Frequently Asked Questions About Liens
Navigating the dos and don’ts of liens can be tricky if you are unfamiliar with this oftentimes complicated process. Brad Lohner of PCM Corp – Canada’s only nationwide credit, collections, and lien filing agency – is here to answer 11 common questions about liens that you probably have, but were too afraid to ask.
1: In what situations can companies use liens to get payments?
Companies in all most every circumstance should consider filing a lien if it is after 30-45 days from when they last provided work, materials, services, and labour to a project. If a company pays on time, there is, of course, no need to file. The biggest challenge is time. The timelines to file a lien require you to do it earlier and not wait to the eleventh hour.
2: How do you file a lien?
There are several ways to file a lien. You can go through a lawyer, who will ask for all backup contracts to analyze. If you are working on a 45-day timeline, the lawyer needs typically about a week or two beforehand to start the due diligence research process on his/her end. Or, if you select a Lien Agent, they can represent you up until the same business day to file because they are connected into the provincial land title filing systems.PCM is a lien-filing agent, and we have resources for all land title offices in Canada. We can get a lien discharged and the money flowing for the client to get their money faster.
3: What are the steps and process to try and receive/resolve payment before filing a lien?
We always recommend that you do everything to get payment and establish communications and the relationship so that each party is aware and respects the payment terms. You want to try and keep your customer relationships in good repair, rather than filing alien because it is a “collection” tool.
Make sure that you, as the provider of services, have a clear contract with explicit terms and conditions presented to your client.
Any change orders should be signed off if there have been additions or deletions to the job site so that there are no surprises or add-ons, or deficiencies dealt with and extra costs incurred.
Establish “progress payments” rather than waiting until the general contractor gets paid. Your contract should state that the project will have monthly progress payments that are due even though the project is not yet complete.
Don’t be afraid to meet with the general contractor or with your client if that person is dealing directly with you to get change orders completed.
Be open, professional and transparent with any problems and challenges for getting the work done with the other contractors. If you can’t get your part of the job done because another subcontractor is not completing their project, there needs to be a conversation with the general contractor and the client about wait times and managing expectations.
4: How can you mitigate risks?
There are several ways to mitigate the risks include contracting with financially sound companies at the start. If the general contractor is not well capitalized and you discover they are making margins off the backs of their trade suppliers, you will likely have issues at the end when it comes time to receive your holdback payment. All of a sudden there will be many minor deficiencies that appear.
Before the construction period starts, make sure to obtain a credit check on your client and your client’s customer. We see a lot of the contracts that go bad if the parties cannot manage their cash flow. Determine if you are working for reputable companies and individuals who abide by the terms and conditions of the contract because this will make for a win-win situation.
Sometimes general contractors take on big projects where the landowner does not release funds until the cash registers are ringing. If a subcontractor, willingly signs on that they will get paid when the general contractor gets paid, the subcontractor, or supplier to the subcontractor needs to be aware of the payment terms between the general contractor and owner/client. They then need talk to their banker or accountant.
Entering into agreements with your suppliers and then having to wait 30 days or more only to find out that you, as a sub contractor will receive payment only after they do, may be a project you think twice about bidding on. Whoever drafts the contract has the advantage. Sub-contractors may be misinformed if they think they are getting paid on their terms, and it is crucial they understand that each project may vary.
Know what the terms and conditions are when it comes to bonding and who is carrying the labour and material payment bond (if applicable).On more prominent private construction sites, the owner asks the general contractor to give labour and material payment bonding to help the people further down on the working level get paid. With government or municipal jobs, the bond will come from the owner and General Contractor so that there is assurance that material and labour gets paid.
5: Some people feel that if a company files a lien against their client that the relationship will be jeopardized?
According to lien legislation, construction professionals know liens can be legally filed to protect suppliers and contractors. It comes down to an understanding between the client and the contractors regarding the terms and conditions of the project with payments and managing expectations up front to avoid surprises. Issues may occur like poor project management or an unscrupulous contractor who has hired you. It then becomes your responsibility to have a conversation with the owner and General Contractor and make them aware of the situation.
