On Suspended Projects That Have Not Resumed in Pennsylvania and New Jersey, Contractors, Subcontractors and Suppliers Should Determine Their Last Day of Work and Closely Monitor Their Receivables
By Jeffrey C. Venzie, Esq. and Julie D. Pfaff, Esq.
Although Governors Wolf and Murphy have now allowed construction to resume in Pennsylvania and New Jersey, respectively, not all project owners have authorized construction to resume, and some may decide not to resume for various reasons. Contractors, subcontractors and suppliers that are owed payment for labor and material on these indefinitely suspended projects, should take the steps outlined below to preserve their lien or payment bond rights in the event those projects never resume and the owners run into financial difficulty.
Remedies to Secure Payment
In Pennsylvania, general/prime contractors, and 1st and 2nd tier subcontractors and suppliers, have the right to file a mechanics’ lien on a private project to secure their right to payment. On public projects, general/prime contractors are required to obtain payment bonds to secure payment to 1st and 2nd tier subcontractors and suppliers.
In New Jersey, general/prime contractors, and 1st and 2nd tier subcontractors and suppliers, have the right to file a construction lien on a private project to secure their right to payment. On public projects, general/prime contractors, and 1st and 2nd tier subcontractors and suppliers, can file a municipal mechanics’ lien claim against the funds in the hands of the public agency or municipality. Subcontractors and suppliers can also file payment bond claims on public projects.
Last Day of Work
In order to invoke any of the foregoing remedies to secure payment, claimants must take action within a certain time period or they will forfeit their rights. The “last day of work” is the event that triggers the start of the time period.
If a project does not resume for whatever reason, then the last day of work by a contractor, subcontractor or supplier will have occurred before or around the time of the March 2020 shutdowns in the respective state due to COVID-19. It is critical that unpaid contractors, subcontractors and suppliers on such projects pay careful attention to preserving their mechanics’ lien rights and payment bond claims just in case those projects are terminated and never resume. First and foremost, we recommend that you record your last day of work on each of your projects that were suspended and have not yet resumed, and closely monitor your receivables on those projects as discussed in more detail below.
Determine the Last Day of Work on Suspended Projects
Review payroll records/daily logs to determine the last date that labor was performed on site or material/equipment was delivered to the site for installation. We always advise clients to determine the last date of contract work (as opposed to punch list work). Contract work can include approved change order work.
Monitor Unpaid Receivables On Suspended Projects With the Following Priority
1(a) New Jersey Private Projects – 90 Day Window to File Construction Lien Claim
A construction lien on a private project in New Jersey must be filed within 90 days following the date of last work, services, material or equipment was provided. Accordingly, we recommend doing an immediate review of any unpaid payment applications on private projects in New Jersey that were suspended and have not resumed. There is only a short 90-day time period to file a construction lien on these projects.
1(b) Pennsylvania Federal, State and Public Works Projects – 90 Day Window for Second Tier Subcontractors/ Suppliers to Issue Written Notice to General Contractor of Unpaid Balance
On all federal projects, and all state and public works projects in Pennsylvania, second tier subcontractors/suppliers must send written notice to the general contractor of any unpaid balance due within 90 days of their last day of furnishing labor or material. Failure to issue this written notice properly will result in forfeiture of their rights to claim against the general contractor’s payment bond.
Second tier claimants should adhere to this same rule for payment bond claims on private projects in any state. Payment bonds issued for private projects typically require a similar written notice from 2nd tier subcontractors as that of federal/public works projects. Consult the terms of the applicable payment bond to determine the specific notice requirements.
(2) Pennsylvania Private Projects – Review Unpaid Receivables Between 90-120 Days after Last Day of Work
General/prime contractors and 1st and 2nd tier subcontractors/suppliers must file a mechanics’ lien with the court within 6 months of the last day of work. However, 1st and 2nd tier subcontractors/ suppliers must also serve a notice of intent to lien upon the owner 30 days before filing a lien. This means subcontractors/suppliers must serve this notice of intent to lien not later than 5 months after the last day of work otherwise they forfeit their right to file a mechanics’ lien against the project. The notice of intent to lien must meet statutory requirements to be effective. We recommend that between 90 and 120 days after the last day of work, subcontractors/suppliers perform a review of any unpaid receivables on suspended private projects in Pennsylvania so that they have adequate time to prepare and properly serve the required notice of intent to lien.
(3) New Jersey Public/Municipal Projects
Subcontractors/suppliers only have one year from their last day of work to file a lawsuit against the payment bond surety on public/municipal projects in New Jersey. In addition, as a perquisite to filing suit against the surety, subcontractors/suppliers must send a written statement of the amount due to the surety and the general contractor that issued the payment bond. This written statement of the amount due must be sent at least 90 days before filing suit against the surety (which means it must not be sent later than nine months after the last day of work, at the latest, or the claimant will be barred from filing suit against the surety). Therefore, we recommend subcontractors/suppliers review their unpaid receivables on any suspended public/ municipal projects in New Jersey no later than 6 or 7 months after their last day of work on those projects in order to properly prepare and send the required written statement of amount due and still leave sufficient time to file suit if necessary.
In addition to payment bond rights, subcontractors/suppliers also have the right to file a municipal mechanics’ lien claim on public/municipal projects. Such a lien is placed on the funds in the hands of the public owner. Such a lien must be filed with the owner prior to completion or acceptance of the general contractor’s work, or within 60 days thereafter. No formal notice is required to be sent prior to filing such a lien.
Lien and bond rights are critical to securing payment in the event a project does not resume, as this is often a sign the owner is in financial trouble. Contractors, subcontractors and suppliers that have not been paid on suspended projects that have not resumed should promptly determine their last day of work on each project and monitor their unpaid receivables within the time frames outlined above so that they can promptly take the required action(s) to invoke and preserve their payment remedies.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.