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How Big Of A Problem Is Getting Paid For Work In The Construction Industry?

Getting paid is the biggest problem contractors face in the construction industry. Contractors, sub-contractors and design professionals who work in the construction industry know that if they fail to insert protective measures into their contract or fail to follow all the contract requirements to the letter, there is likely to be a delay in payment or a refusal of payment altogether. They also know that sometimes payments get held for reasons that are totally unrelated to whether or not they did everything right. For example, there may be problems with project financing that affects payments. At times, the project owner, developer or general contractor will run into cash flow problems because they didn’t manage their own finances correctly, causing them to run out of funds before everyone gets paid. It is a common problem and certainly one that makes the biggest impact on the bottom line of the contractor.

What Is A Mechanic’s Lien?

A mechanic’s lien is a claim against the land where the project is located and is recorded in the office of the county recorder. It allows a contractor who has performed work that has enhanced the value of the property to assert a claim against that underlying real estate to ensure that they will get paid. If they don’t get paid, they have a claim against that real estate, which means they could foreclose on the property to receive the money that they are owed for the value they provided.

How Does A Mechanic’s Lien Or Payment Bond Help Secure Payments On Construction Projects?

A mechanic’s lien or a payment bond provides an additional potential source of funds (in addition to the person or company they contracted with) to the contractor or supplier who has provided work, materials or equipment to the project. A mechanic’s lien is a legal encumbrance against the land where the project is being built that gives the person or company who provided the services, material or equipment to the project the right to make a claim against the real estate on which the project was built. If the contractor or supplier doesn’t get paid, they can file a lawsuit to foreclose the lien, which means that the property would be sold and they would be paid from the proceeds.

With a payment bond, instead of having a claim against the underlying real estate, the contractor or supplier has a claim against the bonding company. Bonds are not insurance, but they operate similar to insurance in that the bonding company will be obligated to pay a contractor or supplier, as long as the appropriate conditions are met. If the contractor properly performed the work and submitted payment requests in a timely manner, then it is entitled to payment. If the required payment was not made, and if there is a payment bond in place at the project, then the bonding company will be obligated to pay that claim. The reasons that bonds are different from insurance is that the bonding company (surety) is entitled to pursue the developer or the contractor to repay the amounts paid. The payment bond, just like a mechanic’s lien, provides an additional potential avenue of payment, if the person with whom the contractor has contracted with fails to pay them.

Who Can File An Arizona Mechanic’s Lien Or Payment Bond Claim?

There are a few pre-requisites to making a mechanic’s lien or payment bond claim. The first step is determining whether or not you fall into the category of people who are protected by these statutes. Generally speaking, if you are the general contractor, a sub-contractor to that general contractor, or one level below that (such as a supplier who provided materials to one of the sub-contractors), you have the right to make a mechanic’s lien or payment bond claim.

The second step is that the claimants have to have served a Preliminary Twenty-Day Lien Notice. This applies to all sorts of payment mechanisms, not just the mechanic’s liens. Anybody who is providing labor, materials or equipment to the project should send a Preliminary Twenty-Day Lien Notice, to ensure that they have the right to pursue a lien or bond claim later on.

For more information on Getting Paid For Construction Projects, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling 1-480-582-1287 today.