eNews November 21, 2019

In the News

November 21, 2019


Immediate Changes to Georgia Lien Waivers

—Christie Citranglo, editorial associate

A new ruling in the Georgia Court of Appeals will change the role of affidavits of nonpayment when filing a lien. If an affidavit of nonpayment is not filed after a lien waiver document is signed, then the supplier’s claim against the owner is invalid, and so is the supplier’s claim against its own customer. This ruling will be effective even if it’s undisputed that the customer did not pay the supplier.

Under the new ruling, unless an affidavit of nonpayment is filed, it is assumed the claimant has been paid up to 60 days after signing a lien waiver. If the claimant waits more than 60 days to file an affidavit of nonpayment, lien rights are lost.

“Because of the way the waiver statute was crafted, the lien waiver is effective for all purposes. One of those purposes includes trying to collect from your customer, according to the court of appeals,” said James W. “Beau” Hays, a partner with Hays Potter & Martin, LLP, in Georgia. “You are conclusively deemed to have been paid 60 days after you sign a lien waiver if you do not file an affidavit of nonpayment.”

The ruling will go into effect immediately, and the ruling will also be retroactive. The ruling comes from a court of appeals case rather than a bill signed into law, eliminating any chance of the new ruling falling on a legal timeline.

According to the old law, if an affidavit of nonpayment wasn’t filed, lien rights would be lost—but the claimant still had the ability to sue the company if payment was not made. Should an affidavit not be filed under the new ruling, all lien rights in any part of the contractor/supplier chain are lost. The claimant can no longer sue, either.

This loss of lien rights also extends to the 60-day deadline. Should a claimant fail to file an affidavit of nonpayment within 60 days, lien rights will be lost. Creditors then should be vigilant about when to file, keeping in mind the difference in time between signing an affidavit and then filing it. Even if the creditor does not plan on enforcing lien rights, filing the affidavit will still protect the creditor in case lien rights do need to be exercised.

“What the creditors need to be mindful of is when they sign a lien waiver, they absolutely need to protect their rights if they do not get paid within the 60 days by filing—even if they don’t ever expect to enforce the lien,” Hays said. “... So [the creditors] don’t file an affidavit of nonpayment because they think, ‘We aren’t going to have a lien anyway, so there’s no need to worry about it,’ only to turn around and discover they have waived contract rights, too.”

Hays suggests creditors make a note to file an affidavit of nonpayment 50 days later, if the balance is still not paid. This will still grant creditors protection at any point in the filing process, as long as they observe all the deadlines.

The next Georgia Legislative Session will be held in January 2020, where this new ruling may be called into question.

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Immediate Payments Could Ease Cash Flow Issues

—Michael Miller, managing editor

Having cash in the bank is not as easy as it seems for consumers or businesses that have jobs and customers. Roughly 80% of the U.S. workforce lives paycheck to paycheck, and businesses feel the cash flow crunch too for a number of reasons, which includes spending more than is coming in. Another pressure point for businesses has to do with the timing of payments, unlike a consumer in the workforce who receives a paycheck every two weeks. Business payments to other businesses can fluctuate even with set payment terms. PYMNTS latest SMB Receivables Gap Playbook Breaking the Trade Credit Cycle dives into the timeliness of business payments.

For some businesses struggling to stay above water living from job to job and payment to payment, one option is offering a discount to the buyer for early payments. Early payment discounts are nearing $2 trillion annually at an average discount rate of about 4%, states the Playbook. It’s estimated there’s $3.1 trillion in accounts receivable suspended on any given day, impacting cash flows and operations of businesses. Coinciding with early payment discounts is immediate payments, which “allow suppliers to immediately receive funds and give buyers 30 days to either pay their finance payments or in full,” adds the report. Some of the key findings were that businesses do not take full advantage of immediate payments; businesses are interested in immediate payments; and small- to medium-sized businesses believe there are benefits to immediate payments.

Unfortunately, of the more than 1,000 businesses surveyed, nearly a fifth have never heard of immediate payment options. Almost a third have heard of the option but don’t use immediate payments. Smaller businesses (less than $5 million in revenue) are also least likely to use immediate payments at under 10%. Almost a quarter of businesses with less than $5 million in revenue have never heard of immediate payments. High-margin firms (margins between 25%-75%) are the biggest adopters of immediate payments.

Of the businesses that use immediate payments occasionally, just shy of half offer a 3–5% discount (the most common discount range). That bucket of firms is also linked to the highest number of businesses with 31–60-day terms (nearly 40%). Only a fraction of businesses fall into the zero days and more than 90-days buckets, while most fall within the 16–30 and 31–60 days.

As a business-to-business (B2B) seller, most firms are very interested in using immediate payments. More high-margin businesses are extremely interested compared to low-margin ones, and the opposite is true for those somewhat interested. As B2B sellers, high-margin and low-margin businesses predict revenues would increase, yet roughly 30% believe revenues would not be impacted with immediate payments. The No. 1 benefit for high-margin firms was revenue increase. That was followed by, in no particular order, improvement of day-to-day operations, faster hiring, expanded production capacity and business growth, among others. Top benefit for low-margin firms was the ease of day-to-day operations.

Among the factors to consider when using immediate payments are cost, simplicity and cash flow.

