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.
Look 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:
- 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);
- 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;
- the Customer’s tax ID number (do not confuse this with the owner’s or guarantor’s social security number);
- the business owner(s) full name and Mailing address;
- 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);
- the business owner(s) Social security number (in addition to the business’s tax ID number);
- the owner(s) Spouse’s name and social security number;
- Current bank account information;
- require your customers to update their credit applications regularly to keep the information current; and
- 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:
- 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;
- 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;
- jury trials can add expense and delay recovery; Waiver of jury trial can be an effective way to avoid these problems;
- include provisions that allow you to collect Interest, Attorney’s fees and collection costs;
- 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
- periodically have your customer update their consent to your terms (you don’t really want to try and enforce a provision signed in 1981!)
Personal 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:
- 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;
- 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;
- 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;
- 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.;
- get the personal guarantee Witnessed by someone who can later testify that the guarantee personally signed it;
- 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):
- 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”;
- You need to know the project’s name;
- the project’s location;
- the prime contractor’s name and address;
- the project owner’s name and address;
- your customer’s payment bond information (if applicable);
- 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);
- 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:
- keep track of supplies by customer and project
- apply payments properly
- have a calendaring system which alerts you to deadlines
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.
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.
by Mark A. Cobb
I just read a very insightful and accurate description of what it means to be a contractor:
We design and construct buildings but the reality is we are risk managers. Virtually anyone could design or construct a project if it had no risk. The reality is that owners hire and pay “experienced” designers and contractors to manage project risk. We are risk managers and the better we manage, the better our profit and final product. [emphasis in original].
This description of a contractor’s responsibilities comes from BIM and Virtual Construction: Where is the Money by Damon Socka and Jennifer Lanzetti recently published in Constructor: The Magazine of the Associated General Contractors of America (July / August 2014). This definition reminds us of the realities of working in the construction industry in the 21st century.
As a law firm committed solely to issues related to construction law, we have a very diverse client base. Newer clients are frequently caught off-guard when risk stares them squarely in the face–and that’s why they call us for the first time. When we meet these new owners and project managers, they often comment about the volume of paperwork–they thought that entering the field of construction work would let them spend a lot of time outside working with their hands; instead, they find themselves poring over contracts, drafting emails and letters to address problems, delays or weather-related re-scheduling issues.
Although a contractor’s sole role may not be risk manger, it is a significant part of every project manger’s and every contractor’s (or subcontractor’s) business. The finest of these are able to avoid most of the risks or greatly minimize the risks; when this isn’t possible, then owners, contractors and subcontractor’s engage in a dance to transfer risk from themselves to another party. Here is a short list of ideas that help eliminate, reduce or transfer risk:
- work only with responsible owners
- verify owner’s credit worthiness
- require payment bonds and/or performance bonds (it shows the credit worthiness of your subcontractors)
- build relationships (with GC’s, subcontractors, sureties, banks, project developers, construction lawyers)
- make honesty a hallmark of your work
- written construction contracts should spell out the goals, the responsibilities, the payment, and have a dispute resolution plan waiting in the wings in case it is needed
- use the best subcontractors and suppliers (which may not be the lowest bid)
- keep detailed, daily logs
- run efficient but meaningful weekly meetings
- document subcontractor issues in writing, with photos, etc.
- know your construction contract’s deadlines and communication methods for problems
- take responsibility
- stay on top of payment issues and, if necessary, file materialmen’s liens or make payment bond claims
- if materials are difficult to source, make certain that a back-up source is available
- budget properly for time and money
- pay your bills on time (and pay your subcontractors & suppliers promptly)
- don’t sweat the little stuff
There are many different ways to avoid construction risks or eliminate them completely, please share your favorite tips for reducing risks on construction projects with us by leaving a comment below.
In the big, legal field of “commercial collections” there is seldom good news. Even rarer, there is seldom a big benefit to help you get paid. Commercial collections for the construction industry, however, is different–there is some good news and there are some BIG, effective strategies to help you get paid . . . .
