Five Tips to Preserve Your Right to Payment
Category | Briefing Papers
Hugh Brown is a member of the firm’s Construction Law Department. He can be reached at 612.359.7663 or hbrown@fwhtlaw.com.
Contractors operating on thin margins in an era of escalating prices and supply chain disruption must be especially vigilant about maintaining their rights to payment for changed work. The following are good rules of thumb for all projects to preserve and document claims and take advantage of your legal rights.
- Strictly Follow Notice Requirements
Notice requirements in contracts are of crucial importance. In some jurisdictions, failure to follow them results in the loss of a claim. Even in more lenient jurisdictions, the failure to provide notice can be critical if it prejudices an owner. A good practice is to create a “cheat sheet” of notice requirements for every project and refer to it often. When in doubt, provide written notice.
- Pay Attention to Project Records
Construction projects are complex, time-consuming, and document-intensive. Getting relief for an event depends on proving work was affected by the event and showing the cost and time impact. Without good project records, proving a claim takes longer, costs more, and is less credible. Keep good, contemporaneous records of your work on a project, including weather conditions, work performed, labor and resources on site, causes and extent of delays, any meetings that occurred, and agreements reached. Document other important events in writing or, where applicable, by photograph or video. Keep good records of your time and material costs to prove your right to a schedule extension or extra money. This can make all the difference when you later present a claim to your customer or seek relief in court or arbitration.
- Communicate
An essential aspect of project records is communicating with your customer. In addition to the contractual notice requirements set out above, a claim is simply more credible when you can later show that you discussed it often with your client – e.g. that damages are continuing to accrue, that delays outside your control are extending the completion date, or that there are ways mitigate costs but you first need direction or answers to questions, etc. When writing these communications, remember they may be used as evidence later. Therefore, avoid anger, uninformed opinions, and conjecture. Ask yourself if the letter will look as good to you three months from now as it does today or if you would be uncomfortable having it shown to a judge, jury, or arbitrator. If in doubt, sleep on it.
- Insist on Written Direction for Changes
A common problem for contractors is proving entitlement to costs incurred for changes ordered verbally. Without a direction in writing, claims for these costs can end up in a “he said, she said” disagreement. This reduces the likelihood of recovery and makes early negotiated resolutions less likely. Therefore, ask for written direction for changed work. If you do not receive it, send a letter stating your understanding of the direction and asking for prompt clarification or correction. State your intention to seek extra costs and, where applicable, time resulting from the change.
- Observe Lien Requirements
One of the most powerful tools a contractor has is its mechanic’s lien rights. However, this tool can be lost without strict compliance with statutory requirements. Two, in particular, are worth noting. First, contractors on certain kinds of projects must provide the owner with “pre-lien” notice, are spelled out in Minnesota Statutes Section 514.011. Second, to be entitled to a lien, a contractor must serve and record a lien statement within 120 days of its last date of work. These requirements cannot be extended or excused. Do not wait until negotiations fail to perfect your lien rights – by then, it may be too late. Contact counsel early to make sure you preserve this important remedy.
This article is a general discussion only and does not constitute legal advice or representation.
Announcements
Hugh Brown and Julia Douglass will be presenting at the AGC of Minnesota’s Fall Member Meeting on the Infrastructure Investment and Jobs Act (IIJA) on September 28, 2022 at 9:30 am. For more information click here.
Fabyanske, Westra, Hart & Thomson, P.A. is pleased to announce that Dean Thomson and Julia Douglass will be speaking on Mediation Strategies on October 17th to the Florida Bar Association Section on Construction Law. Virtual attendance to the seminar is available.
Fabyanske, Westra, Hart & Thomson, P.A. is pleased to announce the recognition of nine attorneys, Mark Becker, Matt Collins, Rory Duggan, Gary Eidson, Marv Fabyanske, Kyle Hart, Jesse Orman, Dean Thomson and Tom Vollbrecht by U.S. News Best Lawyers©, one of the oldest and most respected peer-review publications in the legal profession. Dean Thomson was also selected by Best Lawyers as 2023 Attorney of the Year in Construction Law. For more information click here.
This discussion is generalized in nature and should not be considered a substitute for professional advice. © 2022 FWH&T