How To Prepare For A Non-Paying Project

September is National Preparedness Month, and since we’re now in the middle of the month, I thought it would be appropriate to post about what steps you can take to prepare for a non-paying project.

Payment problems and construction projects can go together like peas and carrots. Companies that do a great job of preparing for non-paying situations get paid more frequently, and avoid the consequences of a project gone wrong.

How can you prepare for a non-paying construction project? Here goes.

Send Your Notices To Protect Your Lien Rights

Every state has different preliminary notice requirements, and some states don’t require any notice. It’s very important to understand the notice requirements in your project’s state. If you don’t deliver the proper notices, you may forfeit your lien rights…and filing a lien is one of the most important things you can do to get paid.

If I’ve said it once, I’ve said it 1000 times. Send Your Preliminary Notices!

One terrific way to send your preliminary notices and manage the preliminary notice requirements of each state is to use a construction notice service like Zlien. Zlien is in the business of preparing and sending these notices, allowing you to outsource this tedious and very technical job to folks that do it everyday.

Don’t know which notices to send? You can use a construction notice and lien compliance manager like the LienPilot. You simply input the projects information (or upload them in bulk), and the LienPilot will display relevant notices required and their deadlines.

File Your Lien On Time

This is a no-brainer. You only have lien rights if you protect them (send your notices) and then timely file your claim. Every state has different lien deadlines, so get to know the deadlines related to your project.

It can be as short as 15-20 days, as long as 2 years and everything in-between. There’s really no rhyme or reason to the timelines, and if you’re working in multiple states (like material suppliers frequently do), the LienPilot may be an excellent tool for you. The LienPilot calculates the mechanic lien deadlines for your project.

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

What is PACE Financing and Is It Doomed?

Started in the green revolution’s holy land, Berkley, California, PACE financing is shorthand for Property-Assessed Clean Energy Financing (Wikipedia entry).

The concept is simple:  cities loan money to property owners to install clean energy equipment.   The loans are then repaid to the city through annual property tax assessments.

As originally conceived, it’s a win/win/win situation really.   Property owners get funds to improve their property, paying back the loan with money saved in the the property’s reduced operating expenses.   Cities and communities benefit by upgrading its overall energy efficiency.   Businesses and efficient energy investors benefit because the market grows for its products.

All was going very well for PACE Financing.  PACE legislation was passing across the country, and President Obama’s administration wholeheartedly supported PACE programs.

This progress came to an abrupt halt in June 2010, when the Federal Housing Financing Authority (FHFA) dropped this news:   Properties with PACE loans cannot be purchased by mortgage giants Fannie Mae and Freddie Mac.

Why not?

Well, PACE loans create a lien against properties similar to a tax lien, meaning that the lien has priority over all other debts (including mortgages).   The value of these loans can be between $10,000 and $100,000, and sometimes more.   The problem for these mortgage holders is obvious, as they are losing priority on their collateral.

The news from the FHFA caused more than $150m in funding to get yanked by the US Department of Energy, and has some predicting the demise of PACE Financing as we know it.  And they may be right.

Can PACE Be Saved?

The question now is whether these PACE Programs can be saved.   While I believe they can be, I don’t think the programs will be unaffected by the FHFA determination.   Here is a few things that are happening to help PACE stage a comeback, and a glimpse at how this might affect the PACE Programs:

1)   California is Fighting It:   First, Sonoma County and the California Attorney General have both separately filed suit against the FHFA claiming that the determination is wrong, or that FHFA lacks jurisdiction to make the determination on behalf of states and counties.

2)  Legislation is Being Proposed:   The US Congress (as well as local reps and senators) are introducing bills aiming to protect PACE financing programs.   One such bill is the PACE Assessment Protection Act of 2010.

3)  Re-Thinking PACE: States may be ready to re-think the way they structure these PACE programs, and provide some protections for mortgage companies.   While not passed in response to the FHFA announcement, Louisiana’s new PACE egislation may have predicted these problems, as it greatly accommodated mortgage holders.   The PACE legislation from the 2010 session, for example, requires enough equity in the house to support the loan, and requires permission from the mortgage holder for commercial loans greater than $100k (talked about in this post)

4)  Commercial Focus:   The FHFA restriction really affects the residential markets only.  As such, many states and municipalities may be re-focusing their PACE programs on the commercial market.  One example of this is New Orleans, who anticipated launching a PACE district with the help of funding from the US Department of Energy’s America’s Solar Cities program.   The city says they plan on moving forward with the district, except it will only be for commercial PACE loans.

