A Contractor's, Subcontractor’s and Supplier's Step By Step Guide to Getting Paid - Oregon - Webinar

In this blog, presented by SunRay Construction Solutions and Andrew J. Nissen, Associate Attorney, Aldrich Goldstein, construction professionals in Oregon can find out about all these key dos and don’ts while working on various types of construction jobs, and ensuring that they get paid for the work they perform.  

What Should your Construction Contract Include?

Construction contracts are usually a part of every commercial project. On many of the smaller residential projects, the contract may be just a bid signed by the owner, and it can be useful if you have the terms and conditions as part of your bid. Typically, a construction contract should include the below basic information:

• Parties – Name of the ownership/entity names who have the authority to make and execute decisions.
• Project Info – Detailed description of the project, address, owner information if it is not listed under the party's section.
• Price and Payment Terms – An agreement of how much you will be paid and how will you be paid (for example, fixed costs vs. cost plus which may or may not include GMP (Gross Maximum Price)). You also need to specify the payment terms, such as is it a pay-if-paid clause or a pay-when-paid clause.
• Schedule – You need to clearly list the dates of commencement, substantial and final completion, will the owner decide the date of substantial and final completion or will it be decided by the architect (if there is one), what are the remedies for delays (if the delay is because of you, will you get time and money or just time extension, etc.), is there a no damages for delay clause, etc.
• Scope of Work – What work are you performing (labor, materials, equipment, services), change order process, are there any design/build elements, who will bear the costs of permits, inspections, etc.  

It is very important that your contract includes all these basic details, and you go through them diligently before signing and agreeing to its terms and conditions. The content of your contract plays a crucial role in helping you protect your lien and bond rights.

How to Secure your Lien Rights?

Let’s look at some of the basics of securing your lien rights.

A) What is a Construction Lien?

• In simple words, a construction lien is a security interest in real property. So, if you are a construction professional working on a private construction project, then the ultimate remedy would be a forced judicial sale of the property to satisfy your payments.
• If you perfect your lien correctly, then the lien attaches to the property and has priority over some other types of debt.
• Since foreclosing on the property is a very serious matter, it is extremely important to ensure that your lien is perfected by following all the requirements based on the type of project and claimant under Oregon law.
• Lien laws are ‘strictly construed’ and you need to adhere to the notice and timing requirements to preserve your rights.

B) Ensuring you have the Right to Lien

• You can file a lien only on private construction projects and not on government land or entity.
• However, in some cases, if the property is on government land, for example, a privately-owned hotel that is built on public land, you can still go ahead and lien the hotel or lien the interest that the private owner has in that property.
• A lien claimant can either be the original contractor, subcontractor, or supplier, i.e., someone who must provide labor, materials, equipment or construction services that are incorporated in the construction of the improvement.
• In Oregon, the term used for a general contractor is ‘original contractor’ which means a person who has contracts directly with the owner.
• Subcontractors are people who contract with the original contractor.
• Suppliers are those who provide materials for the project.

C) Pre-Project/Pre-Lien Requirements

• To ensure that you do have the right to file a lien, the claimant should be licensed, bonded and insured with the Oregon CCB.
• If you do not have the CCB license or if it has lapsed, then you will not have any lien rights unless you fall under an exception.
• You also need to have a contract that meets Oregon requirements, such as:

If the project is worth more than $2,000, then the contract should be in writing.

The contract should include all the basic information, such as part name, CCB license number, project info, scope of work, payment terms and signatures of all the parties involved.

• You also need to send all the pre-lien notices wherever required, for example:

On residential projects (CCB Consumer Notices and/or Notice of Right to Lien)

• The original contractor must provide the CCB Consumer Notices
• Subcontractors and suppliers must provide a Notice of Right to Lien

On commercial projects

• Original contractors don’t have to provide the Notice of Right to Lien
• In most cases, subcontractors also don’t have to provide the Notice of Right to Lien unless it is required.
• Typically, if you are not sure whether to send the notices or not, the best option is to o ahead and send it, so that you don’t have to worry about it later on if you do exercise your right to lien.

How to Secure your Bond Rights?

As mentioned earlier, you cannot lien a public project, instead you can claim bond rights while working on public construction projects. Oregon and federal laws require prime contractors to furnish payment bond to secure payment rights of suppliers and subcontractors.  

A) Federal Projects

• On Federal projects, you need to confirm the type of bond being provided.
• Federal projects are typically governed by the Miller Act which is applicable for contracts over $100,000 for prime contractors and protects the first and second tier subcontractors and suppliers.  
• If you are a subcontractor or supplier making a bond claim, then you must give a written notice about the bond claim to the prime contractor within 90 days of the last date you performed labor or supplied materials to the project.  

B) State Projects

• You need to confirm the type of bond being provided.
• Every state also has the Little Miller Act, which works like the Federal Miller Act, but every state has its own requirement.
• In Oregon, the Little Miller Act is applicable on contracts over $100,000 for primer contractors and protects the lower-tier contractors and suppliers.
• Suppliers and subcontractor claimants must give a written notice to the prime contractor within 180 days of the last date you performed labor or supplied materials to the project.  

