A Contractors, Subcontractor’s & Supplier's Step By Step Guide to Getting Paid - Louisiana - Webinar

In this blog, presented by SunRay Construction Solutions and Denise C. Puente, Partner, Simon, Peragine, Smith & Redfearn, LLP, construction professionals in Louisiana can find out about why contracts are important, what are some of the key contract clauses to watch out for, what are the specific requirements to follow while working on public/private jobs, and how to use lien waivers.

What are Some of the Important Contract Clauses?

There are couple of contract clauses to watch out for, such as:

A) Payment Clauses in Subcontract

Typically, there are two types of payment clauses:

• Pay when Paid Clause

• In this type of clause, the risk of owner insolvency is borne by the general contractor.  
• What this means is if you are a subcontractor or supplier, and the owner doesn’t pay the general contractor the money that is owed to you, then after a reasonable period of time, the contractor will have to pay you regardless of whether they have been paid.

• Pay if Paid Clause

• In this type of clause, the risk of insolvency of the owner is borne by you.
• What this means is if you are a subcontractor or supplier, and the owner doesn’t pay the general contractor, then the contractor doesn’t owe you any payment.
• The language to watch out for is condition precedent. If you don’t see this language in the contract, then even though the general contractor may think that they have a pay if paid clause, it may not be enforceable.  
• You should also ensure that you add the surety language in your clause because in Louisiana, a pay if paid clause is an absolute defense to payment by a general contractor. So, if you have done all the work but have not been paid, and if you have the surety provision in your subcontract, then you can use it as a defense against the surety which means that even if the general contractor doesn’t owe you anything, the surety does.

B) Right to Stop Work

‍If you haven’t been paid by a certain amount of time, you should have the right to stop or suspend work

• If your contractor is insistent on adding the pay if paid clause, then you can use the right to stop work clause as an alternative.
• Ideally, you should be able to negotiate to include this clause in the contract so that you don’t end up working even though you have not been paid.

C) Notice Requirements

You need to review your contract thoroughly for deadlines to provide various notices. You need to be aware of what the notice requirements are in your contract so that you know what you need to do to comply to preserve your claims. Ideally, you need to check:

• When is a notice required for claims?
• When is the notice due for change order requests?
• What is the deadline to make claims?
• How should you deliver the notice? Should it be sent electronically, via e-mail, or certified or registered mail, etc.  
• If all the notices are in writing?

What are the Different Types of Construction Projects?

There are three types of construction projects:

• Public Works – La. R.S. 38:2241
• Private Works – La. R.S. 9:4811
• Federal Projects – Miller Act

What is the Public Works Act?

The Public Works Act governs the projects that owned by a public entity, such as the State of Louisiana, the Parish of Orleans, a public university, etc. As per the law, the general contractor is required to provide a performance as well as a payment bond on all public jobs.

When you make a claim on a public job, you are not liening the public property. What you are doing is preserving your rights against the bonding company. This is why general contractors do not have claim rights on a public job.

A) Who can be a Claimant?

• Subcontractors and sub-subcontractors
• Laborers/employees of the subcontractors and sub-subcontractors
• Materialmen/suppliers
• Lessors of equipment – If you lease construction equipment, to a subcontractor or a general contractor, you have the right to file a claim against that bond; however, there are some specific requirements for lessors of equipment:
• You must give notice within 10 days of your equipment reaching the job site.
• If you don’t send the notice until after 30 days, then your claim rights will only be limited to after you give the notice.
• Manned equipment is treated almost like a subcontractor.
• Your claim will be limited to the time the equipment is on site.
• Suppliers to subcontractors also have claim rights.
• Transporters, architects, engineers and professional subconsultants employed by the contractor or subcontractor.
• General contractors and suppliers to suppliers will not have any claim rights.

B) Content of Claim Statement

• Name of the claimant
• Amount owed
• Name of the project (it is not necessary to provide the legal description)
• Should be filed in the Parish where the project is located
• Send it to the contractor and the owner via certified or registered mail

C) Notice and Filing Requirements

• The time period for filing a claim on a public works project is 45 days after recordation of acceptance or termination. This deadline is applicable for everyone.
• If you don’t file it in a timely manner, then you may lose out on your claim against payment bond.
• Seller of movables must give a notice within 75 days of the end of the month, for each month they are not paid. This notice is almost like a prerequisite for filing a claim later because if you don’t give these notices, then part of your claim can be stricken off.

D) Time Period for Filing Suit

• You need to file a suit within one year from recordation of acceptance or default.
• The one-year period runs from the acceptance record and not from the claim filing.

E) Release-of-Lien Bonds

• One of the prerequisites for a general contractor to be paid on public works is to provide the owner a certificate stating that there are no claims filed on this and the owner can release the final payment and retainage to the general contractor.  
• If there are claims, then they must bond those liens and typically the surety company will bond the liens and the bond amount is 125% of the principal amount of the claim.  
• Sometimes you may record a claim and you might get a 10-day letter. This letter is usually a demand on you to cancel your claim because it was improperly filed. For example, they can send the 10-day letter for things that are procedural, such as, wrong project, not filing the lien in a timely manner, etc. They cannot send the letter for things like wrong lien amount.
• So, if you get the 10-day letter, then make sure you check it thoroughly and comply with the statute.
• If you don’t cancel it within 10 days, and the surety must cancel it or take other action, you will be responsible for the damages and legal fees incurred.
• Once the owner gets the clear lien certificate, even if you haven't been paid, if your lien was bonded out, or your claim was bonded out, then the owner is going to go ahead and release the remaining funds to the general contractor.

What is the Private Works Act?