Hey, What Does This Have To Do With Construction?

The PACE Financing Programs has a lot to do with construction and construction law.   You may or may not know, but our firm publishes two blogs that focuses on green building laws:   The Louisiana Green Building Law Blog and the Northwest Green Building Law Blog.   I am also a LEEP AP, and focus part of my practice on green building issues.

I recently wrote a blog post called:  Think Green Building is Irrelevant?  Think Again. The post discussed a report published by NPR saying that green building accounts for 33% of new construction in the United States.  That’s a remarkable number.   And if these PACE Programs get off the ground, the existing construction green building numbers will be driven up significantly.

Stay tuned.

Are Mechanic Lien Laws Changing Across The Country To Require More Notice?

I read an article in the Multi-Housing News Online about the mechanic lien law changes in California set to become effective January 1, 2011, that quotes a California construction attorney, John C. Pytel, Esq., saying this referring to the increase in notices required under the new laws:

In fact, in addition to the relatively minor changes taking effect Jan. 1, California’s own lien statutes look like they will be subjected to a major overhaul effective July 31, 2012. This seems to be the crest of a national trend as more and more property owners fall victim to confusing lien laws in a turbulent housing market.

Is Mr. Pytel correct here? Are we at the crest of a national trend that will result in stricter notice requirements for mechanic lien claimants, and thus more protection for property owners?

I will stay this, in support of Mr. Pytel’s comment and prediction, there have been a few pieces of legislation across the country that increase the notice requirements on residential projects. See examples in California, Missouri, Illinois and Virginia – all happening in the past year or so.

However, I’m not sure I completely agree with Mr. Pytel.

So many states don’t require notice at all, and the changes have been isolated to those states that already have notice requirements. These requirements were just tweaked a bit to try to make things easier and clearer, and not necessarily to add any layers of required notification.

What do you guys think – are we at the crest of a national trend requiring more notice to make a lien claim?

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

Think Green Building Is Irrelevant? Think Again

Green, green, green, green, green, green. The word gets used so much (see: Greenwashing). Geesh, even companies are changing their logos to green to cash in on the popularity.

Still, despite the PR, many in the construction sector wonder: Does anyone actually build green?

A report from NPR suggests that they certainly do, reporting that green building accounts for 1/3 of new construction in the United States! The article suggests, and I agree, that:

The numbers suggest a revolution is taking place within an industry that is historically slow to change. There are many factors — and many players — in this move toward green building

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

More Federal Contracts For Small Businesses – How To Capitalize

SmallBizTrends.com just published an article indicating that there is “good news and bad news when it comes to small businesses and government contracting.”

The good news is that According to the SBA’s fourth annual small business Procurement Scorecard, small businesses got a record number of federal contracting dollars in 2009.   But the bad news is that the SBA is still not reaching its goals in giving money to small businesses.

Really, however, the bad news is good news, because according to the smallbiztrends.com article,  the SBA has “said it will do more to unbundle big contracts into separate, smaller ones that are easier to award to small companies.”

Why isn’t the SBA meeting its goals?

I think this is probably a mixture of two complexities.

On the one hand, the SBA and big-construction firms are so used to working together, that it’s so easy for the SBA to coordinate with those outfits, and too complicated to do the extra work to reach out to and work with small businesses.

On the other hand, small firms aren’t used to getting federal work, and so the process of applying for this work is quite complicated for them as well.   As one commentator stated to the smallbiztrends.com article:

With all the red tape associated with getting a government contract I’m surprised that small businesses are even taking on the challenge. What the government needs to do is make the process easier.

Resources To Help You Get and Comply Federal Projects

So, if there is so much federal money out there…how exactly do you get your hands on some of it and successfuly bid on federal work?  And what regulations must you know when performing?

Over the years, we’ve posted a good deal about federal contracting on the Construction Law Monitor.  Here is a highlight of some of our posts that can help you in getting and making money on a federal project.

The Stimulus and Your Construction Business:    After the stimulus package was first announced, we posted explaining the differences between private and public work, and described the process of bidding on and getting federal work.   It’s good information still today.

E-Verify!:   If you work on a federal project, you must use e-Verify to check the social security numbers of your employees.  This is quite controversial in our immigration-sensitive society.   But, regardless, if you’re doing work on a federal project, it’s crucial you comply.

