Keep Your Construction Claims Alive in Crazy Economic Times

Christopher G. Hill | Construction Law Musings

Coronavirus is dominating the news.  Construction in Virginia is facing what is at best an uncertain future and at worst a series of large scale shutdowns due to COVID-19.  The number of cases seem to grow almost exponentially on a daily basis while states and the federal government try and patch together a solution.  All of this adds up to the possibility that owners and other construction related businesses could shutter and importantly payment streams can slow or dry up.  Aside from keeping your contractual terms in mind and meeting the notice deadlines found in your contract, these uncertain economic times require you to be aware of the claims process.

Along with whatever claims process is set out in the contract and your run of the mill breach of contract through non-payment type claims, in times like this payment bond and mechanic’s lien claims are a key way to protect your payment interest.  The law has differing requirements for each of these unique types of payment claims. 

Mechanic’s liens are technical and statute based with very picky requirements.  The form and content of a memorandum of lien will be strictly read and in most cases form will trump substance.  Further, among other requirements best discussed with a Virginia construction lawyer, you must keep in mind two numbers, 90 and 150.  The 90 days is the amount of time that you have in which to record a lien.  This deadline is generally calculated from the last date of work (or possibly the last day of the last month in which you did work).  File after this deadline and your lien will be invalid because the right to record a lien has expired.  The 150 days is a look back from the last day of work or the date of lien filing, whichever is sooner in time.  The 150 days applies to the work that can be captured in the lien.  In other words, it dictates the amount of the lien.

Why are both of these numbers important, particularly during this pandemic?  Take this example:  A project is shut down for a certain period of time per the contract due to COVID-19.  You perform work before the shutdown but did not complete your work and then 5 months later you begin working again at the job.  In this circumstance, the 90 days did not begin to run until your last post-shutdown work is complete.  However, for every day of the shutdown the 150 days is running to potentially deprive you of the ability to lien for pre-shutdown work.  Failure to record a lien during the shutdown does not remove your absolute right to a lien, but does lower the value of that lien.

Payment bond claims are either dictated by the terms of the bond itself (private project) or by the Miller Act (federal) or the so-called “Little Miller Act” (state) depending on the ownership of the project.  I’ll concentrate on the last two because mechanic’s liens are unavailable on projects owned by the state or Federal government.  Among other requirements, for bond claims under either the state or federal act, notice is required within 90 days of the date of last work if you have no direct contractual relationship with the general contractor.  Those with a direct contractual relationship do not have to provide notice though it is often best practice to do so for practical reasons.  After 90 days from last date of work, the claimant then has a year from last work in which to file suit.  This effectively creates a 9 month lawsuit window.

Why should you pay careful attention to these types of potential claims?  One word: money.  Either of these types of claims provide protection for the economic calamity that the party that should be paying you goes out of business.  With certain caveats, mechanic’s liens survive bankruptcy and put you in the position of a secured creditor in bankruptcy which gives you a much better chance at recovery than without the lien.  Further, a payment bond is there for the exact situation where the principal on the bond or a party between you and that principal (usually a general contractor) goes under.  A properly filed bond claim puts the credit of a large insurance company in place of that of the principal and will provide the money necessary for payment.

Of course, this post just scratches the surface of the complexity and power of these payment claims.  Any lien or bond claim is very fact specific and requires the help of an experienced construction lawyer to navigate the various deadlines and requirements.

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