Reducing lien risk when hiring suppliers and subcontractors

On Behalf of | Jun 4, 2024 | Construction Law

Outsourcing certain aspects of a large construction project often makes logistical sense. Even successful, well-established construction companies may need the assistance of outside professionals. They may need extra hands to mud drywall for a larger-than-usual project or special skills for the finishing touches a client requested.

Contracting with construction specialists who have unique skills and suppliers who can obtain prestige materials can help companies provide clients with exactly what they want. Unfortunately, every agreement with an outside party is a complicating factor for a major construction project. Those outside parties may not fulfill their obligations. They could also engage in conduct that reflects poorly on the company that hired them.

One of the many issues that might complicate an otherwise successful construction project is the decision of a contracted party to seek a lien against the property. Disputes about job performance or payment delays might lead to material suppliers or subcontractors filing paperwork to request a lien against a client’s property. Construction firms can mitigate some of that risk through the contracts they draft.

How contracts can reduce the risk of liens

The terms of a contract can include details ranging from a payment schedule to project expectations. Construction firms might also consider including clauses that address conflict resolution. Requiring that vendors or subcontractors bring the issue directly to the company rather than going to court could reduce the risk of a third party seeking a lien against the property. Mediation or other alternative dispute resolution requirements in a contract could help keep an issue in-house.

It is even sometimes possible to include lien waivers in contracts. These special agreements effectively require forgoing the right to pursue a lien as a means of collecting payment. Businesses in the construction sector can also reduce the likelihood of liens by having very clear standards in their contracts. The right terms substantially reduce the likelihood of unmet expectations and disputes that lead to unpaid invoices.

Taking the time to create thorough construction project contracts, not just with clients but also with vendors and service providers, including subcontractors, can minimize scenarios that tarnish a company’s reputation with other professionals and prospective clients.