Builders and Contractors Exchange
Weekly Bulletin: 01 Nov 2004
Securing Payments On Construction Projects Part 2 - During The Work
By: John Lockard
In the previous article, we discussed payment issues that the contractor must consider before beginning its work. In this article, we will discuss issues that the contractor should consider during the course of performing the work that will help ensure that the contractor receives payment.
During the course of construction, contractors need to take all the required actions to preserve any claims for additional costs. Virginia law strictly enforces notice and other requirements for construction claims. These requirements may be contained in the parties' contract, the Virginia Public Procurement Act, or the Federal Acquisition Regulation ("FAR").
Contractors also need to be mindful of the deadlines to file mechanic's liens and bond claims. Many of these deadlines start to run at the end of the contractor's work, but some of the deadlines begin while the project is in progress. For example, contractors cannot include amounts in mechanic's liens for work that is more than 150 days old, not including retainage. On a long project, therefore, a contractor could lose its right to file a lien for some of its unpaid work even though it is still performing work on the project.
As a general rule, contractors should take actions to enforce their lien or bond rights within 90 days after finishing their work on a project. Mechanic's liens will be timely if filed within 90 days of the last day that the contractor provided labor or materials to the project. Likewise, some claimants on federal construction projects must give notice of their claims within 90 days of the last day of work. Sometimes the deadlines are longer, but filing the lien or giving notice of the claim within 90 days of the last day of work is usually sufficient. The contractor, however, should never wait to the last minute to file its lien or make its claim. Mechanic's liens, in particular, often require a week or more to determine the owner of record of the property and prepare a proper lien.
Contractors also need to be careful of what constitutes the "last day of work." Virginia state law, in particular, does not provide a clear definition. Punch-list or warranty work may not qualify. To be safe, the contractor should not include punch-list or warranty work when calculating its deadline for filing a mechanic's lien or bond claim.
Contractors must keep careful track of payments during the work. Contractors should begin actions to preserve payment rights when accounts receivables are no more than 60 days old. This provides time to research and prepare the proper lien or claim.
In the next article, we will discuss collection issues that arise after the project is completed, including filing court actions to collect debt.
Questions?
If you have any questions about this article or any other related matters, please contact:
This article is meant to bring awareness to this topic and is not intended to be used as legal advice.