Sub Contracting – Useful Definitions

April 2, 2006 at 5:54 pm (Business)

Hello sub-contractors. If you are new in business you are probably very new to the legal terminology surrounding the process of building a project. Below are some definitions of the various forms and some terminology you need to be familiar with:

Proposal – Bid: The offer you make to the owner/general contractor stating the scope of work (what you will do, materials you will supply, duration of the job, etc.) and the price or amount it will cost.

Note: if the other party signs the document without any changes then you have a binding contract (this means that you can be sued by the signing party if you fail to fulfill your part of the contract). If the party you are presenting your bid to makes any changes in writing (to your document) then that is considered a counter offer and you have the legal right to reject it or accept it.

Contract: The agreement between you and the general contractor or owner, whoever hired you.

Notice of Non-Responsibility: This is a notice that gets posted at the job-site for a certain time period – I think 20 or 30 days – if the owner of the building is claiming non-responsibility on the project. Example: you  are hired by a general contractor to perform work on the construction of  a new store in a shopping mall. The owner of the improvements that you are contracting for is not the owner of the mall so he/she will post a Notice of Non-Responsibility, as he/she is acting as a lessor of the shopping mall space only. The owner of the store that you are working on is the actual owner of the improvements so that is the owner who needs the preliminary notice. However, I suggest sending a notice to the owner of the mall as well. 

Conditional Lien Release: This is a legal document that that states you are releasing your rights to lien to the property upon payment of a certain amount. Basically you are saying upon payment of such and such amount (that is the condition) I release my rights to lien this property for work performed to a certain date.

Unconditional Lien Release: This document when signed by you states that you have been paid in full through a certain date and that you release your rights to lien the property (project). The unconditional lien release should never be signed until you have been paid and can verify funds in your account.  Additionally, if you are handed a check and an unconditional lien release at the same time, you need to be able to tell whoever is paying you that you will get the unconditional release to them as soon as you are able to verify that funds are in your account. This is one of those delicate issues. You have be tactful because the contr. may want you to sign the unconditional release right away for whatever reason.  My experience is this: anytime you work for a contr. who insists you sign an unconditional lien release before you have verified deposit of money to your account, they are not worth working for. If you were to sign the unconditional release, then go to the bank and find out the check in your hand just  bounced you are SOL. You just gave away your rights to lien the property through the date stated on the unconditional release. This does not mean you lost rights to file a complaint in a court of law, it just means you can not lien the property.

There exists yet another term to the lien release. There are progressive lien release and a final lien release. They can be either conditional or unconditional.

Progressive Conditional Lien Release – A document that when signed states that upon payment and when the check has cleared the bank (you fill in the amount of payment) you release your rights to lien project through a certain date. Progressive releases are used for draws, when there is more than one payment on the contract amount.

Progressive Unconditional Lien Release – This is a document that is used when you are receiving more than one payment on a project. Usually when you put in for a draw, or do a billing you will submit a conditional progressive release for the amount you are currently billing  and you will submit an unconditional progressive release through the date that you have been paid. Be careful with this. Read my blog "The Games Contractors Play" for more information.

The final releases are used for the very last payment on the project. They can vary in veribage, so you need to understand the release you are signing. Most releases state that retention is not covered in the release. So usually even on your last billing on a project you will submit a conditional release that is progressive. Not until you bill retention (the last and remaining 5% to 10%, based on the laws of your state) will you submit a conditional final release. Remember, the unconditional release will not be submitted to the general contractor, owner, or bank until you have been paid in full and you can verify funds are in your bank.

Close Out Documents: Depending on the contract and type of job, you may be asked to supply close out documents. They are typically a one year guarantee on your work, a release from your supplier(s) for  final payment on the project, and any necessary manuals or manufacture warranties that come with any materials/appliances you installed. The contr. should list exactly what they want in close out documents either in the contract itself or in a booklet sometimes provided called the job specifications.

This is very basic termonology for sub-contracting. If you are confused or have never heard of these things until now and you are still in business, take the time to know and understand this stuff. You never know when you may encounter the contractor without a conscious. Those are the ones who will take and keep your money just because they can.

I hope this helps.

Lisa Mack

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Subcontracting Business – Are You Ready?

March 26, 2006 at 4:44 am (Uncategorized)

Greetings.

