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Tips About Getting Paid In The Construction Business

November 15, 2018 No Comments

By Stan Bachman Morefield Speicher Bachman, LC Cash flow is king in construction and getting paid is perhaps the most important variable whether a business strives or survives. Getting paid in the construction business has unique challenges. What is the best way to get paid? What do you do if payments are delayed? Or worse case, what do you do if you don’t get paid at all? There are logical reasons why it’s particularly difficult to manage a construction company’s the cash flow: Projects are cash intense and have long timelines going on for months and years. Retainage is commonly 10% and is withheld for extended periods of time; retainage is often equal to or more than the contractor’s margins for overhead and profit. Construction projects are complex, risks are high and compounded by uncertainties like weather, labor and material shortages and labor and material cost increases. Clients are often highly leveraged with extremely tight budgets that don’t account for contingencies during the construction of the project, often resulting in disputes over payment. Margins are thin, and quickly evaporate when things go wrong. Cash flows downhill…if the Owner is slow pay, the general contractor is slow pay, etc. Final payments can get bogged down and often unfair amounts are withheld to ensure the work is completed to everyone’s satisfaction. Here are a few tips to help ensure you are in as strong a position possible to get paid: Credit Worthiness Due Diligence Before doing any work on credit, get a credit application or credit agreement. Inquire with the Secretary of State’s website confirming that a customer is a legal entity as presented on the credit application. Check to see if their licenses are current. Ensure all business names match up as legal entities. If they don’t, it could be more difficult to enforce contracts, liens and bond rights. Setup A Guarantor of Account If your customer doesn’t have enough cash or assets to pay a debt, then you shouldn’t be signing up to do the project; however, if the business is cash poor, perhaps the owner’s of the company you’re contracting with has financial resources to pay the bills. Don’t expect to negotiate this after a contract is signed. Address financing of construction payments in advance. When possible, get personal guarantees of payment and run credit checks on the company. Bottom line…know where the money’s coming from to fund the project. Keep A Regular Audit Process Audit customers and suppliers even after a project has started. Be on the lookout for any changes to names of legal entities. A name change is a red flag that needs investigated as to why. Any change in credit standing signals the need to reconsider credit terms. Exercise Lien and Bond Rights If you encounter payment problems, don’t forfeit or waive your liens and bond claims. Know the timelines, deadlines and notice requirements. There are differences in public and private projects, and differences from state to state. Contact us before you start sending notices. We’ll provide important insights based on your specific project requirements. Include Project Name On All Documents Be sure to include the name of the project on invoices, purchase orders and even delivery tickets. This will make it much easier to substantiate lien or bond rights. It confirms what’s owed to your firm for that specific project and it helps with lien deadlines. Require all suppliers include the name of the project on invoices and delivery tickets. By taking simple steps such as these before, during and after a project, you will increase the odds that you will get paid for the services or equipment that you provided. Because, make no mistake, these steps can mean the difference between a business that’s profitable and thriving, or one that’s facing a highly uncertain future. Start With the End in Mind From day one, document, document, document. When a financial problem occurs due to non-payment, and the need arises to file a lien or bond claim, then is NOT the time to create the documentation. Put policies and procedures in place that keep all documents that will be required for a lien or bond claim current, and keep them current. When a claim is needed, at a minimum you’ll need to be able to prove, with documentation, the “who, what, when, where and how” of the work you performed. About Stan Bachman I was a general contractor and business owner for 25 years before becoming a lawyer. That background lends me insight on how to provide legal representation and services for my clients and companies in the construction industry. I have an understanding of what it means to be in, and walk in your shoes. If you’re currently dealing with a construction payment issue, need help with payment terms in a contract you’re considering, or any other business and construction law need, I’d be happy to assist. Stan Bachman Morefield Speicher Bachman, LC 11814 W. 135th St., Overland Park, KS 66221 913.839.2808 msblawkc.com