It is recommended you contact your attorney who can guide you as required in making these claims.

What are Some of the Rules & Exceptions of Liens and Bonds?

Here are some of the rules and exceptions to follow with regards to liens and bonds.

A) Pre-lien Notice Requirements (Residential / Some Commercial Projects)

• Original Contractors must provide Residential Construction Notices if required and they should be delivered via hand delivery, registered or certified mail.  
• The three notices that are required include:

1. Information Notice to Owner about Construction Liens

2. Consumer Protection Notice

3. Notice of Procedure

• These notices should be provided on or before the date the contract is entered.
• If you are a Subcontractor or Supplier, then you need to provide a Notice of Right to Lien if required.  
• The notice should be provided within 8 days of stating work or delivering materials to the project and it should be delivered to the owner and mortgagee (for example, a construction lender).
• A key point to remember is that this notice is backwards looking which means that when you provide the notice, it protects everything basically eight days back. So, if you have been working on a project for a week, and you provide your notice, then the work that you have done up to that point, and going forward is protected. But if you have been working on a project for 16 days and forgot to send a Notice of Right to Lien, your first eight days will not be reasonable, because you didn't provide the notice.

B) Lien Filling Requirements: File Within 75 Days

• The lien should be filed (recorded) in the county where the project is located. Nowadays, most of the liens are recorded electronically.
• A key point to remember is that the county office typically closes by 5:00 PM, so even if you are filing your lien electronically, you need to do it well before 5:00 PM, so that the county has sufficient time to acknowledge it.
• Also, make sure that you do not wait until the 75^th day to file the lien because, if there is any delay in it being acknowledged, then you may lose out on your lien rights.
• So, when does the 75 days run? In Oregon, the lien must be filed within the earlier of:

1. 75 days after the claimant has ceased to provide labor, equipment or materials to the project; or

2. 75 days after the completion of construction.

• The ‘completion of construction’ basically means:

1. Substantial completion

2. Valid completion notice has been posted; or

3. Improvement is abandoned

C) What the Lien Must Contain?

• Your lien must contain a ‘true statement of demand’ after deducting all just credits and offsets.
• It should contain the name of the owner or reputed owner.
• Name of the person who employed the claimant or to whom the claimant furnished materials or rented equipment.
• Description of the property that is sufficient for identification, including the address.
• The claim also has to be verified by someone who has ‘knowledge of the facts.’ You also need to get it notarized and this can be done easily through electronic notaries.
• You can also attach some further details with your true statement of demand that will provide all the necessary information to the person receiving the lien.

D) Post-Claim Notices

• You also need to send post-claim notices to protect your lien rights. A Notice of Lien filing must be mailed within 20 days of filing the lien.  
• It should be sent to the owner and the mortgagee.
• You can also send a copy of it to the original contractor.
• You also need to send a Notice of Intent to Foreclose at least 10 days before filing a foreclosure lawsuit.
• Many people often combine both these Notices and send it to the required parties.
• All these notices must be sent via certified or registered mail.

Moving on to the Bond rule basics, here are some of the rules and exceptions to follow for Federal as well as State projects.

Federal Projects – Miller Act Claims

• A written notice must be provided by the subcontractor or supplier claimants to the prime contractor and appropriate public body/contracting agency within 90 days of the last date claimant performed labor or supplied material.
• You will need to bring a lawsuit in the United States District Court (Federal Court) within one year after the date on which the last labor was performed or materials were supplied.

Oregon State Projects – Little Miler Act Claims

• Subcontractors and supplier claimants must give a written notice of claim within 180 days of the last substantial day on the project.
• You must use the form of notice that is provided under Oregon law.
• The notice should be sent to the contractor who provided the bond and to the appropriate public body / contracting agency.
• You have two years to bring a lawsuit to the Oregon state court.
• The suit can also be brought in US District Court (Federal Courts) if there is a basis for federal jurisdiction.

Oregon CCB Bond Claims – A Potential Source of Payment

• According to the Oregon CCB Rules, contractors need to post bonds between $10,000 to $75,000, depending on the type of contractor and endorsement.  
• Not many people are aware that subcontractors and suppliers can also file CCB claims against those with whom they have a contract.
• The CCB has its own set of rules and notice requirements:

You need to file a claim according to whether it is a residential or commercial project and provide notice of your claims.

Licensed contractors generally have until one year from the structure's completion to file a CCB claim.

Suppliers will have one year from when the contractor incurred the indebtedness to file a claim.

Residential project claims get filed with the Oregon CCB first and require a mediation process. If the mediation process is unsuccessful, then the claimant must file a lawsuit or an arbitration.

Commercial project claims are filed in Oregon state courts first with a copy provided as part of the separate Oregon CCB claim package.

Irrespective of whether it is a residential project claim or commercial project claim, 30-day pre-claim notices are required.

What are Some of the Lien Law Traps to Avoid?

Here are some of the lien law traps that you need to avoid.

