In the News

January 23, 2020

 

The Dangers of Abbreviating ‘2020’ on Legal Documents

—Christie Citranglo, editorial associate

With the new year just underway, construction creditors will begin to sign and date new forms for construction projects—but how creditors write out these dates and how they handle this critical information may see a new challenge in 2020.

When filling out document after document, it can be easy for creditors to develop a habit for writing in shorthand, especially when it comes to dating documents. Writing out dates in the form of “1/23/20” can shave a few seconds off of a creditor’s busy schedule, but it can also lead to fraud in the future.

Abbreviating “2020” to “20” on documents can allow fraudsters to tack on an incorrect year to the date: an abbreviated 20 can transform into a 2019 or 2021, should someone add a few numbers onto the end of the date. Unlike previous years, tacking on extra numbers can make fraud more difficult to detect than if someone attempted to change the numbers entirely. 

“When people get desperate and do desperate things,” said David Merbaum, an attorney with Merbaum and Becker. “It makes it easier now because you can just add those two numbers and make it any date. I can’t say I haven’t seen people fudge dates or change dates in the past.”

This notion of adding extra numbers to dates circulated around social media quickly during the turn of the new year, garnering the attention of county auditors and local police departments around the U.S. While it can be tempting to brush off viral social media posts, this story does have merit—should creditors encounter unscrupulous characters.

While it’s not likely every customer a creditor encounters has ill intentions and will falsify documents, remaining vigilant and careful could save a document from potential fraud. Anything a creditor can do that will make it more difficult to falsify information should be a practice a creditor adopts. Desperation invites risky action, Merbaum said, and careful deliberation can be a creditor’s best protection against fraud.

“It is a concern. I would suggest you fill in the full date and make a copy,” Merbaum said. “When things are so critical with liens and bond claims, this absolutely could affect the creditors. Changing it is one thing, adding to it is different. If you add it in and you can make it look like the original writing. It’s a little more noticeable when you’re actually changing the numbers.”

 

Online Courses

Credit Law—Now Available on the CLC!

This course will teach you the legal concepts directly applicable to credit decisions and the extension of credit. Learn about the different corporate structures, commercial transactions such as establishing customer relationships and various payment methods, as well as laws and regulations which includes the ECOA, antitrust, escheatment and more.

Practicing expert attorneys join the discussion, bringing in real-time examples of the law in practice to help students immediately understand the impact of legal concepts presented on day-to-day credit decisions and responsibilities. Listen to the experts as they answer questions about the legal aspects of the credit application, security agreements, letters of credit, and many other topics.

This course satisfies one of the two required CBF courses. Visit the Credit Learning Center (CLC) or contact the NACM Education Department at This email address is being protected from spambots. You need JavaScript enabled to view it. or 410-740-5560 to learn more.

This course satisfies one of the two required CBF courses. Visit the Credit Learning Center (CLC) or contact the NACM Education Department at This email address is being protected from spambots. You need JavaScript enabled to view it. or 410-740-5560 to learn more.

 

Payments Technology: Security vs. Convenience

—Andrew Michaels, editorial associate

Credit managers just want what’s best. In addition to serving the department’s needs to best run a successful business, credit managers strive to create the best experience for customers. Technology, especially as it relates to payments, has a substantial role in making this a reality; however, it is also a double-edged sword in the battle of security versus convenience.

Any credit department is easily one Google search away from finding a long list of electronic payments (e-payments) security software programs available today. Each program offers its unique spin on keeping information safe between creditors and customers, including personal information and account details.

Making e-payments accessible to customers requires new platforms available on cell phones, tablets and computers, most of which use cloud computing. Microsoft defines cloud computing as “the delivery of computing services—including servers, storage, databases, networking, software, analytics, and intelligence—over the Internet (‘the cloud’) to offer faster innovation, flexible resources, and economies of scale.” However, working in the cloud comes with a caveat: The need for cybersecurity.

Lior Cohen, senior director of cloud security products and solutions at cybersecurity firm Fortinet, told PYMNTS cybersecurity is beneficial but can get in the way with customer convenience because of the everchanging rules and regulations.

“Financial services firms deploy more and more point security products to cover the gaps created by the expanding attack surface,” Cohen said in the interview. “The resulting security silos obscure visibility, grow operational inefficiencies and increase risk.”

At Vomela Specialty Company in St. Paul, Minnesota, Corporate Credit Manager Troy Auth, CCE, said the privately-held company navigates the security-customer convenience debacle by assuming some risks that the large public companies he has worked for in the past could never take, while utilizing other risk management strategies to protect its owners’ investments. The company is also utilizing third-party vendors like Billtrust to achieve and maintain PCI compliance and protect its customers’ confidential credit card data.

Auth said Vomela prefers ACH payments because they use highly-regulated financial institutions that generally operate with the proper security measures. Meanwhile, Vomela is in the process of implementing several Billtrust solutions to bring more convenience to customers.

