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In this blog, we will provide you with a step-by-step guide to help ensure that contractors, subcontractors, and suppliers in Massachusetts get paid. We'll discuss what steps you need to take before getting involved in payment disputes, what leverages you can use to get paid, and some key details about Massachusetts lien and bond statutes.
Set Yourself Up for Success
The best practice, before you even reach a payment dispute, is to be prepared in advance, so that you can do your best whenever you reach that situation. One way to prepare yourself is to follow the acronym R.T.F.C. So, what does R.T.F.C. stand for?
a. R.T.F.C. – Read The Freaking Contract
This has to be your first and foremost step – reading the contract as thoroughly as possible. In Massachusetts, there is a lot that you cannot do if it is not mentioned in the contract. So, you need to be well aware of what is in there, check if the contract is properly drafted, you need to ensure that there is a contract in place, etc. You also need to pay attention to all the terms and conditions listed in the contract, and this acronym is applicable for all the paperwork that you receive from the person you are contracting with and also when you do a periodic review of the contract.
i. Properly and fully name the parties – It is very important to ensure that you are putting in the right and full name of the parties. One way to ensure this is to check the Massachusetts State of Secretary records. If you click on this link, you can search for a corporation or LLC by searching with their name. This well give you a clear idea of who you are dealing with.
ii. Are relevant terms included and do your terms control – Ensure that all the terms and conditions in the contract are updated as they would be the ones that control the contract in the end. You need to check if they have important terms like recovery of attorney fees, higher than statutory interest in Massachusetts, do you have to perform specific steps before you get paid, do you need to submit any reports or documentation on a monthly basis, etc.
iii. Dispute resolution terms – You need to clearly state all the terms related to your choice of law, i.e., which state laws are going to control (in case you work in multiple states), which jurisdiction will apply, where do you need to be sued, do you have any alternative dispute resolutions, etc. One key point to remember is that you cannot waive your Mechanics Lien or bond rights in advance. So, even if you sign a contract which does not state this explicitly, it is okay because it will not be enforceable.
iv. Is your credit application/PO/job information complete – The final step is just ensuring that your terms and conditions are updated, you have all the information about your purchase order, job information, etc., clearly mentioned. This is especially important when you need to file for a Mechanics Lien.
What is your Leverage to Get Paid?
So, what are some of the leverages that you can opt for to ensure that you get paid?
a. Contract Terms – How helpful are your contract terms? Can you get your attorney fees and 18% interest which will make the involved parties sit up and ask if they can deal with payment issue now?
b. Ongoing relationship or limited option for your products/services – Do you have an ongoing relationship, any supply issues, limited number of workers, or any other means to encourage them to pay you so that you don’t leave the job midway?
c. Mechanics Lien or Bond Claim – Finally, you can leverage your Mechanics Lien or bond claim rights.
Guide to Getting Paid
Once you get into a payment dispute, here’s what you need to do to get paid.
a. Demand the Debt
i. Make demands early and often – Make sure that you are demanding your debt as early as possible while ensuring that your statements are completely accurate. When you send statements timely and consistently, it makes it easier in the court to prove that the involved party was notified about the debt.
ii. Notify other interested parties about the default – When you make the demand, make sure you send it all the interested parties, such as the CFO, CEO, your direct contact, etc. Find out if there are other people, such as maybe a senior contractor or the project owner who might be interested in knowing about your demand. If you are working with the local branch of a company, then you can send the demand to the headquarters as well. You can send it through email or certified mail.
iii. Escalate to an attorney for demand – If your actions do not get the desired result, then you will need to escalate it to an attorney. Getting an attorney involved also gives off the impression that you are ready to file a lawsuit. This is great leverage to use and get some results immediately.
b. Options for Recovering the Debt
i. Small claims – If you have several small claims, then it is recommended that you file them together, so that you can get the same hearing date. Once the judgement is passed, there is a payment review process which is really helpful in ensuring that you get paid. But remember that you cannot split your claims; however, if you have two separate invoices, then you can file two different cases.
ii. 1099C cancellation of indebtedness demand – This is a variation of your regular demand. It is basically a tax form that you file informing that you have decided to give up the debt and forgive it. Remember that once you file this with the IRS, you cannot seek to recover it again. When you send the 1099C cancellation of indebtedness demand, it adds taxes on the person whose debt is canceled. You must file this demand within the first three months of the year.
iii. Mechanics Lien – This is popular means of recovering debt which can be used by general contractors, subcontractors, and suppliers. Unlike other states where you need to be at a certain tier to exercise your Mechanics Lien rights, Massachusetts does not have this rule. When a Mechanics Lien is ruled in your favor, it allows you to sell the property to recover the money that is owed to you.
iv. Bond claim – Another great option to recover your debt is through a bond claim when working on public projects in Massachusetts. Make sure that you ask for the bond copy early on in the project or even before you start working on the project. This will allow you to know what position you are in with regards to the bond terms, what are the deadlines, are there any special requirements (if it is a private bond), how to exercise those requirements, etc.
v. File suit for breach of contract/breach of guaranty – The last option is to file a suit for breach of contract/breach of guaranty. In Massachusetts, you don’t need a formal contract to sue for a breach of contract. Usually, with purchase orders, or even if you are calling and ordering services, there is an implied contract with the invoices. This means that you cannot file a suit even if there is no formal contract in place.
However, if you are a supplier, then you will need a contract in writing for sale of goods with a value of more than $500.
Massachusetts Lien and Bond Statutes
a. Mechanics Lien, M.G. L. c. 254
i. There are three main requirements that you need to fulfill: a written contract between the parties, Mechanics Lien can be filed only on private projects, and the most important thing to remember is that you must initiate your Mechanics Lien within 90 days of the last day of furnishing your work as per the prime contract. For written contracts, Massachusetts also approves email confirmations regarding the construction project.
ii. A good practice is to take note of your last day of work and when you are at 60 days, you need to start evaluating. You will also need the deed reference for this purpose. Next, there is a specific process that you will need to follow for filing your Mechanics Lien and subsequent filings.
iii. You need to ensure strict compliance with the statute. Eventually, a lawsuit would be required wherein the judgment will be to sell the property and retrieve the amount owed to you.
b. Public Project Bond Claim, M.G.L. c. 149, §29
i. If you are working on a federal project, then it is equivalent to the Federal Miller Act which as per the state is known as Massachusetts Little Miller Act. This is required if you are working on large public construction projects.
ii. For people who are looking to get paid, you need to look out for the payment bond and not the performance bond (which benefits the owner). Once you get a copy of the payment bond, take note of the bond number, name of the bonding company, and who is the bond principal.
iii. Take note that if you do not have a direct contract with the bond principal, then you must give them notice within 65 days that you have a claim. If you fail to do so, then you cannot file a claim.
iv. If you do have a direct contract with the bond principal, who is usually the general contractor, then you have one year to file your suit.
In Massachusetts, it is very important to be compliant with all the statutes in place to ensure that you get to exercise your rights and eventually get paid. So, if you exercise your rights in a timely manner, you can rest assured that your payment disputes will be resolved successfully.
