Securing payment in project abandonments and delays

Construction projects can be a lot like building a sandcastle at the beach. You start with a vision, the right tools and a solid plan, only to have an unexpected wave crash in and wash it all away. In the world of construction, those waves can come in many forms: permit delays, supply chain disruptions or even a sudden shift in ownership.  

Why it matters: Just like a sandcastle left unfinished, projects can stall or be abandoned entirely, leaving contractors, suppliers and subcontractors exposed and unpaid. That’s why it’s critical to understand how to protect your lien and bond rights before the tide turns. 

Since the end of 2024, the construction industry has faced a growing trend of project delays and abandonments, particularly in the private sector. In May, project abandonment activity surged by 66.5%, while bid delays increased by 4.3%, according to ConstructConnect’s Project Stress Index.  

Why is this happening? 

Financing challenges, rising costs and higher interest rates have stretched project budgets beyond original bids, causing developers to pause or cancel construction to avoid deeper losses. According to a report from the Design-Build Institute of America (DBIA), the construction sector’s unemployment rate fell to 3.5% in May, down from 5.6% in April, indicating a tightening labor market. With fewer skilled workers available, projects are taking longer to complete, contributing to significant delays. 

In addition to labor shortages, supply chain disruptions and trade tensions are also fueling delays and abandonments. The ongoing threat of tariffs has created supply bottlenecks, slowing, or even halting, international product movement, which further impacts projects reliant on overseas materials. 

What does this mean for credit managers? 

Construction credit managers are seeing a rise in project delays, pauses and abandonments, across both the private and public sectors. “Project abandonments remain a concern for us, especially with newer contractors entering the industry,” said D’Ann Johnson, CCE, corporate credit and contracts manager at A-Core Concrete Cutting, Inc. (Salt Lake City, UT). “You can do everything possible to vet a contractor, but sometimes something unexpected happens and suddenly, they’re gone. It’s definitely a concern as we move further into the year. Wee are seeing more slowdowns and pauses on projects.” 

Depending on the state or project type, credit professionals may not receive formal notice of a work stoppage or cessation. Many don’t realize a project has been abandoned until it’s too late. An extended delay or abandonment can trigger early statutory deadlines for filing mechanic’s liens or payment bond claims, even if the project is unfinished. Missing these deadlines puts those rights at risk, leaving suppliers unsecure. In addition, cash flow issues can quickly arise when a general contractor (GC) or subcontractor walks away from a job. 

“Often, credit managers lose receivables while replacement contractors and/or subcontractors are procured, reducing working capital and delaying collections,” said Bill Bailey, attorney at Kish Manktelow & Bailey, P.C. (Richardson, TX). “Further, GCs and/or subcontractors who abandon projects without legal excuse may face state licensing and/or administrative actions. Suppliers may find themselves caught in the middle of administrative enforcement or litigation to preserve their payment rights.” 

Securing lien and bond rights 

To secure lien and bond rights, credit managers must gather proper project information, such as the correct owner’s name and address, correct project address, correct GC and/or subcontractor name and address and correct payment bond or surety information. “Also, all required preliminary notices for a lien or bond claim within your state’s deadline should be timely sent, even if work is not ongoing,” Bailey said. 

To protect lien and bond rights, credit managers should: 

• Conduct rigorous credit underwriting. 
• Draft airtight contracts containing personal guarantees when necessary.
• Use project management dashboards to track draws, shipments and site activity that may trigger lien filings or bond claims. 

To improve the chances of timely payments in an unstable environment, stay knowledgeable about the statutory requirements, mechanic’s lien law and payment bond rules and changes in the state of each project. It is also important to communicate with legal counsel when the need arises. By combining proactive legal filings and continuous oversight on projects, credit managers can not only mitigate loss but also position themselves for recovery when abandonment risks materialize. 

Maintaining customer relationships is important, but protecting your company’s assets is essential. Keep detailed documentation of contracts and parties involved in the supply chain. “If the GC or subcontractor sends you a contract, read, edit and negotiate it to ensure it is the best contract for your company,” Johnson said. “Make sure you agree to terms and conditions that your company will be able to withstand. If you’re not careful, you could be paying more than what the contract was worth to settle those damages.” 

The bottom line: Every construction project carries risk underscoring the importance of keeping up to date with state statutory requirements and deadlines on a project type or state-by-state basis. “If you lose lien rights on an unfinished project, look back and figure out what went wrong,” Johnson said. “Did the customer ignore an email? Was part of the agreement overlooked or not enforced? Use that insight to adjust your approach going forward. Be proactive—ask the questions you need to ask, and if you don’t get the answers, ask again.”