How To Better Protect Your Firm Against Construction Defect Claims

November 12, 2018 No Comments

By Stan Bachman Morefield Speicher Bachman, LC Two words that create instant anxiety for construction contractors are”construction defects.” That’s because there are a host of complexities that cascade from construction defect litigation. The costs to defend a claim can be significant. The time involved to defend yourself is considerable. And the implications for your reputation leave you at a huge risk. Indeed, your entire livelihood could be at stake. The construction business is already complex, and it continues to be even more so. New technologies have unknown consequences. New techniques in design and construction, along with new materials, and the relentless focus to be on time and on budget make your job all the more challenging. All the while, the legal risks mount. So, let’s look at a few areas where you can reduce your legal exposure to construction defect litigation. Take Control of Your Records First and foremost, maintain excellent records. Most construction suits occur years after project completion. Maintaining impeccable records are a must for a strong defense. Some of the more important documents to keep includes: – The contract and all change orders. – Requests for information. – Insurance policies, both yours and your subcontractors and suppliers. – The plans and specifications. – All changes to the plans and specifications. – As built drawings and specifications. – Copies of inspection reports. – Your notes and diaries maintained during the project. – Meeting minutes and notes. – Copies of schedules. Make Sure You’ve Got A Strong Insurance Policy A commercial general liability (CGL) requires the insurance company to provide your legal defense to any lawsuit against you for claims of negligence in performing your work. Construction insurance law is complex and beyond the scope of this article, but just know that even if the insurance company provides your legal defense, it doesn’t mean they are also going to cover your damages. Also keep in mind while the insurance company might pay for damages, you are still going to be liable to pay for the costs to remedy your work. Managing Your Risk With Subcontractors or Sub-subcontractors Never use uninsured subcontractors or sub-subcontractors. This situation puts you at tremendous risk and even increases the cost of the insurance. When dealing with your lower tier subcontractors, be sure to request you be named as an additional insured on a primary basis on their policy, and be sure to get a certificate of insurance that shows this has been done. Also, be sure there is continuing coverage after the project is complete, as more times than not the lawsuits don’t occur until well after the project is completed. Be sure your subcontractor’s insurance policy limits meet or exceed your contract requirements. Use indemnification and hold harmless agreements with your lower tier subcontractors, while at the same time making sure you don’t agree to unfair agreements with your client. Conclusion Construction defect litigation is complex. It can involve multiple defendants, more than one insurance company and diverse legal theories. The best way to avoid construction defect suits is to work with engineers, architects contractors and lower tier subcontractors who have stellar reputations. It never pays to cut costs, and the lowest price is not always the berst price. Do it right the first time by planning and executing in the right sequence. Keep your documents and records up-to-date. If you don’t have a lawyer, get one…you need one. Your livelihood depends on quick action after a claim is filed against you. About Stan Bachman I was a general contractor and business owner for 25 years before becoming a lawyer. This is a unique background that brings strong legal representation for my clients and companies in construction law, with an understanding of what it means to be in, and walk in your shoes. If you’re currently dealing with a construction defect claim, contact me immediately. I look forward to assisting you. Stan Bachman Morefield Speicher Bachman, LC 11814 W. 135th St., Overland Park, KS 66221 913.839.2808 msblawkc.com

Does Your Construction Contract Protect You From Financial Losses?