Prevailing Wages:   If you work on a federal project, you must comply with federal labor laws (including the Davis Bacon Act).  If you don’t, you’ll be confronted with harsh financial and non-financial penalties from the US Department of Labor, and you don’t want that.

The Miller Act:  Finally, if you’re doing federal work, you want to get paid.  Unlike on private projects, you cannot file an ordinary mechanics lien.  Instead, you must make a Miller Act Claim against the bond.  We’ve written a number of articles on the Miller Act to give you the need-to-know-information.

Finally, a great general resource:   Federal Construction Contracting Blog.

Must You Fight For Your Right To Build Green?

I was alerted to an article in the Orlando Sentential about a Florida couple fighting their homeowner’s association for the right to convert their roof to an energy-efficient white roof. It presents an interesting problem for the green building movement. Solar equipment, white roofs, green roofs, and similar “green” installations are…let’s be honest…sometimes bulky. But even the sleekish (that a word?) and stylish green installations are this: different. And people fight different.

So, how is the battle between solar installations and the status quo going to end?

Interestingly, the 2010 Louisiana legislature passed a bill speaking directly to this, affirmatively setting forth the right for a property owner to install solar equipment on their homes or businesses.

It’s good news for folks in Louisiana, but doesn’t much help the folks in Florida.

What do you think? How should zoning ordinances and associations handle green installations?

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

American Shingle’s Bankruptcy Highlights Benefits of Mechanics Liens

A few months ago we posted about a mega-project in Las Vegas facing financing troubles and leading to over $500,000,000 in mechanic liens. The point? Even on the biggest of projects, mechanic liens transform your payment problem with the hiring party, into a problem that affects the entire project.

Well, Atlanta-based roofing company American Shingle just filed for bankruptcy (bankruptcy filing legal docs here), and they are illustrating this same point on a tiny scale. Instead of a billion dollar mega-project, mechanic liens are affecting residential properties across Georgia and elsewhere.

Folks frequently ask me: what’s the benefit of filing a mechanic lien?

An article I wrote in February 2008 answers this question in detail, but for the purposes of this discussion about American Shingle, here’s an excerpt:

If you’re unable to get paid on a construction project, you have a legal remedy under contract law only against the person who hired you. A mechanic lien, however, completely changes this paradigm. With a lien, you can sue the person who hired you, along with the property owner – regardless of how far you are down the contracting chain [depends on state laws].

What this means for the American Shingle situation is highlighted by a news story from the Atlanta NBC Affiliate 11 Alive: American Shingle Customers Could Pay Twice.

Unlike the 11 Alive story, the Construction Lien Blog focuses on creditor’s rights (versus consumer rights). If you’re a consumer, you can check out the “Consumer Ed” resource published by the GA Department of Consumer Affairs, which has information on liens.

For creditors, however, the American Shingle situation is a good lesson. Protect your lien rights by sending required notices and filing your liens within the legal time frames. You never know when companies may run into financial difficulty and file bankruptcy (American Shingle was a pretty big company). When something like this happens, your lien rights will be invaluable.

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

Seminar Discussing Mechanic Liens & Construction Contingency Fees

In the past, I’ve written about both contingency fees and mechanic liens.   I think both of these topics are extremely interesting for the construction industry, and specifically for those interested in construction legal issues.

While I don’t usually post about upcoming seminars I’m uninvolved with, I do think it’s worth mentioning an upcoming “Southern Region Meeting” sponsored by the Commercial Law League of America.   The meeting is February 24-26, 2011 at the Royal Sonesta Hotel in New Orleans, and on the program for construction law topics are these two great topics.   Specifically:

Contingent Fee Based Complex Commercial Litigation (Ist It Willy Wonka or the Wizard of Oz?) &

Enforcing and Litigating Mechanic Lien Rights

You can read the Construction Law Programming summaries here at the Construction Law Monitor.   Should be a very interesting talk on these two topics.   With all the hoopla about alternative fees, I’m especially interested in the Contingent Fee presentation.

Here is a snippet (from the CLLA website) about the Commercial Law League of America:

The Commercial Law League of America (“CLLA”) is a respected organization of attorneys and other experts in credit and finance actively engaged in the field of commercial law, bankruptcy and insolvency. Since 1895, The CLLA has been associated with the representation of creditor interests, while at the same time seeking fair, equitable and efficient administration of bankruptcy cases for all parties in interest.