PROTECTING A CONTRACTOR’S RIGHT TO PAYMENT UNDER THE PRIVATE WORKS ACT
By: Denise C. Puente
With the downturn in the economy, it is now more important than ever for contractors to review their in-house procedures regarding payment and what steps must be taken in order to protect their rights when payment is not forthcoming. This article will discuss the basics regarding lien preservation under the Private Works Act, which governs those projects in which the owner is a private entity.
Filing a lien is an action that is generally taken at the end of a project when it becomes apparent that payment will not be forthcoming. However, it is important to remember that there are things that a contractor may do prior to commencement of the Project to satisfy itself that financial arrangements are such that payment will not become a problem.
A general contractor should not be shy about asking the owner how a project will be financed, and thereafter to undertake due diligence to satisfy itself that in fact the funding is in place. Often times, in dealing with newly formed LLCs, it is the case that the only asset is the project itself. Generally, a mortgage is in place, which would prime a contractor’s lien. In such a case, it may be prudent to structure payments in such a way that the payments come directly from the Bank to the contractor, thereby further guaranteeing that loan proceeds are used to pay for construction. In some instances, guarantees in the form of letters of credit or personal guarantees may also be helpful, if they can be obtained.
The major distinction between performing work on a private project versus a public project is that a contractor can actually assert a lien against the property itself on a private project. One cannot lien public property. The lien has the effect of freezing the contract funds. The following are some basic rules to remember if performing work on private projects:
1. Record a Notice of Contract
If you are a general contractor, the contract (or a notice of contract) must be recorded prior to commencement of work; otherwise, the general contractor does not have any lien rights against the property. The other advantage to recording a contract is that it shortens the time period for filing liens for subcontractors and suppliers. Since final payment is generally conditioned upon the furnishing of a clear lien and privilege certificate, the quicker this time period runs, the faster you will receive payment.
2. Record The Acceptance
Most contractors refer to the acceptance as Notice of Substantial Completion; however, the legal term is Notice of Termination. This should be recorded as quickly as possible after receipt from the owner. The filing of this document will begin the time period for filing liens.
3. Know the Deadlines
If you are a general contractor, the Private Works Act provides a period of sixty days from the recordation of the acceptance in which you can file a lien. Subcontractors and suppliers only have thirty days from the recordation of the acceptance, if the original notice of contract was filed. If it was not filed, then subcontractors and suppliers have sixty days from the date of actual substantial completion.
4. Ask for Notice
The best way to insure that the deadline for filing a lien is not missed is to know when that period starts. Rather than checking on the public records on a daily basis or relying on word of mouth, the easiest and simplest way is to send a letter to the owner asking that you be notified when the acceptance is recorded. The owner is then obligated to send you written notice within three days of the filing of acceptance or termination. The demand letter should indicate with whom you have contracted and that there is debt owed to you.
5. Carefully Prepare The Lien
The lien should set forth the amount owed on the Project for which you furnished labor and/or materials, together with a legal description and where the project is located. A municipal address alone is insufficient. In the case of subcontractors or suppliers, reference is usually made to the contract between the owner and the general contractor, the recordation information, if known, and the types of material or services provided in connection with the project. The lien must be notarized. Failure to include complete and correct information can result in a loss of lien rights.
6. Spread the Word
Filing the lien in the mortgage records of the Parish in which the work was performed is not sufficient. You should also send copies of the lien to the general contractor, the surety and the owner. Sending a copy to the architect may be helpful as well, as this is the person who usually handles payment on a project.
7. Deadline for Filing Suits
In some instances, filing liens is not enough to get paid. In order to preserve a privilege against the immovable, a Notice of Lis Pendens must be filed within one year of the date on which the lien was filed. A Notice of Lis Pendens is a document filed in the mortgage records giving notice to third parties that there is an encumbrance on this property. Since a lawsuit must be filed within one year of the expiration of the time period for filing liens, in some instances a gap may actually exist between the deadline for filing a Notice of Lis Pendens and the deadline for filing a suit. The prudent thing to do is simply to file the suit well in advance of the deadline for filing a Notice of Lis Pendens and file the Notice contemporaneous with filing of the suit. This will avoid any issue relating to timeliness of the filing of a Notice of Lis Pendens.
For subcontractors and suppliers, the same rule applies. However, it is imperative that suit be filed against the owner within the one year period to preserve the right against the surety, if one exists.
8. The Effect of Improperly Filed Liens
In a case where a subcontractor untimely files a lien, written demand may be made upon the claimant to remove the lien and provide written authorization to cancel the lien within ten days of receipt of demand. If the claimant fails to do so, an action can be brought against the claimant to have a court order that the lien be cancelled. In such a case, the party bringing the motion is entitled to recover costs and attorney’s fees in having the lien cancelled.
9. The Best Defense Is A Good Offense
Therefore, before beginning work on a project, carefully review your contract. Familiarize yourself with your right to stop work in the event of non-payment, conditions which may affect payment such as “pay-if-paid” clauses and the solvency of the party with whom you are contracting. If the contract provisions do not contain sufficient protection and in fact the worst occurs, it is important that a lien be timely filed and appropriate notice sent in order to preserve your claim.
