eNews November 15, 2018
In the News
Nov. 15, 2018
Finding the Right Data Management Tools for Your Company
Just as a credit manager is responsible for investigating customers’ creditworthiness and maintaining the creditor-debtor relationship, another crucial element of the job is data management. How is the company’s data managed, and how does that management pertain to the credit department?
Data management strategies are making significant strides, intertwining today’s technological advancements in artificial intelligence (AI) with abilities to handle credit-centric data more effectively. Yet, new answers raise new questions from financial institutions (FIs) from those who are seeking the most appropriate and protected data management strategies for their customers. Commercial banks, community banks and credit unions are among the latest inquisitive FIs, following a collaborative study by PYMNTS and Mastercard Company Brighterion.
AI is often defined as a machine’s intellectual capabilities compared to the intelligence of humans or other living beings. However, The AI Gap Study: Perception Versus Reality in Payments and Banking Services narrowed its definition with the term “True AI,” meaning “unsupervised learning models that detect irregular patterns from disparate data sets.” More than 200 FI senior executives were asked about their companies’ involvement in the following six learning systems: business rules management systems, data mining, advanced learning systems (case-based reasoning, fuzzy logic and deep learning) and AI systems. In most cases, the study notes, sophisticated systems were used more by larger banks than smaller ones, the former between $25 billion and $200 billion and the latter around $1 billion to $5 billion.
“The most common form of learning technology was data mining, which was implemented by more than 70% of FIs,” the study states. “Banks of all sizes reported using data mining in large numbers, but the largest banks were the most likely to use it. The probability that a firm would use data mining decreased along with its size …”
Many studies cite a company’s ability and willingness to invest plays a major role in their use of data management technology; however, Scott Taylor, Dun & Bradstreet’s former market development and innovation leader, said money isn’t the only necessity to integrate a new management platform. In a 2016 article, Taylor listed and explained the five “master data best practices” that best suit a business’ infrastructure:
- Search before create. Simply put, Taylor said, companies must assess their current data management capabilities. What systems are in place? Does the company already have a system that protects the customers’ data from cyberthreats?
- Increase attribute fill rates for core firmographic and identity data. Are the customer data files accurate? Do they still work for the company or have they changed positions, left the company, etc.? Ensure information is up to date.
- Compile hierarchy and linkage for full corporate parent/child and affiliate relationships. If the system contains information from two or more people from the same company, does their information line up? Are they from the same location or different branches? Are they in the same department? Make the information clear.
- Establish common definitions between departments and business partners. When deciding to integrate a new data management system, ensure each department uses the same terms “so that each program can understand data produced by another,” Taylor said in the article.
- Enable seamless integration of coded third-party content. Lastly, find a system that complements the company’s management style and enhances its capabilities.
—Andrew Michaels, editorial associate
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Nonpayment at DC Hotel Causes Liens
A handful of subcontractors are still waiting for payment at a now-open Washington, DC, hotel. According to the Washington City Paper, the unpaid claims range from $40,000 to more than $1 million for work at The LINE Hotel in the Adams Morgan neighborhood of the District.
One subcontractor, Belfast Valley Construction, which specializes in commercial concrete, filed suit in September 2017 against the owner (Sydell Group) and general contractor (Walsh Group) on a $1.2 million lien; they are in mediation.
“Any time we don’t get paid, it has an impact on our ability to do payroll and do vendor payments and that kind of thing,” said Ronald Hunt, vice president, Capitol Sprinkler Contracting, which is owed roughly $100,000, according to City Paper.
Advanced Window, Inc. President Jason Glatt told the news outlet it has not been paid this year and is owed $130,000 for work at The LINE Hotel. Glatt said in 2014, when they started on the project, payments were coming in every 90–120 days, which while slow, is not uncommon for construction payments; it is the nature of the industry. However, delayed payments can also affect certain statutory deadlines as spelled out, in this case, by the District of Columbia Code.
Like more than half of the U.S., the District of Columbia is an unpaid balance lien territory, meaning, “The lien of the parties shall be limited to the amount due, or to become due, but unpaid to the original contractor and shall be satisfied, in whole or in part, out of that amount only,” according to DC law.
The Code also specifies only those “directly employed by a contractor” have lien rights similar to those of the contractor. The person direct to the contractor does not have to be a subcontractor; the Code allows for materialmen and laborers, who furnish work or materials toward the completion of the project to have lien rights. Putting this into perspective, suppliers of material to the subcontractors in the real-life scenario above would not have mechanic’s lien rights on the hotel project.
In order to have lien rights, contractors and subcontractors must follow the Code timeline for notices and other documentation. Subcontractors must file a notice to owner with the Recorder of Deeds of the District of Columbia as well as serve the notice to the owner or agent. Subcontractors are also entitled to know the terms of the contract by demanding a statement of terms, and if the owner or agent fails, refuses or lies about the terms of the contract or amounts due, “property shall be liable to the lien of the said party demanding said information, in the same manner as if no payments had been made to the contractor before notice served on the owner as aforesaid.”