Introducing the Materialmen’s Lien (sometimes referred to as construction, subcontractor, contractor or mechanics lien) and/or the Payment Bond Claim!
What are the benefits to filing a Materialmen’s Lien in Georgia and/or making a claim against a Payment Bond? Although liens and payment bonds are completely separate animals with their own advantages and disadvantages, they share a BIG ADVANTAGE: for the subcontractor or the material supplier it is like getting a free GUARANTOR to promise to pay you the money you are owed after the money is owed! This is unthinkable in almost any other collection area. Look at this example:
OWNER hires ABC CONTRACTOR to build something; ABC CONTRACTOR, in turn, hires XYZ SUBCONTRACTOR to perform all of the electrical work on the project. Assuming that XYZ SUBCONTRACTOR fully performed under its contract, but ABC CONTRACTOR breaches its contract with XYZ SUBCONTRACTOR by failing to pay XYZ SUBCONTRACTOR, then, pursuant to standard contract theory (i.e., commercial collections), SYZ SUBCONTRACTOR may pursue collection of the debt from ABC CONTRACTOR (and only from ABC CONTRACTOR). But in the niche area of construction collection, in addition to seeking payment from the contractor, XYZ SUBCONTRACTOR may be able to file either a lien or make a payment bond claim in which case, XYZ SUBCONTRACTOR can look to either OWNER (in the case of a lien) and/or SURETY (in the case of a payment bond). Imagine someone owes you some money, and then after the debt becomes due, you find that a third-party may also be responsible for paying you.
Practical Tip: If you are a supplier or subcontractor who wants to improve your recovery of accounts receivables (AR), then, before you begin work or begin providing materials to the jobsite, try to obtain a personal guarantee from your customer’s owner. That way, if you are not paid, you may be able to seek recovery from (i) your customer such as ABC CONTRACTOR, (ii) your customer’s individual owner, (iii) by using a mechanics liens, the OWNER, and (iv) if there is a payment bond covering the project, then the SURETY. Four potential debtors/guarantors will significantly increase your likelihood of recovery.
Is It as Simple as It Seems? Unfortunately, nothing is entirely simple, but filing a claim of lien in Georgia and making payment bond claims are typically not too difficult nor too expensive. Of course, the lien claimant or the bond claimant must meet several obligations and deadlines in order to pursue their lien rights but most “good” subcontractors and suppliers do this automatically, and less “professional” subcontractors and suppliers, admittedly, seem to have more difficulties. We hope to address some of these issues in future blog posts as well.
What is the Difference Between a Claim of Lien and a Payment Bond Claim? On all privately-owned construction projects in Georgia, those who supply labor, services or materials have basic rights if they do not receive timely payment. On all public works projects (government-owned construction projects) of a certain size in Georgia, those who supply labor, services or materials have rights against the payment bonds. In addition, some private projects are also covered by Payment Bonds in which case, an unpaid subcontractor or supplier may file a construction lien and, concurrently, file a claim against the payment bond (which really increases the ability to recover your AR).
How Do I File a Construction Lien in Georgia? As mentioned briefly above, lien and bond claimants must meet various requirements in order to file a lien. Thus, it is vital to select a Georgia construction lawyer to help you analyze your specific matter and advise you on your collection options. It is important to know that lien and bond claims must be made within 90 days of the last day in which you worked or supplied materials on the project. (It could be a shorter period if you signed a statutorily authorized lien waiver).
It’s Up to You if you Want to Collect Your Money: If you are looking for a construction lawyer to help you file a materialmen’s lien (or make a claim against a payment bond) anywhere within the State of Georgia, please click here to contact us today.
It’s not too late! Although over 325 construction professionals have already signed up to attend, the AGC Georgia (the Associated General Contractors of Georgia) still has space for you to participate in its inaugural Construction Professionals Conference & Marketplace.