ETHICS IN THE TWILIGHT ZONE
By: M. Davis Ready
In 1974, the Louisiana legislature passed an Ethics Code intended to cover public employees. Over time, the Ethics Code, which is enforced by the Louisiana Board of Ethics, has evolved into a very broad body of law that goes well beyond the public sector. The Board has the power to assess penalties, levy fines, and invalidate contracts.
The Ethics Code applies only to “public servants,” however, that term is defined as any of the following: (1) an administrative officer or official of a governmental entity who is not filling an elective office; (2) someone appointed by an elected official when acting in an official capacity, and the appointment is to a post or position wherein the appointee is to serve the governmental entity or agency; (3) someone who is engaged in the performance of a governmental function; or (4) someone who is under the supervision or authority of an elected official or another employee of the governmental entity. A 1982 Louisiana appellate case held that private entities contracting with the state are subject to the Ethics Code. Anyone contracting with a public entity in Louisiana must consider the potential impact of the Ethics Code on their immediate relationship with the Louisiana entity and the entire spectrum of their business.
If the performance of the public contract is deemed the “performance of a governmental function,” the private entity contracting with the public entity will be subject to the Ethics Code. Many businesses would, no doubt, be surprised to learn that they are even covered by (if not operating in violation of) the Ethics Code, despite their best intentions. Examples involving an engineer and an attorney are instructive as to potential applications of the Ethics Code.
An engineer was hired by a state agency to conduct a feasibility study for improvement of Louisiana Coastal Wetlands. The engineer is subsequently hired by a company bidding on wetlands improvement work on an unrelated construction project. A strict interpretation of the Ethics Code could result in consequences that the engineer never envisioned. The engineer could be considered a public employee, in which case the engineer’s business transactions and dealings with private parties could be scrutinized. The engineer’s transactions with the company bidding on the wetland improvement contract could be considered an illegal payment or gift to a public employee from a prohibited source. The Board could invalidate the contract with the public entity or levy fines and penalties against the engineer. The Ethics Code may potentially restrict the engineer or engineering company in its business transactions and dealings.
An attorney works for a local municipality part-time and conducts a private practice on the side. As part of her private practice, the attorney represents various businesses, which contract with the local municipality. Technically, the fees paid to the attorney for the representation of businesses which contract with the local municipality could be deemed an illegal payment or gift to a public employee from a prohibited source. The Ethics Code could force the attorney to restrict her business outside the public sector.
The lessons of the Ethics Code suggest that anyone who deals with state and local governments should consider how their other business transactions and dealings could be impacted. A thorough review and analysis of the Ethics Code and relevant ethics opinions and cases can go far to assuring that you are operating within the parameters currently recognized by our state as ethical.
STAFF SPOTLIGHT
Simon, Peragine, Smith & Redfearn, L.L.P. works as a team, with attorneys and staff cooperating to make our offices run efficiently. In this new segment of Law Notes, the firm will spotlight one of our staff members who is also a special contributor to the community.
This month’s Staff Spotlight is Jude Jastram, a dynamic member of our secretarial staff. A native of New Orleans, Ms. Jastram began working at the firm 8 years ago. Currently, she is a member of the Cabrini High School alumni association and an active member of the community organization, Dress For Success.
Ms. Jastram began her work with Dress for Success in October, 2001. As a member of Dress for Success, she plans how to help local women transition into a professional work environment. The mentoring covers a range of useful topics from telephone skills to office protocol, as well as providing each woman with a complete suit that can be worn year round. The goal of Dress for Success is to provide each woman with well-rounded office training and polished office skills.
“Just dressing someone up is not the answer,” said Ms. Jastram. “We have to make sure that each woman is comfortable with working in an office environment and comfortable with the way she presents herself.”
This month Ms. Jastram will serve as a personal shopper, spending an entire day with an individual who has completed to program. Ms. Jastram will help her find a suit, shoes and accessories to personalize her suit.
SPS&R WELCOMES NEW SUPPORT STAFF MEMBERS
Simon, Peragine, Smith & Redfearn, L.L.P. is proud to welcome two new members to their support staff—Lovelle J-K. Blitch and Dianne Wiltz-Hunley.
Ms. Blitch received her paralegal certification from Tulane University in 1988. She has an extensive background in Labor Law, Land Causality, Medical Malpractice/Insurance Defense, Medical Malpractice/Personal Injury and Tobacco/Environmental Litigation. As a paralegal for SPSR, she will mainly work in the area of Asbestos Litigation.
She is also active in the community, serving as an election commissioner for Orleans Parish, and a member of the Lakeview Civil Improvement Association.
“Working at SPSR is an exciting new venture. I look forward to developing new relationships and meeting new challenges,” explained Ms. Blitch. “Everyone at the firm has welcomed me with open arms and my experience thus far has been truly delightful.”
Ms. Wiltz-Hunley is a notary public and a certified paralegal experienced in General Litigation, Public Bid Law, Construction Law and Contract Administration. For SPSR, she will mainly work in the area of Construction Law. “For the past three years, I worked as a construction contracts manager in a construction management joint venture and because of that I sought out a firm that had a strong foundation in construction litigation,” stated Ms. Wiltz-Hunley. “I have only been here a few months and I have easily become acclimated with the firm because of its high level of professionalism.”
She received a Bachelor of Arts degree from Xavier University and a general paralegal certificate from Tulane University.
She has earned numerous awards and distinctions and is a member of the New Orleans Paralegal Association.
Welcome aboard!
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