙    Subcontractors in privity with the GC
∙    Sub-subcontractors and suppliers if they sent an NTO (and an NTO was required)
∙    Remember:  if you do not have a required license, then you do not have the right to file a lien

Why File a Lien?

∙    To secure the money you are owed
∙    To make third parties responsible for the money you are owed (even though you didn’t contract with them)
∙    To apply pressure on those upstream who may be delaying payment

When Would you Consider Filing a Lien?

∙    When you are owed money
∙    Retainage!

Important Things to Know About Liens:

∙    Lien Claimant must have substantially complied with the contract
∙    Lien is (generally) enforceable up to the amount of the improvements actually made
∙    Thanks to legislative efforts on behalf of the AGC Georgia, liens may be for full contract amounts
∙    Contractors who abandon project may not be entitled to file a lien (however, they may recover amount for partial performance under theory of quantum meruit)
∙    A Lien Claimant who ceases work after being told they are not going to be paid can file a lien

Filing Deadlines for Liens:

∙    90 days from Last Day Worked or 60 days from date of Lien Waiver (whichever is shorter)
∙    Last Day Worked is NOT Invoice Date
∙    Lien must be perfected (“suit filed”) before the first anniversary of the filing of the lien
∙    Liens must be perfected within one year of the date on which they are filed, otherwise, they automatically expire
∙    Liens are perfected by (i) filing a lawsuit against the entity with whom you contracted and (ii) filing a Notice of Filing of Action to Perfect Lien with the clerk of court in the county where the project was located
∙    “Foreclosure” of Liens are generally an additional, separate step to perfecting liens.  Unless there is jurisdictional alignment, a lien claimant must wait to seek foreclosure against the owner of the real estate until after they have received a judgment against the entity with whom they original contracted

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