With over forty learning sessions, the event is divided into four-tracks catering to the construction industry:
- Executive Operations (including contracts, liens, payment bonds, leadership and best practices for industry executives, owners and leaders)
- Human Resources (including employee management and legal compliance for your HR department)
- Safety (including jobsite leaders and company-wide safety issues for every part of your business), and
- Technology (including BIM, construction apps, deployment, managements and Bluebeam)
Mark’s lecture is part of the Executive Operations track which focuses on current lien and bond laws, best practices, and proven leadership strategies from an owner’s/executive’s point of view.
Specifically, Mark’ program, entitled Best Practices for Contractor Survival, will include a combination of current issues, practical tips, and lessons learned in several areas of construction law including contract negotiation and drafting, Georgia’s lien waiver laws, preparing and filing mechanics and materialmen’s liens in Georgia, construction project insurance tips, registration of foreign subcontractors, and project management. Learn practical tips and on-the-ground knowledge to streamline and protect your interests. But, to learn more, you’ll have to register for the symposium.
See below for registration information:
Construction Seminar: AGC Georgia’s Construction Professionals Conference and Marketplace
Date: Wednesday, April 23, 2014
Place: Georgia International Convention Center, College Park
- Over 40 learning sessions on Safety, Executive Operations, Technology and HR
- Marketplace with 50 exhibitors
- Over 300 attendees
- Presentation of Ron Amerson Supervisor Safety Awards
- Keynote presentation – Social Media Overload
Click here to learn more and to register! We look forward to seeing you.
by Mark A. Cobb
Welcome to the new year! It’s January and that means there are new-years resolutions being made in great abundance. Self-improvement is always a good idea, but January can also be used to break bad business habits and replace them with better practices. Thus, we hereby offers our New Year’s Resolutions for the construction industry:
- RESOLVE to have your construction contracts reviewed and revised to improve their enforceability, to properly shift risks, and better define a project’s scope
- Georgia General Contractors should RESOLVE to file proper Notices of Commencement on every construction project
- Third-tier subcontractors and suppliers should RESOLVE to timely send Notices to Contractors and Notices to Owners (NTOs)
- RESOLVE to use only Georgia’s statutory Interim Lien Waiver form and Final Lien Waiver form (they waive payment bond claims too!)
- RESOLVE to remember that if you wait more than 60 days from the date of a Georgia lien waiver, the lien waiver becomes unconditional which means that you cannot recover the money you are owed
- RESOLVE to work harder as today’s construction market place requires the best of each and every individual
- RESOLVE to give your construction attorney time to prepare and file your Georgia mechanics and materialmen’s liens
- Suppliers and materialmen should RESOLVE to update their credit applications and obtain more information which is useful to judgment collection
- Non-resident contractors working in Georgia should RESOLVE to register with the Georgia Department of Revenue and obtain their sales tax bond
- RESOLVE to purchase (and maintain!) all pertinent types of insurance including workers’ comp, general liability, an umbrella policy, automobile insurance, etc.