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Contracts Taking a Reverse Stance on P3s

—Andrew Michaels, editorial associate

Public-private partnerships, commonly known as P3s or PPPs, are tricky arrangements for contractors who are interested in financing projects based on agreements between the public and private sectors. The Associated General Contractors of America (AGC) has gone so far as to say P3s have “no single definition,” therefore, further complicating the process. Despite endorsements from the U.S. president, who recently back-pedaled on the idea of using P3 projects to boost infrastructure, many contractors are shifting away from P3s because of the significant roadblocks.

According to the Government Finance Officers Association, the general definition of a P3 is “any agreement as long as it involves a contract between the public sector and the private sector where the private sector is providing public services or public benefits (including financing assistance from the private sector).” Although there are different types of P3s, AGC states it is common for the private entity to pay for all or some of the project, with a repayment plan in place. Project types vary, but include roadways, airports, government buildings, schools and universities.

In August, Granite Construction experienced one of the common issues with P3s among contractors: fixed-price agreements. While other agreements might cover potential speed bumps throughout the duration of the project, fixed-price agreements implement a specified cost and timeframe. If costs exceed the set amount, Granite CEO James Roberts told Construction Dive, “the owner assumes that the contractor had those issues in their bid and the contractor didn’t assume that and so it ends up in dispute.” For Granite, this became a problem when weather delays increased costs and contributed to the company’s net loss of nearly $98 million in the second quarter of 2019.

“Instead of entering into what we believed to be a partnering relationship, it is now clear that, especially in the context of these megaprojects, the fixed-price design-build contract delivery model and the public-private partnership contract-delivery model resulted in an untenable imbalance in risk-sharing between Granite and the project owners,” Roberts said during an earnings call in August.

Another prevalent problem comes in the form of labor and materials prices and their fluctuation during long-term projects, said Chris Ring, of NACM’s Secured Transaction Services (STS). Understanding whether there is a payment bond can assist in mitigation, but state projects may not be bonded, so contractors want to check local requirements. However, federal projects don’t require a bond.

Ring said contractors must also ask, “Is the general contractor required to have Disadvantaged Business Enterprise (DBE) participation?” If so, they need to confirm the Commercially Useful Function (CUF), which is performed by a DBE. Circling back to the issue of fixed pricing, Ring noted contractors must ask, “If it’s a long-term contract, is pricing fixed upfront?” If that’s the case, inflationary and/or tariff’s cost increases need to be addressed.

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Think Leaving Equipment on Site Extends Your Lien Period? Think Again.

—Anthony Burden, Esq.

A recent case in Alberta, Canada discusses whether builders’ liens provide unpaid contractors and subcontractors on a construction project the ability to secure a debt claim against a piece of land. While courts have acknowledged that the purpose of builders’ liens is to provide this protection, there are criteria that need to be met for a lien to be valid.

One such criterion is that a lien must be registered within a specific timeframe. While Section 41 of the Builders’ Lien Act (the “BLA”) provides a 45-day deadline (90 days for an oil or gas well or an oil or gas well site) for lien registration after materials or services are last provided or a contract is abandoned, when this deadline commences can be unclear.

Equipment left on site, without more, will not extend a lien period

Whether leaving equipment on site at a construction project extends a lien period was recently considered by the Alberta Court of Queen’s Bench in Woodbridge Homes Inc. v. Andrews, 2019 ABQB 585.

Woodbridge was the contractor/agent with respect to the purchase/construction of several different properties for the defendant, Andrews. Woodbridge alleged it was unpaid for part of its work, and registered a builders’ lien against one of the Andrews properties in November 2010. Woodbridge’s lien indicated work was last performed in October 2010.

At trial, Woodbridge argued that there were some potential warranty issues and settling it had to address after October 2010, and it left equipment (a skid steer, two flatbed trailers and a cube van) on site for that purpose. Woodbridge also argued that it had performed some minor work after October 2010.

Woodbridge’s equipment was removed in August 2013—almost three years after lien registration. Woodbridge argued that this was when it completed its work, and as such, its lien period had not expired in 2010 or any time prior to 2013.

Andrews argued that no amounts were owed, and that in any event, Woodbridge had not performed any work subsequent to August 2010. As a result, the lien registered in November 2010 was out of time based on Section 41(1) of the BLA.

The Court held that Woodbridge’s lien was registered out of time. While the Court acknowledged that the “object of the Builder’s Lien Act is to prevent owners of land from benefiting from improvements to their land without paying for them,” the Court recognized that the time period for lien registration is strict.

The Court held that there was no persuasive evidence that any work was completed after August 2010. The lien itself stated that work was last completed in October 2010, which placed doubt on Woodbridge’s assertion that there was ongoing work left to be completed thereafter. At the time of lien registration, Woodbridge could have indicated on its lien that its work was not yet completed. It did not do so.

The Court also did not accept Woodbridge’s argument, on the evidence presented at trial that materials left on site meant that the work was not completed.

This article has been published with the permission of Field Law, and may be republished only with the consent of Field Law. “Field Law” is a trademark and trade name of Field LLP.

Anthony Burden, Esq., is a lawyer specializing in the areas of insurance, construction and general litigation. Anthony’s clients are diverse and represent multiple industry sectors, and range in size from individuals to multinational organizations. When working with construction companies, Anthony has experience dealing with complex operational structures involving corporate entities based outside of the province and/or country. Although he is based in Calgary, Anthony’s clients are located throughout Alberta, and often have operations throughout Canada—and beyond. Anthony’s counsel has assisted clients in a variety of situations, including defending against negligence claims and at the outset of contentious pre-trial negotiations.


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