A Catch-22: Pay When Paid Clauses Do Not Extend the Lien Period

If you search “Pay When Paid Clauses” in Google, you’re going to get a lot of results that say a lot different things. This contractual provision – used in almost every general / sub construction contract – is perhaps one of the most confusing or misunderstood provisions out there.

We recently blogged about the dangers of using one contract in multiple states. The post used the “pay when paid” provision as an example of why multi-state contracts are problematic.

The provision itself seems pretty clear: one party will get paid when the other party gets paid. It isn’t. Interpretation of this provision varies by state, with some states striking down the provision entirely as against “public policy” and other states distinguishing between “pay when paid” provisions and “pay if paid” provisions. The only way to protect your company against this tricky provision is to consult with an attorney about how these provisions are treated in your jurisdiction.

While interpretation of “pay when paid” provisions differ from state-to-state, there does appear to be one constant about this provision across the country: It doesn’t extend your lien period.

Most states require liens be filed within a certain period after you last worked on the project, or after the project is complete. The fact that you or your company is waiting for payment because the prime or an upper-tiered sub hasn’t been paid is completely irrelevant. The lien period still starts when it starts, and ends when it ends.

As you might imagine, this presents a bit of a Catch-22.

On the one hand, you must file a lien to preserve your right to lien. On the other hand, filing a lien may complicate the payment problems for the prime or upper tier sub (and thus your payment problem), and may cause animosity when negotiations are otherwise calm.

Unfortunately, there is no easy fix for this complication. Each situation should be examined individually, and sometimes, a simple joint check agreement may be the solution. It’s just important to remember that good faith negotiations and waiting for payment under a contractual obligation to do so will not likely extend the lien period, and too much talk could result in the loss of lien rights.

Here are some great resources and articles on Pay When Paid provisions:

Fourth Circuit Concludes Pay When Paid Clause is Unambiguous and Enforceable

Pay When Paid or Pay If Paid Provisions

Is Your Pay When Paid Clause Worthless?

Contingent Payment Clauses, Use With Caution

This article was originally posted on Express Lien’s topic-specific Construction Lien Blog.

Liens Make Your Payment Problem the Entire Project’s Biggest Problem

When you don’t get paid on a construction project, that is a big problem for you and your company. But, is it a big problem for the entire construction project? Not likely.

So, how do you make your problem an important problem to the other players working on a construction job? With a mechanic’s lien, of course.

The Wall Street Journal recently reported on a mega-project in Las Vegas (the $8.5 billion City Center), and a contractor dispute that is affecting the project’s finances. There was something really interesting about this report for those of us who follow mechanic lien law and news – and that’s this quote from City Center President Bobby Baldwin, referring to over $500 million in liens filed against the project:

Obviously everybody is concerned about the liens. They have to be explained in great detail to our residential buyers.

To resolve the concern about the liens, the property owner is slowly paying off all of the subcontractor and supplier claims while they proceed with their dispute against the prime contractor. Without those liens, those subs and suppliers would have to wait months or years for the main dispute to resolve, and payment to trickle down from the owner to them. Depending on the size of the contract, that’s something that could cripple their business.

The Wall Street Journal article and construction dispute at the City Center was the subject of a blog post on the Construction Law Monitor, which that blog called a “Large-Scale Example of an Everyday Construction Dispute.” And that summary is perfectly true when it comes down to mechanics liens.

Regardless of how large or how small the project, mechanics liens creates a problem for the project. If you’re not paid on a construction project, the best way to make your problem the construction project’s problem, is to file a mechanics lien.

This article was originally posted on Express Lien’s topic-specific Construction Lien Blog.

What’s New in Louisiana Construction Law?

Each year, the American Bar Association’s Forum on the Construction Industry conducts an annual meeting, and the Construction Law Update is distributed to its members.   The document is a compilation of cases and legislation from the past year affecting the construction industry, broken down state-by-state.

Matt DeVries of the Best Practices Construction Law Blog is one of the editors for the document, and he posted about the release of the 2009 Construction Law Update on his blog here. If you’d like to get your paws on a copy of the publication, you can email him.

A big thanks to Matt for contacting me to contribute the Louisiana update for the publication.

What’s new in Louisiana?    Check out the PDF of the Louisiana portion of the Construction Law Update here.