- RESOLVE to address issues on construction projects as soon as you become aware of them rather than letting a small issue snowball into a larger problem
- RESOLVE to pay your bills on time
- RESOLVE to submit accurate, signed pay apps
- RESOLVE to treat your employees and subordinates (well, everyone) the way that you want to be treated
- RESOLVE to implement (and maintain!) better bookkeeping & record keeping methods
- For plumbers (others?), RESOLVE to cover-up that plumber’s butt
- RESOLVE to implement technology to lower your cost and improve your efficiency
- RESOLVE to keep signed, daily construction logs
- RESOLVE to know your rights as a prime contractor, a specialty subcontractor, or as a material supplier
- Contractors and specialty sub-contractors should RESOLVE to promptly pay their subcontractors and suppliers after they receive payment
- RESOLVE to adopt a policy of integrity for every aspect of your business
- RESOLVE to become more active in any number of great contractor groups such as AGC (Associated General Contractors), ASA (American Subcontractors Association), or CSA (Construction Suppliers Association)
- RESOLVE to honor your business contracts
- RESOLVE to stop procrastinating
- RESOLVE to constantly strive to be your best
- RESOLVE to take a vacation and relax
- RESOLVE to improve the professionalism of the construction industry
by Mark A. Cobb
In today’s economy, a dollar means more than it has in a long time; thus, every dollar that your credit department is able to collect helps build your company’s bottom line. Since our firm focuses on construction collections throughout Georgia, we have observed that small steps taken by sales and credit departments can result in big gains if collection ends up on a lawyer’s desk. Thus, we have listed some important tips which are easy to implement and can increase your recovery rate substantially. Although these tips are focused towards material suppliers and subcontractors working on Georgia projects, most of these tips, however, will help credit and collection managers in every industry and in every location.
1. Credit Applications: Have one for every credit customer and know where the original is located.
2. Credit Applications: Update them every 3 or 4 years.
3. Credit Applications: Make sure they are legible! We cannot overstate the importance of this, if the salesman or the credit analyst receiving the copy cannot read every word, then a third-party collector or collection lawyer will not be able to read it either–particularly after it has been scanned, copied, and faxed.
4. Credit Applications: Make sure they contain useful information in case the customer absconds or you need to locate assets. Require information such as
- middle or maiden names;
- spouse’s names;
- EINs for business applicants;
- social security numbers for all of the principals of the business;
- home address for the principals; and
- bank account information for the principals.
5. Credit Application: Make sure it is complete. If there is any missing information, have the salesman or credit analyst tell the potential customer something like, “We will be glad to process your application for credit; however, before we do so, we need all of the information completed..”
6. Credit Application: Use a forum selection clause. If you must bring a lawsuit against the customer in the future for non-payment, a forum selection clause built into the credit app establishes the location and the court where the action may be brought. Your lawyer can suggest a location convenient to him or her and save your company travel time and likely offer more predictable results from a familiar court.
7. Guarantee: Have an attorney in each state in which you supply materials draft a guarantee which meets that state’s specific requirements.
8. Guarantee: Use a forum selection clause in your guarantee which establishes the court and the jurisdiction where you can bring a lawsuit if payment is not received. This will save travel time and legal fees.
9. Guarantee: At the time the credit application is made, obtain a personal guarantee from one or more principals of the business.
10. Guarantee: Require both a husband and wife to submit personal guarantees (it will help prevent a guarantor from transferring all of his or her assets into a spouse’s name).
11. Guarantee: Get information on the guarantor. Either in the body of the guarantee or on the signature line, have the guarantor provide useful information such as a (physical) home address, a social security number, drivers license number and work information.
12. Guarantee: Update them! As businesses evolve and grow, there may be new principals from whom you should seek additional personal guarantees.
13. Guarantee: Have them witnessed/notarized. We are constantly amazed how many guarantors claim that their PG was forged–even if there was a purported witness. Don’t let an applicant return a “signed” guarantee and then have a branch employee “witness” it; implement a policy that a witness must be physically present and witness the guarantor’s signature on the document.
14. Extend Credit Slowly: Whenever the customer requests additional credit, use the request to get additional and updated information on the company and guarantors; perhaps, you could use a more comprehensive application for credit requests over a certain amount.
15. Send NTOs: In Georgia, third-tier material suppliers and sub-subcontractors may file a mechanics or materialmen’s lien or make a payment bond claim only if they have sent a Notice to Owner (“NTO”) and a Notice to Contractor (sometimes called a Notice of Furnishing) within the first 30 days of beginning to supply on the project; failure to meet this obligation will reduce your recovery options.
16. When Supplying: Get current information about the job site including the following:
- a copy of the Notice of Commencement;
- payment bond information;
- the name of the general contractor; and
- the name of the owner of the project.
