Covid-19 is impacting the construction industry in many ways. It is a moving target and unpredictable to say the least, and this may very well be the calm before the storm. The ripple effect of this lockdown could be significant and problematic for contractors in the upcoming months or even years. Especially when it comes getting paid on projects. Similar to the Great Recession, there may be projects mothballed or shut down; owners that cannot or will not pay their contractors in uncertain times, have significant cash flow issues and/or file bankruptcy. So what does a contractor do? Make sure you give proper notice to protect your rights and ensure that you will get paid. In other words, serve your 20-Day Preliminary Notice on every project!
20 Day Preliminary Notice is Absolutely Critical
Mechanics Liens, Stop Notices and the Ever-Elusive Construction Lender
A Preliminary Notice must be served on all projects to preserve contractor’s rights to get paid. The purpose of a preliminary notice is put the owner and construction lender on notice that you are working on the project and of your potential mechanics lien or stop notice claim if you are not paid.
Timing: Your preliminary notice should be served at the start of the project. It only goes back 20 days. Therefore, if you serve it at the end of the project you are only preserving your rights to get paid for work performed in last 20 days of the project. That being said, serving a prelim at some point in the project is better than not at all. So, if you have not done so already, serve prelims on all projects now regardless of what stage you are at.
Who must serve a preliminary notice? Everyone! This includes direct contractors, subcontractors, material suppliers and equipment lenders. The onlyexception is if you have a contract directly with the owner and there is nolender.
The preliminary notice must be served on the owner, direct contractor, and construction lender. Do not forget the lender.1 If you do, you will have waived your mechanics lien and stop notice rights. The lenders hold the purse strings. Don’t give them an excuse not to pay you.
Key components of preliminary notice:
- Description of labor and services: General description of labor and services that are known at the time of contracting. Scope may increase over the project. The scope increase can be reflected in the mechanics lien or stop notice.
- Estimate of Total Contract Price: this is a figure which has been arrived at through a reasonable and logical attempt to determine the final number. This is not expectedto be exact or precise. However, it does mean more than a guess, conjecture, or surmise. Change orders in the scope of work are expectedto increase the price. These will be reflected in the mechanics lien.
The deadline to file a California bond claim is dependent on a few factors. In order to make a claim against a payment bond, you must provide a 20-day preliminary notice. But, if you failed to provide preliminary notice you aren’t completely out of luck. You can still enforce a claim by giving written notice to the surety and bond principal within 15 days after the notice of completion is recorded. If no notice of completion was filed, the time for giving written notice is extended to 75 days after the completion of the project.1 There are companies that offer online services to assist with locating the ever elusive construction lender. One such service is datatree.com by First American.