COVID-19 Construction Project and Payment Delay Protection

Originally Written April 2020

Schedule delays always lead to payment delays, and the Coronavirus has created a literal tsunami of construction project delays, across the country.  

The best protection against late or no-payments-at-all in these confusing times, is the mechanics lien. Many contractors and suppliers are effectively shut down or severely limited, due to the stay-at-home orders, and social distancing guidelines on the job site.

Idle crews in March and April means substantial cash-flow problems for contractors in May, June, and well into July. 

While project delays are not uncommon in the construction industry. Most of the time they are due to minor scheduling conflicts, logistical issues, or weather delays. These types of project delays are short term by nature, and usually only last a few days to a couple of weeks.  These types of project delays can usually be addressed and resolved with a simple change order, or contract amendment.

With such a disruption to “business-as-usual” on a national level, no one can be absolutely certain of what will happen over the next few days, let alone the next few weeks and months. Since the country has never experienced such a complete stoppage of work before, we are all in unchartered waters, together.

Due to the lengthy shut down of construction for the COVID 19, thousands upon thousands of construction projects have sat devoid of tradesmen for months. Going back to work on May 5, won’t be anything like going back to work after a long holiday weekend, or that first day back after a vacation. 

Expect Short Term Payment Chaos 

Virtually every jobsite in the country became a ghost town. Even though no work was actually being performed, the project milestones and deadlines still came and went, meaning;

• construction permits may have expired, as no work was being performed over the last few months. Most permits state that the permit will expire if there are no inspections for _____ consecutive days. Depending on the governing agency, this could be a time-consuming process and expensive process for contractors.

In the short term, contractors can expect nothing but confusion and frustration regarding billing and payments. When the project funders return to their offices, their first priority will be to deal with the massive updates to all of their files.

Virtually every contract, change order, invoice, and PO will need to be updated to “post-corona” status, to compensate for the time lost due to COVID-19. Once all of the updates are done, and the paperwork is correct again, then they can start processing payments to your company again.

Back-to-Normal Won't Happen Overnight

The time needed to perform these massive updates will vary, depending on the type of funder you are dealing with for a specific project. Larger, more tech-reliant funders should be able to complete the process faster than smaller, independent funding sources. 

Eventually, all of the funders will be back up to speed, but it will take some time for everyone to get there. It’s this in between time that is most dangerous for contractors, since we all rely on a consistent cash flow to survive and be successful. 

It’s imperative that contractors take all the steps needed to protect their cash-flow, as things slowly adjust to the “new normal”. 

Mechanic Liens Ensure You Get Paid

The construction delays caused by the Coronavirus are expected to continue anywhere from several months to a year.  In addition to the delays caused by the stay-at-home orders, contractors will be dealing with delays after the work stoppage has ended due to:

• Shortage of available materials
• Overwhelmed delivery schedules
• Scheduling issues with subcontractors
• Project funding starting to disappear

It only makes sense to take action now, to make sure that your company gets paid for the work and materials you have provided on every single project. Minimizing the potential risk to your cash-flow is absolutely paramount for every contractor right now.

The best strategy to protect your company’s bottom line is to begin filing mechanic’s liens on every project that has been delayed due to the Coronavirus pandemic.

This simple action is the most effective way to ensure payment for completed work and protect your cash-flow. The mechanic’s lien process does vary from state to state, so the first step is to learn the rules and process for your state. 

And then begin filing your liens, using the correct forms and following the prescribed timelines. There may be filing fees involved, but they are relatively low compared to the protection that they can provide to your bottom line.

As soon as your lien amount has been paid, and the check clears your account, you must release the lien. Again, be sure to follow the lien release process, for your specific state.

Mechanic's Liens Grabs Owner's Attention

Once you file a mechanics lien, the project owner, the general contractor, and the project lender will be notified.

The power of a mechanics lien is that the property typically can’t be sold, title transferred, or the property refinanced (converting construction loan to mortgage) until any and all liens against the property have been paid-in-full and released.

This means that the owner, lender, and general contractor will have to work together, to get your company paid, and your lien released. 

Aside from paying the lien in order to get it released, there is little that the other parties can do to get it dismissed.

If your lien is properly filed, there is almost no reason for a judge to dismiss your lien, meaning that you will get paid. Some states add an extra penalty of covering attorney fees for the lien filer, if a lien is challenged and not successful.

Additionally, many times when a lien is filed, the lender or owner may stop paying the general contractor, until he can show that your lien has been satisfied and released. Property owners do not like liens, so they are one of the best tools to use, to make sure you get paid. 

Details Matter: Protect Your Lien Rights

This is why it’s critical to stay on top of all the pre-lien, NOI (Notice of Intent to file a lien), and the mechanic’s lien forms, procedures, and processes for your state. This process has been in existence since colonial times, and some states included the mechanics lien process in their state constitutions as well.

This article was written in April 2020, and serves as a recent writing example.

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