I previously mentioned that when you begin your business you need to think about what standards and character your business will have.  If you don’t make these decisions then it is likely that others will make them for you and that will the begining of you losing control. Your business is going to take on a reputation so wouldn’t you like to be the one who decides what that reputation will be?

Let me give some examples of what I mean by thinking about your business standards.  Also, let me clairify that I am using this blog to communicate the importance of collecting the money due you for your work and how to get paid. Ok, what are your terms going to be for collecting? Due upon receipt? 10, 30 Days? If you don’t know or you are not sure, the sharks will sense it and try not to pay you. Make your decision and let your customer know up front. When you give a bid, make sure your payment terms are in writing and get a signautre.

When your payment terms are up front and clear to your customer, it makes it really easy for you to know when they are f-ing with your money and not paying you. That makes taking the next step much easier.

Ok, back to the bid. The terms, the payment. Remember, it doesn’t matter how good you are at your trade if you can not collect the money you will be out of business. Anytime you do a job valued over $500 you need to file what is called a preliminary notice. In California when you file a preliminary notice it goes back 20 days. This means that the work you have performed is covered by your notice from the date you mailed it and back 20 days. If you were to forget to file one and a month goes by and say you are on a three month job, you can still file one and at least the work for the previous 20 days and forward is covered by your preliminary notice. California is very liberal in that you can always file one as long as you are still on the job. In Oregon, where I now reside you have only 8 days to file a notice (at the begining of a job) and if you forget, too bad. You lose your rights to file a lien on a project if you do not get paid. You can still file a law suit if necessary, just can’t attach the property.

I have met so many contractors who worked on their own or with one or two employees who did not even know what a preliminary notice was, let alone ever file one! I was always shocked when I would hear this. Do you know when I would hear this? When we got to talking and I find out my contr. friend has not been paid and they are worried. They don’t know what to do. I would ask them, Who is the owner? Is there a lender? They had no clue and they were afraid to ask. Legally, when you requst owner/lender information from a general contr. they have to provide it to you. AND think about this, do you really want to work for someone who takes offense at you asking for very basic, common information? It’s business practice and it is the norm in contracting to have this information and file a preliminary notice! If you don’t believe me and you don’t do this you will be out of business within the year, guaranteed!

Ok, so what is a preliminary notice and what does it have to do with you getting paid? A preliminary notice is a very simple form you fill out that states your business has been hired to do some work at a paticular address, in a particular city and state. The approximate value (based on your bid) is the amount of what is called ‘improvement’ to the address – land, house, building, etc. The notice is then signed by you and mailed out certified with a return receipt to the general contr. who hired you, the owner of the property, and the lender (usually the bank if there is a loan for the improvements). This notice also states that if the general contractor does not pay you, then the owner will be responsible to pay. The preliminary notice also notifies the bank that you will be on the project. Now, this is great information to communicate to the bank because . . . listen. . . banks usually require what is called a lien release in order to release funds or what is called a draw. Your name will now be on the bank’s list and the bank will require the owner to supply lien releases stating how much you are owed and also another type of lien release stating you have been paid for the previous draw before they release any more money! So, if the general contractor decided to take a trip to Vegas instead of paying you, he is in hot water when he cannot provide the release stating you were paid the previous month. This helps to keep everyone honest and responsible with regards to paying the bills for the project.

Maybe now you are begining to see why I say you must file the preliminary notice. If a general contractor takes offense to this it can only mean a few things to me; 1. He doesn’t want to pay you (or at least only on his terms – like 6 months down the road) or 2. He doesn’t know what it is and he is afraid himself to file one on the owner.  Either way, it can’t be good when a general contractor takes offense at a preliminary notice. AND yes, I’ve had contractors get pissed at me for filing a preliminary notice. Also, as you may be wondering. . I always collected my money, always. I’ve had to file law suits (we’ll get to that later). Contracting is ruthless – but I’ve heard that about most businesses. You have to ask yourself this, do you want to be known as a pushover or a jerk when it comes to collecting? I know what my reputation was; I think the word begins with a capital B.

One last thing before I’m off to the law library (man I love justice). Get the book The Art of War and read it over and over again. It has some great principals for business and you can pick one up used on the internet or your local bookstore for $5. One of the main points is this: A wise person takes steps so that a war never has to take place. Meaining, be prepared and ready, be proactive and it is likely you will be paid and paid on time.

More later – LisaMack

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