By Mark A. Cobb, The Cobb Law Group

Since the Shelter-in-Place Orders began several weeks ago, the business landscape has been significantly altered.  There are so many sources purporting to know the future, however, that taking in this information is akin to drinking from a firehose. It is just too much! As with all disasters, some businesses are thriving while others suffer. This article is designed to help you find the silver-linings where they exist and provide practical suggestions for addressing some of the problems suffered by subcontractors during these uncertain times.

    TACKLING PAYMENT ISSUES:

    Fortunately, most of our subcontractor clients are not experiencing any out-of-the ordinary payment issues yet, but we believe that we will see more. Those contractors who are stressed financially may divert their funding and fail to timely pay their subcontractors.  When this happens, we believe that being aggressive with seeking payment remedies will pay off more than ever. Rather than waiting for a deadline to approach, subcontractors may want to be more proactive, and consider some of the following ideas:

    1.  File materialmen and mechanics’ liens as well as their payment bond claims sooner. As many know, the liens generally provide subcontractors with a type of collateral that they will receive payment. From a practical sense, the filing of liens alert project owners and lenders about subcontractor issues, and they may assist in getting payment.

    2.  Contact the project owner directly and ask for a joint check to insure that payments intended to go to the subcontractor are not diverted to the contractor’s other project.

    3.  If state law allows, a subcontractor may be able to make a claim against the retainage which the project owner may be holding against its funds owed to the general contractor.

    4.  Subcontractors may agree to a structured payment plan with the general contractor. Some plans are weak, while others may allow the subcontractor to obtain an enforceable judgment against the general contractor with little additional costs or time.

    5.  Know each contract, and comply with the notice provisions in the event of a contractor default; comply with all of the notice provisions and consider sending the notice to multiple parties within an organization or a lender, as it may land on a decision-maker’s desk.

    COURTS AND DEADLINES:

    The pandemic has caused many local governments and states to issue various emergency orders and executive orders. In addition to the popularly discussed administrative orders, courts, too, have issued less-discussed judicial orders which impact many aspects of business. 

    Statutory Deadlines: Many states’ courts have declared a judicial emergency which may impact statutory deadlines to make a claim or file a lawsuit, which may give you “extra” time to complete a claim. For example, a recent client had a March deadline in which to file a lien. A day prior to the deadline, the jurisdiction where the lien was to be filed extended all statutory deadlines until May; thus, a lien claimant who was about to fail to timely file its materialmen’s lien, got a reprieve and the lien was able to be filed despite the expiration of the statutory deadline.

    Litigation: Similarly, the judicial orders are impacting litigation. In many instances, it is effectively staying the civil process. This allows the parties who are involved in litigation (or threatening to be involved in litigation) an opportunity to negotiate or otherwise resolve their disputes without the costs and delays of going through a lawsuit.

    Mediation: In those areas where the courts are effectively closed, clients who need a construction issue resolved more quickly are turning to alternate means to resolve their disputes. Mediation is easily accomplished virtually, and it generally saves the participants a great deal of time and money, rather than the customary letter-writing campaign championed by many attorneys or the astronomical costs of litigation.

    PERMITS AND LEGAL REQUIREMENTS:

    In many locations, permitting and inspections have become an issue. In order to keep construction going, we have seen many jurisdictions include an alternative to traditional permitting and inspections. For example, some locations allow a licensed engineer to act as a substitute for municipal employees who are unable to timely meet the demands of their jobs.

    In addition, simple tasks such as notarizing have become easier as some of the stringent rules regarding witnessing documents have become relaxed.

    Our experience has shown that most local officials want to do their best during this pandemic.  Thus, if you make a good suggestion, a city manager, mayor, constable, or whomever is allowed to make these decisions, may be willing to issue an executive order.  Recently, in a large city, an executive order was issued permitting “construction public works, ….” to continue as essential. It caused confusion as to whether private construction could continue; thus, the Mayor added a clarifying comma allowing “construction, public works,….” to be considered essential.

    CHANGING BUSINESS ATTITUDES:

    Many subcontractors are delighted to have more work than ever; however, there are others who are less fortunate; furthermore, everyone should be a bit more wary of non-payment. Therefore, this may be a great time to reevaluate a business plan and, more importantly, the types of contractors with whom a subcontractor works. A subcontractor may, for example, consider some of the following items when considering taking on a new project:

    1.   Vetting New Projects: Subcontractors need to establish procedures for vetting owners, general contractors, and specific projects for profitability. Some overlooked ideas include checking to see if any liens had been placed against a certain owner or the general contractor.  A thorough job may require a subcontractor to find other business entities involving the same or similar officers.  In addition to researching the lien docket, it is recommended that the litigation docket also be reviewed.

    2.  Strengthen Your Contracts: Subcontract agreements can always be made better and more subcontractor friendly. This process can take a little bit of time, but the improvements that may be made may save you headaches in the future.

    3.  Obtain Personal Guarantee: Subcontractors may consider using personal guarantee with contractors who may be a high-credit risk. Of course, it is wise to obtain an idea of the assets owned by the potential guarantor.

    3.  Joint Check Agreements.  If you have concerns about starting a new project with a particular contractor, do not be afraid to ask for a joint check agreement between the project owner, contractor, and subcontractor to help increase the odds of getting paid.

    During these uncertain times, there is not any one-size-fits-all solution; however, working together, exercising wisdom, and working for fairness will help the entire construction industry to thrive well into the future.

A leader in Georgia construction law for over 25 years, the Cobb Law Group brings expertise, experience and knowledge to your team. Focusing on project development, construction contracting, construction litigation, and payment issues including materialmen’s liens and payment bond claims, our firm understands your goals and needs. For more information, email: mark@cobblawgroup.net or visit http://cobblawgroup.net