Advance payments work in a similar fashion. If an owner tries to defeat subcontractor liens by making advance payments to the contractor prior to the agreed upon time as stated in the terms of the contract, “and the amount still due or to become due to the contractor shall be insufficient to satisfy the liens of the subcontractors or others so employed by the contractor, the property shall remain subject to said liens in the same manner as if such payments had not been made.”
Subcontractors can file a mechanic’s lien during construction and within 90 days of a private project’s completion. If payment is still not made, those with liens can file suit to enforce the lien within 180 days after the notice of intent is recorded, and by recording within 10 days of the suit a notice of pendency of action. Failure to do either terminates the lien.
—Michael Miller, managing editor
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Late Payments in UK Devastate Small Business Owners
Late payments continue to drag the U.K.’s economy. Carillion devastated the U.K. in January when it left 30,000 suppliers and $2.6 billion of goods unpaid after a series of late payments. A new study of small- to medium-sized businesses (SMBs) by GoCardless concluded that as many as 56% of business owners in the U.K. have had to use personal or emergency funds to finance these late payments. Without doing so, many businesses have said they could not keep their business open.
Much of the anxiety surrounding the use of emergency funds stems from uncertainty in cash flow. Of the 250 SMB owners surveyed, 80% of respondents said they are unsure if they can pay bills on time as a result of late payments and unpaid invoices. Amid these concerns of customers who don’t pay on time, 89% of the SMB owners said this uncertainty causes them to feel more stressed and anxious each day, which likely affects work performance.
Late payment concerns have even shattered national political anxieties: 41% of SMB owners said they are more worried about the impacts of late payments on their company than Brexit.
“It’s unacceptable for small business owners to have so much uncertainty around their payments. When late payments are resulting in founders taking emergency finances or not being able to pay their bills on time, it’s time to do things differently,” said Hiroki, GoCardless’ CEO, in a statement. “Currently, only 43% of SMB owners are using tech solutions to ensure they’re paid on time.”
A report from the Federation of Small Businesses in the U.K. reported around $8,000 is the average value of a late payment in the U.K. The federation also found that on-time payments would amount to about $3.25 billion for the U.K. economy, with the potential to save about 50,000 U.K. businesses from failing completely.
Late payments have continued to be a problem in the U.K., a problem that has been brewing for several years. Back in October, several trade groups advocated for legislation to regulate payments and punish late payers, a possible solution to turn the U.K.’s economy around. The idea was met with backlash from large companies, and government intervention has not yet occurred.
—Christie Citranglo, editorial associate
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Federal Circuit Confirms Contractually Omitted Miller Act Applies
The Federal Circuit Court of Appeals (Court) has confirmed something that many in the federal government construction contracts industry already understood: The Federal Acquisition Regulation’s (FAR) Miller Act bonding obligations always apply.
The Miller Act, 40 U.S.C. §3131 et seq. (Act) and FAR Clause 52.228-15, “Performance and Payment Bonds-Construction,” require contractors on federal construction projects exceeding $150,000 to provide payment and performance bonds (Bonds) to assure performance and payment of certain subcontractors. Due to sovereign immunity, subcontractors cannot file mechanic’s liens on federal property, creating the need for bonds to assure payment. Thus, the Act.
Here, K-Con, was awarded two pre-engineered building Army contracts. The awards arose under the General Services Administration’s eBuy system and neither solicitation included Act provisions. Following award, the Army directed K-Con to provide Bonds prior to Army issuance of Notices to Proceed (NTPs). Two years later, K-Con provided the Bonds and NTPs were issued. K-Con sought $116,000 for increased cost due to this two-year delay, arguing that the Act was not in the contracts, meaning that K-Con was not required to provide Bonds. The Army denied that claim.
On appeal, the Armed Services Board of Contract Appeals (ASBCA) found that the Act’s FAR provision was incorporated as a matter of law under the Christian Doctrine, first articulated in G.L. Christian & Associates v. United States, 312 F.3d 418, 424-26 (Ct.Cl. 1963). That doctrine holds that certain regulatory provisions are incorporated into government contracts as a matter of law or public policy even if not explicitly referenced therein. As a result, the ASBCA rejected K-Con’s monetary claim.
Before the Federal Circuit, K-Con raised two arguments, both of which the Court rejected.
First, K-Con argued that the contracts were let under GSA’s eBuy program as “commercial items,” not a construction contract, so no bonding was required. The Court found that any ambiguity as to the “type” of contract was patent (i.e., a reasonable bidder should have found and inquired prior to bidding). As such, K-Con was affirmatively obligated to inquire pre-award as to the Act’s applicability. A standard government construction contract form would have included bonding. Here, that did not matter, as the solicitations indicated in many locations that it was for construction, not mere supplies or services, particularly given their inclusion of the Davis-Bacon Act, requiring payment of prevailing wages on construction projects. Inclusion of these provisions created a patent ambiguity and K-Con’s failure to seek pre-award clarification waived this argument.
