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Contractors and material suppliers in the construction industry rely on prompt payments to provide them with the cash flow they need to grow their businesses. When payments are slow or don’t come in at all, it can leave you scrambling. Luckily, companies in the construction industry have tools they can use to collect payments from their clients, without going to court.
Before taking any action regarding nonpayment, read the contract you have with your client, so you know what the agreed payment terms were and the steps you need to take to file a claim. Many contracts require notices within certain time frames in order to file a claim on the project. You need to make sure you follow these requirements, so you don’t lose your payment rights per the contract.
If you’re a subcontractor working on a state or federal public project, the general contractor has probably purchased a payment bond. A payment bond is a type of insurance policy that guarantees that lower-level subcontractors and suppliers will be paid by the GC. If payment is not being made according to the terms of the contract, subcontractors and suppliers can file a claim against the bond and get paid by the surety company.
Start by sending a notice of intent to file a bond claim. It acts as a final warning that if you aren’t paid you will be filing a claim. A simple letter stating that you haven’t been paid, summarizing the amounts owed, and requesting immediate payment is sufficient. Be sure to let the GC know that your next step is to file a claim on the payment bond for the project. The notice of intent should be sent to the GC, as well as the public entity that owns the project.
If you do not receive payment from the GC after submitting a notice of intent, then it may be time to file a bond claim. In Oregon you have until 180 days after the date of last furnishing labor and/or materials to the project to file a bond claim. The claim is sent to the GC, the hiring subcontractor (if applicable), the surety, and the contracting public entity. It must be sent by certified mail, return receipt requested or hand delivery. The claim must include the following information:
If you do not get paid after submitting a bond claim, you have up to two years from the last date of work to file a lawsuit to collect on it.
In Washington, the process is a bit different. If you are contracted with anyone other than the owner or GC, you must send a preliminary notice within 10 days of first providing materials or labor. Subcontractors and suppliers have until 30 days after final acceptance of the project by the contracting entity to file a bond claim, and if you’re trying to collect retainage, you have 45 days from final acceptance. If you need to file a lawsuit to enforce the bond claim, you have six years to do so unless the bond says otherwise. Claims for retention funds must be initiated within four months of filing the claim.
Washington provides a form for a bond claim, or you can provide the same information in the form of your choosing. It should include the following information:
If the claim includes unpaid retention, it should also include a statement stating this.
It’s important to note that in both Oregon and Washington, general contractors do not have bond claim rights on public projects. This is because they are the ones furnishing the payment bonds, so they have no protection.
If you are working on a private project, by statute have the right to file a mechanics lien against the property you are providing work or materials at. A mechanics lien is a document that’s filed at the county clerk and attaches to the deed for the property. If the property is sold or transferred to another party, the lien must be satisfied or paid first. In this way, it ensures that contractors and material suppliers will be paid for work they’ve done.
Before you can begin the lien filing process, be sure to review the state statutes to determine the deadlines for filing a mechanics lien. In Oregon, you have 75 calendar days from the last day you provided work or material on the project. If you do not send a lien within that timeframe, you lose your right to record one. If you cannot file a lien, you can send the debt to a collection company or file a lawsuit to collect the funds.
In Oregon, subcontractors and suppliers do not need to send a preliminary notice of their rights to lien the property on commercial projects. However, on residential projects subcontractors and suppliers are required to send a notice of right to lien within eight days of beginning work.
When a payment issue arises, you can file a mechanics lien. In Oregon the lien must include the following information:
Once you’ve drawn up the lien document, it must be delivered to the clerk’s office in the county the property is located in and for recording. Once it is recorded with the clerk, you must send a copy of the recorded lien to your client within 20 days after the lien was filed.
In Oregon, a lien is only effective for 120 days from the date it was recorded. If you do not receive payment by that time, you can extend the lien, but only with agreement from the owner, or foreclose on it by filing a lawsuit. If you win the lawsuit the owner will be forced to sell the property in order to pay the debt. If you do nothing, the lien will be canceled, and you will have no right to payment.
In Washington, subcontractors and material suppliers who do not contract directly with the owner need to send a preliminary notice to maintain their right to file a lien on a commercial project. The Notice of Right to Claim Lien must be sent within 60 days of first delivering labor or materials and should be sent to the company that hired you, the GC, and the project owner.
Washington requires liens to be filed on a specific form, or you can submit your own form as long as it contains the specified information, which includes the following:
Subcontractors and suppliers have 90 days after they last furnished services or material to file a lien. Once the lien is filed, a copy of it must be sent to the property owner within 14 days of recording. To enforce the lien, a lawsuit must be filed within eight months of the date of recording.
When you aren’t getting paid, there are options for enforcing your right to payment, like filing a bond claim or a mechanics lien. Using these methods is usually less expensive than a lawsuit and just as effective. Before taking any legal action, we recommend that you consult with an attorney who specializes in construction disputes.
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