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.