November 2, 2018 No Comments

By Stan Bachman Attorney, Morefield Speicher Bachman, LC When it comes to the construction business, risks are high and profit margins are low, and there’s a very high risk you can lose money on a project. There are delays, cost overruns, and change orders, slow pay and the worse…not getting paid at all. That’s when a carefully crafted contract can make a difference. I’m not only referring to the boilerplate provisions like payment dates, invoice due dates and contract amount. You need an attorney who is well-versed in state law and who has a lot of experience in the many facets of construction. Sound legal advice like that adds significant value – and ensures you increase your chances of staying profitable on the project. Here are several areas where I believe you need to focus when negotiating up a construction contract. Change Orders Change orders can be easy, or hard. It depends on how they are set-up – and treated – during the project. But change order management starts with the contract. Be sure you understand and are ready and willing to abide by the change order terms in the contract. In most cases, major disagreements about change orders can be avoided upfront so long as the language in the contract is clear. There are many potential contract negotiation pitfalls, but here’s one simple one to address…make sure you don’t agree to unreasonable notification requirements subject to waiver if you fail to provide the notice. A clause that requires you to provide written notification for all changes in a very short, unfair time should be avoided. Be sure to examine change orders carefully. The one area I see day in and out is the failure to address time extensions on change orders. It is very common to agree to a price on a change order, while not addressing the additional time required due to the change. Remember, as you negotiate change order clauses in contracts, and as you administer change orders during the project construction, be sure to think about and address costs, time and profit. The Digital Age is Changing The Game With mobile platforms and electronic communications pervading every area of business, there’s been a big change in the way approvals and other client interactions are handled. Have you heard of the Uniform Electronic Transactions Act (UETA)? It involves electronic signatures and how other changes are approved. For instance, under UETA, which has been adopted in some form in most states, an email from a client requesting and authorizing a change order can be considered an electronically signed agreement. The UETA provides detailed and wide latitude to permit a change order to be set forth in digital signature formats. Even if a contract stipulates that all change orders must be in writing, if a client deviates from that and issues verbal change orders, the “in writing” requirements will often be waived by a jury or judge. Contingent / Conditional Payment Clauses These are the meat and bones of many construction contracts. The “Pay When Paid / Pay If Paid” clauses allow a general contractor to withhold payments from subcontractors until he receives payment from the client. If you’re a sub, your situation can be made quite difficult if you’ve signed such a contract. A general contractor can invoke this clause and can hold payment or even refuse to pay because the client hasn’t paid him. It is a very rare contract that does not contain a pay if paid clause; be sure to consider the consequences, and give great consideration to whom you are agreeing to work for, their reputation in the business for fairness, etc. Retainage Retainage is a way of life. Do what you can to minimize or eliminate it if possible. Try to get an early release of retainage clause. The maximum amount of retainage allowed varies from state to state, and from contract to contract. But, it’s also negotiable. Some early-in contractors like excavators are sometimes delayed payment up to a year, or until the entire project is 100 percent complete. This can put significant financial pressure on these contractors, and also undue pressure to file mechanic’s liens to protect their interests. Times are changing, and Federal agencies and even private firms are reducing the retainage amounts while paying early-in contractors sooner than later. It is in your best interest to consult with legal counsel early in the contract to get the best terms possible. It’s always preferable to say “my lawyer” asked for this or that, keeping you from being the “hard nose” in the negotiations. Please contact me about your contract prior to signing it. The financial risks could make or break your business. I was a general contractor and business owner for 25 years. One take away I have from looking back with 20/20 hindsight, there was never a contract I “had to have,” although at the time I thought otherwise and those contracts were often financial losers. In other words, I’d have been better off never having them. I know what you’re going through to manage a successful business, which includes managing your cash flow and risks. If I can be of service, please let me know. Stan Bachman Morefield Speicher Bachman, LC 11814 W. 135th St., Overland Park, KS 66221 913.839.2808 msblawkc.com

