While it may seem a gross statement of the obvious, a contractor, subcontractor or supplier entering into a relationship on a construction project needs to know who the other players at the table will be. This should be part of the initial “due diligence” performed prior to signing any contract documents (and perhaps prior to providing any bids or quotations).

The following are examples of misidentification issues that may create problems during the course of construction and/or efforts to obtain payment:

      1.  PROBLEM - Misnaming the true owner of the project (i.e. John Jones identified as the owner on a residential project when the deed is really in Mary Jones’ name).

           EFFECT – If it is either a public or private project, a misidentified owner can result in a loss of lien or bond claim rights or in delays seeking to identify the proper owner, which themselves result in a loss of lien or bond rights.

            2.   PROBLEM - Misnaming the business status of a party.

            EFFECT – The business status of a party to the contract (i.e. Proprietorship, partnership, corporation, LLC/LLP) may have a significant impact on getting paid based upon the presence of a shield to protect individuals who may have funds versus a shell entity with little or no assets.  Additionally, dependant upon the business form of the party, certain formalities regarding signing of documents, formal licensing requirements and other formalities may be required to assure that there is an enforceable agreement.

      3.   PROBLEM - Naming a non-owner construction manager as the “owner” or inserting other levels of parties into the vertical ladder.

            EFFECT – This may affect your place on the lien and bond beneficiary “ladder” with a result that lien and bond claim rights are lost.  A lien or bond claimant cannot be too far removed from the owner and the insertion of an “at risk” construction manager or other tier party pushes everyone else one step further away from the owner.

      4.     PROBLEM - Lacking a clear understanding as to the precise nature of the owner (if it is public entity and if so at what level they operate (municipal, school board, county or state), or the project (public/commercial/residential).

             EFFECT – If it is a public owner, whether it is the State or a county/municipality/school board will mean the difference of whether liens may be filed.  Whether it is public versus private will dictate what must be done to exercise lien rights and whether there may be a payment bond in place.  Whether it is a commercial or residential project will have an impact on lien rights and may also bring certain residential consumer fraud limitations into play.

      5.      PROBLEM - The individual signing the contract on behalf of your customer is not in fact authorized to sign the contract.

               EFFECT – If your customer is a business entity, it may only be bound if an authorized representative or officer signs the contract documents.

Unresolved problems in any of these points of identification can create problems invoking lien rights, making bond claims or making efforts to collect payment or to enforce certain provisions within a contract.

The above problems can be substantially addressed by performing some very basic “due diligence” prior to signing the contract. These efforts would include noting the address and/or lot and block of the project site and contacting the local municipal tax assessor who will be able to identify the name and current address of the actual owner. That information will identify whether or not the owner is a public or private entity. That information will identify whether or not the actual owner is the same as the individual or entity identified in your contract. By knowing the nature and true identity of the owner you will have most of the information necessary to determine whether or not a bond was filed (if it is a public owner dependent upon the size of the project there is a requirement that a bond be filed), whether or not you can file a lien (if it is a state owned project you will not be allowed to file a lien) and where it can be liened whether it would be subject to the Municipal Mechanics Lien Law (if it is county, municipal or school district), or the Construction Lien Law (commercial or residential private projects). If the information identifies a private entity other than the entity identified on your contract as the “owner” you may be dealing with a landlord/tenant situation which can affect your lien rights. You may similarly be actually holding a position in the hierarchy of contractors and subcontractors below the level where you would be entitled to file a lien.

Where you determine that the owner is a public entity it is likely that a labor and materials or payment bond has been required. If your customer is not the direct prime contractor who would have filed the bond, or appears reluctant to provide you with a copy of the bond, you may use the Open Public Records Act (OPRA) to make a specific request for the bond from the public entity. This will provide you with bond information should you need to file a future bond claim.

A second routine investigation should be where your customer or the owner is identified as a corporation to check with the Secretary of State to determine whether or not the corporation is in good standing and to determine who the reported officers and/or directors may be. If the individual signing your contract is not one of those individuals, you may need to request a corporate authorization noting that the individual has the authority to sign the agreement and bind the entity.

If the project is being performed for a new customer or for a private owner with whom you are not familiar, it is also reasonably inexpensive to seek judgment searches on your customer and on the owner. These will identify any judgments that have been entered against these entities thereby providing you with a better understanding of financial viability. On a private project, since preexisting judgments and mortgages  may have priority over your lien rights, it is prudent to obtain this information regarding the private owner to assure that your lien rights are viable.

The information described above to determine who is sitting at the table can all be obtained with relatively little effort. It is all information that should be obtained and carefully reviewed before ultimately signing the contracts.  If you join the game without knowing who truly is at the table, you have yourself at the top of the list to blame when payment does not arrive.

The next edition of “Getting Paid” will deal with “red flag/deal breaker contract terms.”

CURETON CLARK, P.C.

James H. Landgraf, Esq.