Great Resources on Louisiana Construction Law

I spent a great deal of time over the past five years working hard to provide the Louisiana building industry with a comprehensive construction law resource.   The by-products of that work is this blog, along with our topic and location specific blogs:  Louisiana Construction Law Blog, the Louisiana Green Building Law Blog, and the Chinese Drywall Blog.

But, of course, I’m not the only game in town.   And I couldn’t possibly be.   There are tons of other great blogs and resources out there for folks to stay abreast on construction law issues.   In fact, I subscribe to all of these blogs and resources and get a lot of information from them.

Here are some of my favorites:

–  Louisiana Law Blog.   Not updated often, but whenever something is posted, it’s something worth reading.   Published by the KeanMiller firm, the only downside here is that the posts aren’t always about construction law issues.   It’s more of a general blog that touches on construction law issues.

Louisiana Construction Law Blog on Blogspot.  Aside form our firm, this is the only other firm that blogs exclusively about Louisiana Construction Law.   Their blog, while new, is also very resourceful, and they are doing a great job of blogginThis article was originally posted on Wolfe Law Group’s topic-specific Louisiana Construction Law Blog.g about issues that affect Louisiana contractors.

Mike Purdy Public Contracting Blog.  Not a blog specifically about Louisiana issues, but there is plenty here that can help a Louisiana contractor who does public construction work.

Shields Mott Lund Newsletters.   While not a blog, and a bit reminiscent of how newsletter content was disseminated by law firms in the 1980s, there’s no denying that once you find this information, it is good.

Louisiana State Board of Contractors Announcements.   Not only is the board’s website a good place to find information on the state’s licensing requirements, but they also have an “announcements” page, where they sometimes alert folks to changes in the law that affect the construction industry.

This article was originally posted on Wolfe Law Group’s topic-specific Louisiana Construction Law Blog.

What Costs Can I Include in a Mechanics Lien?

I practice law, and focus on construction law, in the states of Washington, Oregon and Louisiana. Whenever folks are looking to put together a mechanics lien, this is a question that is very frequently asked. (Previously wrote about it here).

While the question seems quite simple, it’s actually a bit complicated. And it’s a very sensitive question to boot. The answer differs depending on which state’s law applies, and some states are more sensitive to the topic than others. In some states, if the lien amount is listed incorrectly, or includes costs not allowed under law, it could invalidate the entire lien.

In other words, tread very carefully.

So, what is this question asking anyway? Well, folks are typically looking to include two different costs into the amount of its lien. First, the cost of filing the lien itself. This may be the cost of an attorney, the filing fees with the county, or the cost of our service ($295). Second is charged interest on the unpaid account. Sometimes this is the state’s judicial interest, or interest allowed by contract.

Let me make something very clear: This is an extraordinarily complicated question to answer on a general basis. You should consult with an attorney to figure out exactly what costs you can and should and may include in your lien.

However, let me take a crack at trying to answer this question generally.

In Louisiana, Washington and Oregon, if someone wants a general rule, I always advise my clients to simply file the lien for the amount that is due under the contract, without any of the extras. I advise this unless there is specific circumstances and law that allow them to do the contrary, and they know the law. I advise this simply in an abundance of caution for these two reasons:

1) If you include it (the extra costs), and you cannot include it, it could invalidate the lien; and

2) if you do not include, it doesn’t mean you can’t collect it. It just means its not part of your lien, and you don’t have the lien against those particular funds (you still have any legal or contractual right to it).

This article was originally posted on Express Lien’s topic-specific Construction Lien Blog.

Solar Power is Big, and So are Louisiana Tax Credits for Solar Power

The International Energy Agency (IEA) has recently indicated that it expects solar power to generate between 20-25% of electricity production for the entire world by 2050. What does this mean? This is a potentially HUGE market.

Folks in Louisiana like to mock their state as being backwards and corrupt. Without commenting on that, I can tell you that Louisiana is very forward-thinking when it comes to solar power and solar panel installations. In fact, the state is leading the nation in tax credit offerings and other legal benefits to installing solar power generation equipment at your home or business.

This is not a secret to readers of the Louisiana Green Building Law Blog, as it’s been posted about frequently in the past.

It’s also no secret to companies in Louisiana already taking advantage of the tax credit structure, like South Coast Solar, who posted this recent post: Louisiana Has Top Tax Credit for Solar Panels.

Solar energy is a great opportunity for businesses and consumers. Learn more about the tax credits offered by the above-provided links.

This article was originally posted on Wolfe Law Group’s topic-specific Louisiana Green Building Law Blog.