17. Watch the Date: Do not let a debt continue past 90 days from the last day in which you supplied materials on a job in Georgia; all construction liens and all payment bonds must be made within 90 days of the last day in which you worked on the job site. Calendar payment for 65 days past due.
18. Joint Check Agreement: If you notice slow payments at the start of the project, watch-out for the final payments; request that your customer agree to a joint check arrangement with the general contractor.
19. Lien Waivers: Georgia Lien Waivers become unconditional after 60 days; thus, if a lien waiver is signed but you do not receive payment within 60 days, it is presumed that you received payment. After this deadline passes, you cannot claim that you are owed money; prior to the deadline, however, you have several options including (but not limited to) filing an Affidavit of Nonpayment, filing a materialmen’s lien or making a claim against the payment bond.
20. Materialmen’s Liens: Filing a proper materialmen’s lien can dramatically increase your collection rate; make certain that you utilize this very useful tool on every private project in Georgia.
21. Payment Bond Claims: Similar to materialmen’s liens, making claims against a payment bond on a public works project will substantially increase your collection rate. Do not let the 90-day deadline pass you by!
22. Payment Bonds on Private Projects: It is easy to forget that some private construction projects in Georgia are covered by payment bonds; although these differ from payment bonds on public projects, they are a very useful tool to substantially increase your collection and you want to meet the requirements for making a claim.
23. Continuing: Get information on customer’s current/additional job sites. It is very likely that your salesmen know the debtor’s current job sites. Although this may not be the site on which your company supplied materials, information on current work can help with post-judgment collections (this information can be used for filing a garnishment against the income the subcontractor may be getting from its new job or it can be used to serve legal process upon a debtor who is difficult to find).
24. Litigation: For each state in which you supply materials, choose one lien and bond lawyer who can assist you with your needs throughout the state. It will save you time, money as well as build relationships.
25. Continuing: Train, train, train your employees (both salesmen and credit analysts); bring in a specialist to educate your staff on lien laws, payment bond claims, deadlines, and other pertinent topics.
by: Mark A. Cobb
Although it is not a scientific representation, we get the sense from our contractor clients that the construction industry is picking up throughout Georgia. One measure that we use is the number of Notices of Commencement that we have been asked to prepare, and this number has steadily increased which, hopefully, means that more construction projects are starting this year!
In previous blog posts, we have discussed the technical requirements in order to have a valid Georgia Notice of Commencement before, but many contractors, project owners, project developers, and apartment complex managers think they need only meet the legal requirements. They forget that filing a Notice of Commencement at the start of each project is a very good idea as, properly used, it can limit (or even prevent) Claims of Lien being filed or payment bond claims being made against your project for nonpayment. And there are some very easy, useful steps the filer of the Notice of Commencement can take in order to better take advantage of the law.
The Purpose of the Notice of Commencement Scheme in Georgia: Before plunging into some practical tips for contractors working in Georgia, let’s review the purpose of the Notice of Commencement statutes. Historically, Georgia’s lien laws (and similarly Georgia’s law on payment bonds) allowed virtually anyone working on the project to be a potential lien or bond claimant. As projects were nearing the end, owners and General contractors were surprised to find that subcontractors which had been paid, had not, in turn, paid their sub-subcontractors, equipment suppliers, or materialmen. The projects were having materialmen’s liens filed and payment bond claims made frequently from companies that the owner or the GC did not know had been working on the project. Thus, Georgia adopted the statutory scheme for Notices of Commencement:
- How the Scheme Works if the GC / Owner files a Notice of Commencement: If the prime contractor, property owner, or project manager files a valid Notice of Commencement, then, in order to preserve lien rights in Georgia, all third tier parties (i.e., those NOT in privity of contract with either the general contractor or the property owner) must give a valid Notice to Owner and Notice to Contractor within 30 days of the first day in which they begin working on the project or begin supplying to the project. (Please note that Notices to Owners are frequently referred to as “NTOs” and Notices to Contractor are frequently called “NTCs”.)
