Builders and Contractors Exchange
Weekly Bulletin: 08 Nov 2004
Securing Payments On Construction Projects Part 3 - After The Work Is Completed
By: John Lockard
In this last in a series of three articles, we will discuss payment issues that face contractors after they have completed their work.
As discussed in the last article, contractors must ensure that they meet the deadlines to file a mechanic's lien or give notice of their claim against a payment bond. Sometimes, the filing of the lien or providing notice to the payment bond surety is enough to convince the other party to pay the claim. The contractor may, however, need to file a lawsuit to enforce its claim. Lawsuits to enforce mechanic's liens must be filed within 6 months of the filing of the lien or 60 days after the project is complete, whichever is longer. Lawsuits to enforce a bond claim must be filed within one year after the contractor completed its work on the project. A contractor can still file a lawsuit for the amounts due on the contract, even if it has not filed a lien or bond claim. A contractor has 5 years to file a lawsuit for the breach of a written contract and 3 years for the breach of an oral contract.
Contractors must take into consideration the cost to file and prosecute a lawsuit to enforce payment rights. The legal fees involved can be very expensive, especially if the other party contests the claim. Although individuals can file their own lawsuits, corporations must hire an attorney to represent them in a court action. The contractor will not be able to recover its attorneys' fees incurred in pursuing the claim, however, unless its written contract expressly provides for the recovery of these damages.
A judgment against another party does not guarantee that the contractor will actually be paid. The other party may not have any assets in order to satisfy the judgment. This is especially true for corporations. Individuals and corporations can avoid judgments by filing for bankruptcy. In a bankruptcy proceeding, the contractor may be lucky to recover even a portion of its claim. Aggressive and early pursuit of payment claims is vital. The contractor may be competing with other claimants over limited assets. Don't wait until the last minute in order to determine your rights. Even an experienced construction attorney may not be able to help recover payments if the deadlines to file lien and bond claims have past and the other party is insolvent.
Questions?
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This article is meant to bring awareness to this topic and is not intended to be used as legal advice.