6: What are lien deadlines?
There is legislation regarding liens and the number of days to file a lien, which could be between 30 days to 60 days depending on the province with each province having different deadlines.
My big question to every individual wanting to file a lien is: When did Day One start on the project and when did you leave the site; whether you walked off the job, were asked to leave or the date you last provided work, materials, services, and labour to complete the job? The clock starts ticking as soon as any of these situations occur and hopefully you have now issued your invoice for payment. You then have the specified lien period in the province in which the project is located to file your lien. Detailed information may be found at https://pcmcorp.com/pcmcorp-pcm-pro-lien-filing/
7: How can a subcontractor be more proactive to avoid working with companies who don’t pay their bills?
Project due diligence is an essential part of risk management. To be proactive, it is necessary to have the right tools to help you understand the full picture of whom you may work with. At PCM, our clients develop an ongoing relationship with tools we have to access live data feeding into our system to track deadlines of your projects. We can also sync with others who may have experienced collection problems or financial problems the same company for whom you are now working. With PCM, our clients can tap into these systems and run a name search and see if the prospective client is in the system for all the wrong reasons. We feel this is a tremendous risk management tool to provide a background check on players in the project or use the data we have in the system that gives the info from others who have had bad experiences with other contractors.
8: How can you be sure that the company who is filing a lien for you is in compliance and professional?
If choosing to use a lawyer, we recommend that individuals work with law firms and individual lawyers who specialize in construction law. Reputable lien filling agents (like PCM) carry errors and omissions insurance and also employee fidelity insurance if they will be holding your money in trust. With PCM, we maintain solid financial backing and carry insurance, just like using a law firm but between 40-60 per cent less costly.
9: Depending on in what province your customer is located, are there different steps or rules regarding lien filing?
Many of the rules are similar except for some differences in deadline timing in each province. In British Columbia, for example, a Notice of Interest may be registered on the land title preventing anyone who has not been directly contracted by the owner from filing a lien. If you know that there is a Notice of Interest, you might want to negotiate that you wish to contract directly with the owner and not the general contractor.
10: PCM Corp has a lien calculator. Why is that a benefit?
It is a handy tool, exclusive to PCM, that anyone can bookmark on their desktops to keep track of all the deadlines on the job site. You can enter the start date of the project and the completion to see how many days you have to get paid before considering a lien. Our system alerts you to deadlines and process steps to keep track of all liens. There is no need to manually track, save, and follow-up on the deadline dates on your own.
11: What do you usually uncover with clients after doing the free credit assessment?
Many times we uncover that the contract /credit application they are using, it doesn’t have terms and conditions to protect them or help collect their money if it ever went unpaid.
When assessing a potential customer’s credit application, it may read a lot like a resume, with no bad references. We know that the credit references provided are not always telling the whole story. You need to get a full credit check including additional information that is also known by critical suppliers and who have intel on who is paying and getting paid fairly and on time!
We often find that there is a disjoint between the sales and credit departments. The sales team put a lot of time and energy into closing deals with prospective clients and then the credit department may dismiss doing business with this prospect due to their poor credit-worthiness. To make the sale with a good quality customer, it is crucial that the sales and credit teams are on the same page.
PCM conducts training seminars in-house with credit departments and sales teams on how they should work together. The sales person should have the conversation with credit department first and discuss who they feel are qualified prospects so that the credit department can weed out the bad guys and have the sales teamwork on the potential customers who pay promptly.
About PCM Corp
Priority Credit Management (PCM) Corp headquartered in Edmonton, Alberta, is the leading Canadian Commercial receivable management firm offering a total suite of credit management services with collections, lien advocacy plans, credit approval and A/R outsourcing.
About the Author
Brad Lohner started in the business over 30 years ago while still in high school when a serendipitous introduction to a businessman asking him to track down the address of a guy who was on this bill collector’s list. This was his first experience with collections and set the stage for his career path.