- How the Scheme Works if the GC / Owner Does Not File a Notice of Commencement: If the general contractor, real estate owner or project manager chooses not to file a Notice of Commencement (or, if they file a Notice but it is deemed invalid), then no one on the job is required to give a Notice to Owner or a Notice to Contractor. It basically reverts to the old scheme where an unknown sub-subcontractor and virtually all suppliers have lien rights even if the owner or prime contractor does not know they are on the job.
How Can the Notice of Commencement Scheme Help GC’s and Owners? If properly used, Georgia’s notice requirements can be very helpful. Some of the advantages to property owners or contractors to file a proper Notice include the following:
- It lets you know who is working on your job site;
- If a third-tier party fails to provide an NTO/NTC, then they lose their lien and payment bond rights;
- You know from whom to require a Georgia lien waiver;
PRACTICAL TIPS FOR FILING A NOTICE OF COMMENCEMENT:
The mechanics lien lawyers at the Cobb Law Group have reviewed thousands of Notices of Commencements in Georgia, and we are constantly surprised that–while they may meet the technical requirements under Georgia law–they almost always fail to help the owner/general contractor with the practical application of these documents.
- TIP ONE: Include the Project Manager’s Name on the Notice: Third tier subcontractors and suppliers must send their NTOs to the address of the GC and the Owner as set forth in the Notice of Commencement. Virtually, everyone just lists their addresses without designating a proper employee to handle/review/log the notices. Thus, a proper NTO may end up (and stay on) the desk of a receptionist who doesn’t know where to send it. If you add the appropriate person’s name as an ATTENTION line (perhaps the project manager), then the proper NTO will be received and you’ll know from whom to require lien waivers;
- TIP TWO: Include a Specific Recipient at the Owner’s Office: Similarly, proper NTOs are sent to the owner of the real estate at the address set forth in the Notice of Commencement; even more frequently these remain on a receptionist’s desk and are not given to the person who will be responsible for checking to make sure that the general contractor has received all of its proper lien waivers from the lower-tier subs and suppliers;
- TIP THREE: List the Management Company or Construction Manager as a Third Party: Georgia’s Notice of Commencement form requires the name, if any, of a third party who is requesting the improvement to be made to the real estate if they are not the owner. Frequently, on apartment construction projects or apartment remodels, the apartment management company is the party requesting the work and in charge of making payments. If they are listed on the Notice of Commencement, then it will help them track payments and prevent construction lien and payment bond claims.
These three very easy, very practical tips turn the Georgia Notice of Commencement requirement into an advantage for contractors and owners; it allows you to effectively track the NTOs which are received so that you, in turn, can easily ensure that payments flows downstream to everyone working on the project. Instead of looking at the Notice of Commencement scheme as a burden or as a means for a subcontractor to preserve its lien rights, look at it as a means to limit materialmen’s liens and as a way to create a list of entities from whom to require executed lien waivers. Use Georgia’s statutory scheme to PREVENT problems not CAUSE problems.
If you need to file a Notice of Commencement anywhere in Georgia, the construction lawyers of the Cobb Law Group are able to help. We offer different types of Notice services depending upon your needs. To schedule our “traditional” legal services, please call us at 770-886-5890 or email us today. If you are familiar with Notices of Commencement, but you only need help preparing the document and filing it, please check out our virtual law firm where you can enter the information on-line and let us prepare the document for you! For more information on this service, please click here > >
by: Mark A. Cobb
Over the weekend, I was speaking with an older gentleman who had held a prominent job in sales. He had served in that capacity for decades despite changes in technology, product and the opening of foreign markets. What were his secrets to longevity? This question became even more pertinent after he shared with me that his sales were always 10 to 20 percent below the other salesmen who worked for his firm. His secret? His collection rate was virtually 100%!!