Mechanic’s Liens In Kansas Construction

August 28, 2018 No Comments

Used With Care, Liens Are A Highly Effective Way To Get Paid By Stan Bachman Morefield Speicher Bachman, LC Construction can be one of the most complex and challenging industries in business. There are innumerable variables, affected and compounded by unpredictable events, all of which affect your bottom line. But, if there’s one variable you need to minimize it is “No Pay.” Mechanic’s liens are a very effective tool in your legal toolbox to help you minimize the “No Pay” problem. There are few remedies more powerful in construction than a mechanic’s lien. A mechanic’s lien allows you to file in state court a claim against a property, for payment for the services you made upon that property. A mechanic’s lien is leverage because it clouds the title to the property, and title insurance companies, lenders and landlords alike all despise clouds on their property’s title. Title insurance will not insure a title to property encumbered by a lien, and lenders and landlords almost always have anti-lien provisions in their loans and leases that require the borrower and tenant to remove the lien. Then, if the leverage doesn’t result in getting paid, then you can file a lawsuit to foreclose on the lien, and to get paid from the net proceeds of the sale of the property, after all senior encumbrances and liens are satisfied (e.g. recorded mortgages filed before the lien attaches to the property). But, let’s look at what it takes to get to a foreclosure action. In Kansas, there are specific requirements that must be fulfilled. It’s crucial for you to file your mechanic’s lien in strict compliance with every procedural requirement, as well as per the case law that has been developed over many years. If the lien does not strictly comply with the statute and case law requirements, it will be found to be “fatally defective,” and of no effect. Each state can vary widely in their procedural requirements. Don’t assume one state is like another, and always check with a well qualified construction lawyer that regularly practices in the state where the property is located. Mechanic’s Liens In Kansas Q&A How long do I have to file a lien? — Contractors have four months from the last day that labor and/or materials were provided. Subcontractors have three months. If timely filed, an extension is available extending the deadlines to five months from the last day worked. The extensions must be filed within four months from the last day worked for a prime/general contractor, and within three months from the last day worked for subcontractor. How long is the lien effective? — You have one year to take foreclosure action from filing. If an action is not filed within that year, the lien becomes ineffective and unenforceable as a matter of law. Does Kansas require a notice before commencing work, and after its complete? — No. Does Kansas require, or does it provide for notice to property owners? — Only subcontractors who perform work on residential property occupied by the owner must provide the property owner a form warning of a possible lien. Otherwise, there are no notice requirements before a lien can be filed. As stated above, but worthy of repeating here, there are strict requirements to comply with Kansas lien laws, and there’s a lot at stake. Kansas courts strictly interpret and apply the lien statutes, and it is an area of law where a novice can easily error and file a defective, unenforceable lien. Your specific situation should be reviewed by a qualified construction attorney before your lien is filed. After all, you deserve to be paid. Please contact me with any questions. I look forward to serving you. Stan Bachman Morefield Speicher Bachman, LC 11814 W. 135th St., Overland Park, KS 66221 913.839.2808

It’s That Time of Year: Back to School Safety Tips

August 28, 2018 No Comments

Summer is coming to a close. Kids will soon be back in school and Fall is around the corner! During this time of year, it’s a good idea to remind ourselves and our kids about back to school safety. Here are a few reminders to ensure that you have a happy and safe school year. Traffic Safety When school begins, there are many things that change. There will be a lot of new drivers on the road, driving themselves to school. There are also a lot more kids on the roads walking and riding their bikes. It is a time to be on high alert. Though you have heard it before it bears repeating, do not text or look at your phone while driving. You only have to take your eyes of the road for a moment to get into an accident or hit a pedestrian. Walking More kids and parents will be out walking during certain times of the day, going to and from school. If there are a group of children from your neighborhood, suggest they all walk as a group with one parent supervising. This is like a carpool arrangement, but on foot. Be sure to use crosswalks whenever possible. Texting while walking, by the way, is dangerous, too! Yes, it’s a thing. There are countless serious accidents that have occurred because someone was distracted and walked in front of a car. Cell phones have their place, just not while you are out and about. School Buses The National Highway Traffic Safety Administration (NHTSA) reports that school buses are considered the safest way for a child to get to school. They do however, have their own dangers. Statistics report than an average of 8 children a year are killed getting on and off the bus. Sadly, another 4 are killed in bus vs car accidents. Be sure to remind your children to stand back from the curb before the bus stops. After getting off the bus, children should only cross when the bus has it’s warning lights on. If you are driving near a bus, give the bus plenty of room, being aware that it will make frequent stops. Lastly, always stop behind a school bus when the lights are flashing. Biking to School Bikes can be a safe way to get to school. However, remind your child that they need to follow the regular rules of the road. This includes using hand signals and making a complete stop at stop signs and traffic lights. Be sure they wear a helmet and have bright, reflective clothing on so they can be seen by other drivers. We hope that you all have a safe and happy school year. Should an accident occur, or if you have a legal issue that you need to discuss. Please come in and speak to us.