K-Con also argued that, even if considered construction contracts, neither explicitly included the Act. The Court relied upon the widely recognized Christian Doctrine, which holds that, where a regulation exists, the Court can incorporate the clause into a contract by operation of law where:
- The clause is mandatory (e.g., “shall” type clauses); and
- “[E]xpresses a significant or deeply ingrained strand of public policy”. K-Con at 7-8 (citation omitted).
Applying this two-part analysis to K-Con, the Court held that the Act’s inclusion was mandatory, requiring that “a person must furnish to the Government [payment and performance] bonds …” Id. (citing 40 U.S.C. §3131(b)(emphasis in original)). This mandate extended through FAR 28.102-1, which states that the Act “requires [Bonds] for any construction contract exceeding $150,000.” Id. at 9. The Court concluded that the provision of Bonds was required under the first prong.
The Court next found that the Act serves the public purpose of providing “security for those who furnish labor and material in the performance of government contracts.” Id. (citations omitted). The Court concluded that the Act and FAR “requirements express ‘a significant or deeply ingrained strand of public procurement policy.’” Id. at 14. As a result, the Court found that the Bond provisions are incorporated by law under the Christian Doctrine. K-Con’s appeal was denied in total.
While K-Con articulated colorable arguments associated with the contracts being for prefabricated buildings under the eBuy program, this author has always believed that the Act applied to all federal construction contracts. This likely extends to cases where the agency inadvertently excluded the Act’s bonding provisions. Contractors would be diligent to assume that Bonding is required. Applying the Christian Doctrine to the Act provides precedent and establishes that, even if omitted by accident, Act Bonds are required.
Contractors pursuing federal construction work—and possibly by extension state or local governments if they follow the Christian Doctrine—should carefully review solicitations and make sure that they understand and verify bonding requirements (to say nothing of other like provisions). Any question or potential question should be submitted to the agency for clarification prior to bidding. Otherwise, the bidder/offeror carries the risk of having to provide something that it may not have included in its budget.
Reprinted with permission.
Lawrence Prosen is a partner and government contracts attorney at Kilpatrick Townsend & Stockton LLP in Washington, DC, who holds a degree in architecture and has specialized in construction litigation. Lawrence focuses his practice on representing and advising contractors (both construction and nonconstruction) on a broad range of matters related to government contracts, as well as representing clients in public and private/commercial construction litigation.
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A Mechanic’s Lien Is Not Your Only Option, Part II
How does a claim under the Act differ from a mechanic’s lien?
There are a number of important differences between a demand made pursuant to Conn. Gen. Stat. §42-158j and a mechanic’s lien:
- Exclusions. Liens may be filed on any private project where the value of the work performed is more than $10, whereas §42-158j only applies to projects valued at more than $25,000, and the statute does not apply to residential properties containing four units or less.
- Impact on project funding. Liens get the immediate attention of the project lender and can interfere with funding, which often facilitates a quick resolution. There is no comparable pressure on the lender with a §42-158j demand.
- Security for claim. Liens attach to the property itself, so assuming there is sufficient equity in the property and no prior liens or mortgages, the lienor is assured of payment. If the owner/general contractor refuses to place funds in escrow, there is no similar security with a §42-158j claim.
- Attorney’s fees. A lienor must foreclose the lien, which can be costly, but after having done so, attorney’s fees are recoverable. With a §42-158j claim, attorney’s fees are only recoverable if the owner or general contractor refuses to place funds in escrow and a court ultimately determines that the owner/general contractor “unreasonably withheld payment.”
- Cost and expense. While effective, liens can sometimes be time consuming and expensive to file and foreclose; a §42-158j letter is quick and easy, and a §42-158j lawsuit is much simpler than a foreclosure complaint.
- Time limitations. There are strict timeframes governing liens: 90 days to file and one year to foreclose; whereas there are no explicit time limitations on §42-158j claims.
- Punitive damages. Ten percent punitive damages are recoverable under §42-158j if the claimant can demonstrate that the owner/general contractor acted in bad faith; there is no similar remedy available for lienors.
Mechanic’s liens and §42-158j demands are nonexclusive remedies
In recognition of the important work that is performed by subcontractors and suppliers in the state, the Connecticut Legislature has enacted laws to ensure that these construction professionals are paid promptly and in full for their labor and material. Connecticut’s lien statutes permit contractors to secure their claims by attaching property, and Connecticut’s Fairness in Construction Financing Act allows contractors to recover attorney’s fees, interest and punitive damages when payments are withheld in bad faith. It is important to note that mechanic’s liens and §42-158j claims are not mutually exclusive; we recommend that claimants do both, whenever possible.
Reprinted with permission. Part I of this article appeared in last week’s eNews on Nov. 8.
Paul R. Fitzgerald, Esq., of Michelson, Kane, Royster & Barger PC in Hartford, Connecticut, practices in the areas of construction and surety law, where he handles a broad range of construction-related matters on behalf of subcontractors, contractors, public and private owners and sureties. Paul has extensive experience litigating cases in state and federal court and has resolved many disputes in arbitration and mediation. He frequently drafts, reviews and negotiates construction contracts.
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