Frequently, today’s business are divided between sales departments and credit departments, but this gentlemen has been trained in a prior period when salesmen were also directly responsible for collecting on their accounts. Thus, he shared, he would sell on (i) cash terms to anyone but (ii) credit was reserved for those who had a reputation or character for being honest and trustworthy. In addition, if bills were not paid promptly (usually at the time of delivery!), he wouldn’t sell to them anymore. This may sound harsh or contravene the call to sell, sell, sell. But while other salesmen had quarterly sales of $1M, the company only received revenues of around $650,000, he claimed; whereas, his sales were only $850,000 but his collected revenue was also $850,000. Thus, his bottom-line margins were much superior to his peers.
This insightful conversation reminded me of all the great things that anyone selling on credit can do to help make sure they get paid. These suggestions are generally applicable to any business which supplies items on credit, however, they are written particularly with Georgia subcontractor and suppliers in mind! Here are some ideas to consider and implement before issuing credit:
- Obtain a signed credit application and credit agreement
- Obtain useful information such as the debtor’s tax id number, social security number, home physical address, spouse’s name, bank account information, etc.
- Require a personal guaranty agreement
- Obtain useful information about the guarantor including correct spelling of his/her name, social security number, driver’s license, home physical address, bank account, spouse’s name, etc.
- Make sure your credit terms include interest and attorney’s fees
- If you are a third tier supplier or sub-subcontractor, make certain that you send a Georgia Notice to Owner and a Notice to Contractor (sometimes called a Notice of Furnishing) within 30 days of the first day in which you begin work on the job site
- If you are working on or selling materials to construction projects, you must separate your billing (and invoicing) by project
- Internally, make sure that you consistently use your customer’s full, legal name
- Invoice your customer consistently and timely
- Keep copies of delivery tickets or emails confirming receipt of your labor or materials
- Require any changes in product or costs to be in writing and signed by the party who will be paying you
- When payments are not made (or are NSF), consider re-evaluating the amount of credit your are willing to extend to your customer
- If you are a specialty subcontractor or material supplier working on a Georgia construction project, make sure that your materialmen’s lien and/or payment bond claims are made within 90 days of the last day in which you worked (or within 60 days if you signed a Georgia lien waiver or bond release).
- Contact a reputable Georgia construction collection attorney as soon as possible as “the early bird get the worm”
If your salesman and credit managers work together to recognize the importance of collecting proper information from customer up-front, then your collection rate should improve substantially. If you need an experienced Georgia construction collection lawyer to review your credit application, credit agreement, personal guaranty or any other document, please feel free to call us at (866) 960-9539 or email us today.
For the fourth year, the Construction Marketing Ideas blog is hosting a competition for the Best Construction Blog. And, our firm’s blog, Georgia Construction, Lien & Bond Law Blog, has been nominated to compete for this prestigious contest.
Cobb Law Group’s Founding Partner, Mark Cobb, was honored to be included in this competition. “Construction Marketing Ideas is a great resource for construction professionals, and they are always looking for quality information to share with others. There are a lot of fine construction blogs on the web–some directly related to construction law and others focusing on other aspects of the construction industry–and Construction Marketing Ideas wants to bring together some of the best. It’s terrific to be included in a pantheon of other great blogs, and we are grateful to the contest leaders for putting this event together and writing such a wonderful review of our blog.” To see the great review of our blog from their editors, please click here.
Now, the fun part begins–WE NEED YOUR VOTE: Visitors to the Construction Marketing Ideas’ blog can vote for their favorite blog, and we hope that you’ll vote for us! All you have to do is, go here:
scroll down to the bottom of the page and tick the box next to the name of your favorite blog (hint-hint, Georgia Construction, Lien & Bond Law Blog by the Cobb Law Group). The contest begins February 1, 2013 and ends on April 1, 2013, so please get your vote in as soon as possible!
We are so excited to be a part of this competition, and we thank you for your support.