“Billtrust’s applications will allow our customers to pay us via their own secure Vomela-branded customer-facing portal with a credit/debit/P-card and/or ACH by entering the required information for their accounts,” he said. “The amount they wish to pay us can be deducted from their bank account and deposited into ours. Billtrust does this for thousands of companies and is required to have the appropriate level of security in order to do so.”

Several of Vomela’s largest vendors—who are already using the same Billtrust applications that Vomela is in the process of implementing—have allowed Vomela’s accounts payable department to receive the same customer service experience that all Vomela’s customers will soon be able to use to their advantage, Auth said. Vomela’s accounts payable manager told Auth these vendors’ “Powered by Billtrust” technology applications provide her team with a level of service that the company’s own Enterprise Resource Planning system and IT department “can’t come close to matching.”

Billtrust is one of many companies that offer such service, so Auth’s advice: “Use a company who has a proven record and is small and nimble enough to provide exceptional customer service.”

 

FCIB

FCIB @ Credit Congress

FCIB @ Credit Congress offers a dozen compelling and relevant educational sessions from which you may choose. Ranging from the fundamentals to more sophisticated, challenging subjects. Based on your experience, interests and goals, tailor a conference agenda that is most applicable and affords the greatest return to you and your company.

New! 29017. Pre-conference Workshop: Letters of Credit
29022. INCOTERMS 2020: What Changes Were Made, Why You Should Care and What Every Exporter Must Know
29033. The Other Races: Balance of Economic Power Globally
29042. Doing Business in China
29052. 2020 Vision: The Global Debt Problem and Public Company Risk
29062. Creative and Sound Techniques for Effective Debt Collection in Mexico 
29072. Risk in Channels of Distribution in Mexico and Latin America 
29082. I'm in Paris, Texas but My Stuff's in Paris, France—Credit and International Business Transactions 
29092. Securitizing Assets Furnished to Latin American Projects

Please visit creditcongress.nacm.org for more information and to register.

Please visit creditcongress.nacm.org for more information and to register.

 

Aspen Construction Projects Facing Liens, Uncertainty

—Michael Miller, managing editor

Two separate construction projects are facing millions of dollars in mechanic’s liens in a Colorado skiing haven. The W Aspen hotel celebrated its grand opening in August, yet there are still mechanic’s liens against the property, the Aspen Daily News reported. Meanwhile, The Aspen Times states that in late December, a judge approved $1 million in financing for the Aspen Club & Spa, which filed for bankruptcy in May 2019.

Spacecon Specialty Contractors (SCC) filed a complaint on Dec. 31, claiming it is still owed more than $2 million for drywall work ($2.1 million lien) and additional damages ($169,300), according to the Daily News. SCC entered into a subcontract with Haselden Resort Constructors in February 2017. “Despite due demand, Haselden continues to withhold from SSC all sums due and owing for SSC’s work under the subcontract, including the changed and/or additional work,” states the complaint. SCC also claims Haselden failed to process change orders timely among other factors. The complaint states SCC followed statutory time frames to file its mechanic’s lien documentation.

Down Main Street, the Aspen Club faces liens ranging from roughly $30,000 from the city’s water department to nearly $2 million from Gould Construction, reports The Times. The redevelopment of the Aspen Club has been stalled in part due to more than $100 million in debts. According to the article, the U.S. Trustee has objected to the reorganization of the debts. The Aspen Club said it is still nearly two years shy of completion.

Despite one project already open for business and one at a bankruptcy standstill, material suppliers and others still waiting for payment need to focus to ensure they are paid for products, services and labor.

Colorado does not require a preliminary notice before providing labor or material; however, it is still not direct-to-lien either for private, commercial projects. Subcontractors and suppliers have the option to give the owner, among other entities, a written notice that they are on the job, giving the potential lien claimant additional protection under the law. Once the notice has been given, “it is the duty of the person who contracted with the principal contractor to withhold from such principal contractor … sufficient money due or that may become due to said principal contractor … to satisfy such claim and any lien that may be filed,” states the Colorado Revised Statutes.

A notice of intent to file a lien statement must be served to the owner and prime contractor at least 10 days before filing the lien statement before a lien can be preserved. The lien expires four months following last furnishing, at least for commercial projects. If still unpaid, lien claimants have six months from last furnishing or completion of construction, whichever is later, to foreclose.

 

Honors and Awards

Nominate a Special Credit Professional

Do you know anyone working in the field of credit management whose professional life displays unquestioned integrity, outstanding and meritorious service in the field, and ongoing dedication to the highest standards of the profession? The National Association of Credit Management Honors and Awards have become an important mechanism by which we recognize our colleagues for their outstanding efforts and unwavering commitment. Nominate a colleague now!

NACM’s 2020 award recipients will be honored at the annual Credit Congress & Exposition. Credit Congress is taking place at Caesars Palace in Las Vegas June 14-17, 2020. The deadline for all nominations is February 7, 2020.

Visit www.nacm.org/honors-a-awards.html to learn more and to nominate your choice.

Visit www.nacm.org/honors-a-awards.html to learn more and to nominate your choice.