The Private Works Act covers projects like condominium projects, residential projects, hotels, etc. Even if there is some public money involved or it’s a tax credit project, it will still be governed by the Private Works Act. In private works, you can lien the property and you do get a claim against the actual physical property.

A) Notice of Contract

• If you are a general contractor, the most important thing for you to do on a private job is to file a Notice of Contract if the contract is worth more than $100K.  
• The notice should be filed before any work begins on the site in order to preserve your right to file a lien and to shorten the time period for everyone else to file a lien.
• The notice of contract should ideally include:
• Names and addresses of the owner and the contractor
• The legal description of the property
• Price of the work and method of payment, for example, payments will be made monthly upon submission of the payment application
• General description of the work
• It should be signed by the owner and contractor
• Although it is not required by law, some owners of private works also have a bond in place to protect themselves against claims from subcontractors and suppliers. If there is a bond, then it should be attached to the notice of contract

B) Who can be a Claimant?

• General contractors
• Subcontractors
• Laborers/employees
• Materialmen/suppliers
• Lessors of equipment
• Architects, engineers, surveyors, professional subconsultants
• Suppliers to suppliers cannot be claimants

C) Covered Labor & Materials

Here is an overall look of what’s covered by your lien.

• For subcontractors – Price of their work.
• For laborers or employees of the contractor or subcontractor – Price of work performed at the site of the immovable.
• For sellers – Price of movables sold to contractor/sub that:
• Become component parts of the immovable;
• Are consumed at the site of the immovable; or
• Are consumed in machinery or equipment used at the site of the immovable.
• For lessors – Rent of movable used at the site of the immovable and leased to the contractor or subcontractor by written contract.
• For prime consultants, registered or certified surveyors or engineers, or licensed architects, or their professional subconsultants, employed by the contractor or subcontractor – Price of professional services rendered in connection with a work that is undertaken by the contractor or subcontractor.

D) Notice and Filing Requirements

• If the Notice of Contract is timely filed, then:
• General contractors have 60 days to file a lien; and
• Subs/Suppliers have 30 days to file a lien (if notice of termination is not filed, then the party has six months from substantial completion or abandonment).
• If the Notice of Contract is not timely filed, then:
• General contractors will not have any lien rights; and
• Subs/Suppliers will have 60 days to file a lien.

E) Commencement of Lien Period

• It begins to run from either the Recordation of Acceptance or Recordation of Termination.
• If no acceptance is filed, then the claimant has six months from substantial completion or abandonment to record the claim.  

F) Lien Content Requirements

• Name of the lien claimant
• Amount owed and by whom
• Reasonably itemize the work performed
• Legal description of the property (municipal address is insufficient)
• Invoices need not be attached (but if you mention as provided in the attached invoices and fail to attach the invoices, then your lien is not going to be valid)
• Should be signed by the claimant under oath

G) Time Period for Filing Suit

• The time to file suit is one year from the expiration of the period for the filing of the lien.
• So, if it is 30 days to file the lien (if the Notice of Contract was filed), then you have one year from the expiration of that 30-day period to file suit.  

H) Notice Prior to Filing Lien by Lessor of Movables

• If you are a lessor of movables, then you must deliver a notice to the owner that you are going to deliver the equipment within 10 days after the movables are first delivered to the project.
• The notice should contain:
• Name and mailing address of the lessor and lessee
• Description sufficient to identify the movable property
• The rental term and payment terms
• Should be signed by the lessor and lessee
• The lessor of movables must give notice to the owner and the contractor that it has leased or intends to lease movables to preserve its claim and privilege.
• If the notice is delivered more than 30 days after the equipment is placed on the site, then the claim is limited to rents accruing after the notice is given.

I) Notice Prior to Filing Lien by Seller of Movables

• Notice of non-payment must be delivered to the owner and contractor within 75 days from the last day of the month when the materials were delivered.
• Failure to give notice forfeits a seller’s right to a claim or privilege.
• The notice should contain:
• Name and address of the seller of movables
• Description sufficient to identify the movable property
• Legal description of the project site
• Amount owed

How do Lien Waivers Work?

When you are going through your contract, you must watch out for what is mentioned about lien waivers. Most of the contracts will include a lien waiver form. Typically, there are two types of lien waivers:

• Release through date of payment application – For example, you submit your pay application on the 20^th of every month. In the lien waiver, it will state that you are releasing all rights through the 20^th.
• Release through waiver date – Sometimes you will release everything through the lien waiver date, which may be later.

Key Takeaway

While dealing with lien waivers, you want to make sure that it carves out and you reserve your rights for retainage and if you have any outstanding claims, sometimes you must identify those claims as well. This is because you don’t want to get through the entire project, make a claim at the end only to find out that you have waived off all those rights when you were submitting your monthly lien waivers.

You can also make sure that you condition the lien waivers upon receipt of payment.

So, these are some of the key steps and dos and don’ts that you should bear in mind to secure your payment rights while working on public or private construction jobs.

FAQ's:

What is the deadline for filing a mechanics lien in Louisiana?

In Louisiana, the deadline for filing a mechanics lien varies depending on your role in the project. For general contractors, the deadline is generally 60 days from the completion of the work. For subcontractors and suppliers, the deadline is typically 60 days from the filing of the Notice of Termination or Notice of Substantial Completion by the property owner.

What are preliminary notices, and are they required in Louisiana?

Preliminary notices, also known as preliminary lien notices or notices of intent to lien, are often required in Louisiana. They serve as a formal notice to property owners, general contractors, and other parties that you are providing labor, materials, or services to the project. Failure to send preliminary notices can impact your ability to file a mechanics lien later if payment issues arise.

What if the property owner disputes my lien claim?

If the claim is disputed, you may need to engage in legal proceedings to enforce the lien and collect payment.