November 13, 2012

As construction projects proceed, even the seemingly simple project can be mired with multiple mechanics lien claims. While owners, lenders, and contractors may consider mechanics liens as an inevitable result of an unsuccessful (and, sometimes, even a successful) project, there are ways for all parties to protect their own interests and try to minimize the costly expense of mechanics lien litigation.

One of the simplest ways for all parties to protect themselves is to ensure that all the proper documentation has been submitted prior to each payout. This means that owners and lenders have contractors' sworn statements and subcontractor and supplier lien waivers for each payout. The lien waivers should match the contractors' sworn statements and they should all be consistent with past documents. While inconsistencies may merely be a sign of poor documentation, they may also be a harbinger of bigger problems, such as subcontractors not receiving payment.

For unsophisticated homeowners to even the most sophisticated of developers, the most effective way to make sure that project documentation is in order is for the project owner to hire an escrow agent. The agent's responsibility is to gather the appropriate project documentation from all involved parties and confirm it is consistent prior to payments being made. Inconsistencies will only lead to delays in receiving payments, which, in turn, leads to subcontractor discontent.

Unfortunately, even the most organized projects can result in mechanics lien litigation. Oftentimes, the most contentious issues in lien litigation pertain to claimed extras or unconfirmed change orders. When the parties agree contemporaneously as to the amounts that are due and owing, disputes will frequently be settled quickly and without litigation. But when unconfirmed change orders are involved, the litigation will likely be contentious and more costly.

In order to avoid claims for unconfirmed extras, owners, general contractors and subcontractors need to be clear from the outset about the process by which extra work will be requested and confirmed, and then the parties need to stick to that process. Requesting a quote for the extra work and then confirming it through a change order is always the best procedure. If that process is not practical in a given situation, the parties should confirm the change order as soon as possible after the fact. The longer that extras go unconfirmed, the more likely a contentious dispute will result later.

Construction projects do encounter problems. To guard against costly, protracted lien litigation, the best answer is to ensure that documentation is in order and the costs are in line.

This article contains material of general interest and should not be construed as legal advice or a legal opinion on any specific facts or circumstances. Under applicable rules of professional conduct, this content may be regarded as attorney advertising.