 

Perfecting Bond Claims on Public Projects in Texas

—Amanda Garza

Unlike with private commercial projects, liens cannot be filed against public projects in Texas. This means that unpaid subcontractors and suppliers do not have the same protections on public projects as those on private projects. On a private project, a subcontractor or supplier would ordinarily file a lien against the project to secure payment. However, to secure payment on a public project, a subcontractor or supplier must perfect a bond claim under Chapter 2253 of the Texas Government Code. [1] To perfect a bond claim for unpaid labor or material under Chapter 2253, a subcontractor or supplier must send notice to the prime contractor and surety for each month in which the labor or material was furnished. This blog provides a brief overview of the basic notice requirements for perfecting a claim for unpaid labor or material, including when and to whom to send the notice, what the notice should contain, and how and where to send the notice.

When and to whom should the notice be sent?

Section 2253.041, which sets forth the notice requirement for claims for unpaid labor or material that all payment bond beneficiaries [2] must comply with, provides:

(a.) . . . [A] payment bond beneficiary must mail to the prime contractor and the surety written notice of the claim.

(b.) The notice must be mailed on or before the 15th day of the third month after each month in which any of the claimed labor was performed or any of the claimed material was delivered.[3]

In other words, first-tier (and lower) subcontractors and suppliers must send a “third-month notice” to the prime contractor and surety for each month in which the unpaid labor or material was furnished. [4]

Section 2253.047, which sets forth additional notice requirements for payment bond beneficiaries without a direct contractual relationship with the prime contractor, provides:

(c.) The payment bond beneficiary must mail to the prime contractor written notice of a claim for any unpaid public work labor performed or public work material delivered. The notice must be mailed on or before the 15th day of the second month after each month in which the labor was performed or the material was delivered. [5]

In other words, in addition to sending a third-month notice to the prime contractor and surety, second-tier (and lower) subcontractors and suppliers must also send a “second-month notice” to the prime contractor after each month in which the unpaid labor or material was furnished. [6]

What should the notice contain?

A third-month notice sent by first-tier (and lower) subcontractors and suppliers for unpaid labor or material must contain a sworn statement of account. [7] The sworn statement of account must state in substance that:

(1.) the amount claimed is just and correct; and
(2.) all just and lawful offsets, payments, and credits known to the affiant have been allowed. [8]

The sworn statement of account must also include “the amount of any retainage applicable to the account that has not become due” under the terms of the contract. [9]

A second-month notice sent by second-tier (and lower) subcontractors and suppliers for unpaid labor or material is not required to contain a sworn statement of account—“[a] copy of the statement sent to a subcontractor is sufficient as notice under this subsection [2253.047(c)].” [10] However, it remains best practice to include a sworn statement of account with each notice.

Note that additional information may be required in a notice under certain circumstances not discussed in this blog. [11]

How and where should the notice be sent?

All subcontractors and suppliers must send their notices by certified or registered mail. [12]

Notices to the prime contractor must be sent to the prime contractor’s: (1) residence or (2) last known address. [13]

Notices to the surety must be sent to the surety:

  1. at the address stated on the bond or on an attachment to the bond;
  2. at the address on file with the Texas Department of Insurance; or
  3. at any other address allowed by law. [14]

[1] Texas Government Code Section 2253.021 requires that a prime contractor furnish a payment bond when its contract with the governmental entity is “in excess of $25,000, and the governmental entity is not a municipality or a joint board created under Subchapter D, Chapter 22, Transportation Code; or . . . in excess of $50,000, and the governmental entity is a municipality or a joint board created under Subchapter D, Chapter 22, Transportation Code.” Tex. Gov’t Code § 2253.021(a)(2).
[2] “‘Payment bond beneficiary’ means a person for whose protection and use this chapter requires a payment bond.” Id. § 2253.001(2). A payment bond is “for the protection and use of payment bond beneficiaries who have a direct contractual relationship with the prime contractor or a subcontractor to supply public work labor or material.” Id. § 2253.021(c)(1).
[3] Id. § 2253.041(a), (b).
[4] Note that the notice requirements for claims for retainage only, which are not discussed in this blog, are set forth in Section 2253.046.
[5] Id. § 2253.047(c).
[6] Note that in addition to the second-month notice requirement set forth in Section 2253.047, additional notices may be required of second-tier (or lower) subcontractors and suppliers. See id. § 2253.047(b) (additional notice regarding retainage), 2253.047(d) (additional notice regarding specially fabricated material).
[7] Id. § 2253.041(c).
[8] Id.
[9] Id. § 2253.041(d).
[10] Id. § 2253.047(c).
[11] See, e.g., id. §§ 2253.043 (additional requirements where written contract does not exist), 2253.044 (additional requirements where claim is for lump-sum payment for multiple items), 2253.045 (additional requirements where contract is a written unit price agreement); see also § 2253.046(b) (notice requirements for retainage only claim).
[12] Id. § 2253.048(a).
[13] Id. § 2253.048(b).
[14] Id. § 2253.048(c).

Amanda Garza is an associate at Porter Hedges, where she focuses on all types of construction and commercial litigation as well as lien, bond and other construction related claims.

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