Should You Include An Arbitration Clause In Your Construction Contracts?

August 1, 2018 No Comments

By Stan Bachman, Partner Morefield Speicher Bachman, LC It’s time to finalize the contract with your client. Do you include an arbitration clause? That might, or might not be, a good idea. Before you decide, consider the advantages and disadvantages. Don’t assume arbitration is the best way to minimize legal fees. Does Arbitration Really Cost Less? The short answer – it depends. A plaintiff filing fee can cost as little as $150, and defendant’s fee even less, if any at all. But, when it comes to commercial arbitration, the filing fee can hinge entirely on the value of the claim. The higher the claim, the higher the filing fee for the administration of the arbitration. Compare that to state or federal courts, where filing a claim is usually a fixed fee. An arbitration filing fee can actually be much higher, dramatically higher in fact, should the claim involve substantial monetary damages. Commercial arbitration requires at least one arbitrator, and sometimes a panel of arbitrators. Hourly rates for arbitrators can be as high as $500 per hour, regardless whether the arbitrator is conducting pre-hearing meetings, reviewing documents, or conducting the arbitration hearing. It varies by contract terms, but often both parties are responsible to pay these fees. Not so with court proceedings – judges and juries are not compensated for pretrial or courtroom time. Knowledge & Expertise While an arbitrator has been trained in construction law, you have no assurance that he or she would be more knowledgeable than a judge. And, while a jury is comprised of laymen who have to weigh a case on its merits, a panel of arbitrators could decide a case with equally confusing or unreasonable outcomes. Discovery – Good News & Bad News Arbitration purposefully limits the discovery phase. After all, the whole reason for arbitration is to reduce legal expenses and speed up the process of getting to a ruling. Court proceedings allow a much broader exploration of discovery, which allow both sides to gather evidence. Unfortunately, this phase can be like trench warfare, where both sides try to outspend, or outlast the other. Costs dramatically escalate. That said, while arbitration almost always puts tight limits on discovery, an arbitrator still has the authority to allow more. This depends on the case and its monetary claims. If the arbitrator allows a more expansive discovery phase, then costs will escalate. Save Time Arbitration can and should be faster than the court process. State courts are often backlogged for up to a year before a case goes to trial, and in federal court it may be two years. By contrast, an arbitration proceeding can be resolved in less than a year. What Happens After An Arbitration Judgment? Once a judgment is obtained, the parties are allowed to file the judgment with the state court to execute upon it. The court is obliged to confirm the arbitration award, and there are only very limited means to appeal an arbitration decision. The courts give great deference to the arbitrator, and unless the arbitrator grossly applied facts or the law, the arbitration decision will not be overturned. One clear advantage to a court proceeding over an arbitration proceeding is the court’s judgment is appealable. Summary There are compelling advantages to include an arbitration clause in construction contracts. If properly managed, the arbitration process can be advantageous in that the arbitrator may be someone with a background in construction, the timing of the case may be quicker, and discovery costs may be less. Note the use of the word “may” applies here, because all too often the case is not managed efficiently by the arbitrator, and in the end the costs to arbitrate may be as much, if not more than if the cse were tried in court. Obviously, one size does not fit all. Each contract needs careful analysis based on its unique context. It’s important to weigh the consequences. If it’s a complex, high value construction deal, you need to consult with counsel before finalizing it. Please contact me if you have questions. There’s a lot at stake. I look forward to assisting you. Stan Bachman Morefield Speicher Bachman, LC 11814 W. 135th St., Overland Park, KS 66221 913.839.2808