A) Avoid Pre-Emptively Waiving Your Lien Rights in the Contract

• Although it is not very common, some construction contracts in Oregon do ask the subcontractors to waive any lien rights; however, you should avoid signing such contracts.
• Since liens are a powerful tool to get paid, you don’t want to give up your legal rights in advance.
• Make sure that the waivers are clear and conspicuous.
• You can provide appropriate lien releases as part of the payment process.

B) Avoid ‘Non-Segregable” Liens

• There should be enough information in the lien that the owner can determine what charges are included in the lien.
• It is not recommended to simply list the total amount due.
• Ideally, you should include a full breakdown between labor, materials, equipment and services in the lien.
• If the owner cannot ask simple questions and figure out what the lien is about, the Court may state that there is no segregation between lienable and non-lienable items and throw your entire lien out.

C) Avoid Problems with Lien Notices

• You must ensure that you are serving your lien notices to the right party and as per the right timelines.
• The Notice of Filing Claim of Lien must be delivered within 20 days of lien filing along with a copy of the lien.
• It should be delivered to the owner and the mortgagee.
• The Notice of Intent to Foreclose must be delivered no later than 10 days before you file a lien foreclosure action in court.
• The best practice is to combine both the above notices and deliver them to the intended parties.

D) Responding to Requests for Information – Keeping your Right to Fees

• A key action item to keep your right to attorney’s fees is to respond to information requests.
• A pre-lien request for information can be made by the owner or mortgagee and you must respond within 15 days.
• A post-lien request for information can be made by the owner or mortgagee and you must respond within 5 days.
• If you fail to respond timely to these requests for information, then you will lose your right to attorney fees.

E) Lien Timing – When does the 75 Days Run?

• As mentioned earlier, the 75 days runs from whichever of the below two occurs earlier:

75 days after the claimant has ceased to provide labor, equipment, or materials to the project; or

75 days after the completion of construction.

• Couple of considerations to bear in mind:

Repairing your own work will not extend the 75 days.

Performing punchlist or ‘de minimus’ work will also not extend the 75 days.

Performing any additional, non-trivial work under the same contract may extend your lien rights.

Make sure to get a signed changed order that is clearly incorporated in the original contract.

What is the Right Way to Exchange Release for a Check?

Ideally, you will exchange release for a check to the extent of payment.

A) From an Owner’s View

• The owner’s main concern is to ensure that the work has been properly and timely completed for the price agreed.
• Owners typically get a full release of all claims as of a certain date, but contractors should avoid agreeing to it, if possible.
• Owners want to be assured that they are not going to end up paying twice for the same work. Oregon law requires an original contractor to indemnify the owner from lower-tier claims.

B) From a Contractor and Supplier’s View

• General contractors, i.e., original contractors with subcontractors and suppliers main concern is to:

get paid

preserve pending and potential claims to the extent possible

ensure subcontractors and suppliers won't lien the project once they get paid.

• For subcontractors and suppliers, the main concern is to:

get paid

preserve pending and potential claims to the extent possible

C) Conditional and Unconditional Lien Releases

• Make sure that you avoid singing any broad releases.
• A conditional release is prior to getting paid whereas an unconditional release is after the payment has been received.
• So, it is better to avoid releases which have the language as “all claims as of the following date ____”.
• Make sure that you clearly list down all the known claims or open change order requests. You should state that you are releasing claims except for XX number of outstanding change orders on which you have a dispute, so you are not going to waive your rights for those claims.
• Finally, you need to pay attention to what is written on the check. Owners often include language like ‘Payment in Full” or “Endorsee hereby waives any and all claims” on every check. Although these tactics are not very effective, it is recommended that you work with your attorney to strike or modify this language.
• Your primary concern should be that the waiver is favorable to both the parties involved.

So, these are some of the key steps that construction professionals in Oregon should be aware of to protect and preserve their payment rights while working on different types of construction projects.  

FAQs:

What are the key steps for contractors, subcontractors, and suppliers to ensure timely payments on construction projects in Oregon?

Step 1 - Understand Oregon's lien laws and deadlines for filing preliminary notices, such as the Notice of Right to Lien.

Step 2 - Maintain accurate and detailed records of work performed, materials supplied, and communication regarding payment terms.

Step 3 - Communicate proactively with project stakeholders, including general contractors and project owners, to address any payment issues promptly.

What are common challenges faced by contractors, subcontractors, and suppliers when seeking payment in Oregon, and how can they overcome these challenges?

• Delays in payment processing or disputes over work quality or scope can lead to payment delays.
• To overcome these challenges, parties should document all project-related communications, adhere to contract terms, and be prepared to negotiate and resolve disputes amicably.
• Utilize Oregon's lien and bond claim rights effectively to secure payment for work performed or materials supplied.

What legal and contractual protections should contractors, subcontractors, and suppliers be aware of to safeguard their payment rights in Oregon?

• Review and understand the terms of contracts and subcontracts, including payment schedules, retainage provisions, and dispute resolution mechanisms.
• Be aware of Oregon's Prompt Payment Act, which sets deadlines for payment after work completion, and enforce your rights under this legislation if necessary.
• Consider utilizing mechanics liens, bond claims, or other legal remedies available under Oregon law to secure payment for services rendered or materials provided.