The novel coronavirus outbreak has not shown any sign of slowing down as the global cases reach 2.5 million as of April 23. It has resulted in interruptions and delays in the supply chain from Asia and all around the world. And its impact on the construction industry is becoming more apparent with each passing day.
Construction businesses all around the world are losing laborers due to quarantine orders and have to stop their work due to statewide lockdowns, resulting in long delays. However, construction companies need to consider a lot more than just labor; there are other problems of non-payment issues, capital shortage, and liquidity. And these things consider whether your business stays afloat or gets shut down.
Why Are Mechanics Lien Critical During Coronavirus Pandemic?
Construction companies are scrambling to find means to protect their businesses and secure their payments. However, one effective way of securing payment is a mechanics lien. And filing for a mechanics lien is now more critical than ever if companies want to survive the economic shock.
The importance of a mechanics lien is multiplied, especially during the Coronavirus outbreak. Here are a few reasons as to why it’s important for contractors.
Payment Delays During COVID-19
Even under normal conditions, the construction industry has always faced problems and delays with the cash flow and payment. According to research, it takes more than 73 days on average to receive payment after the invoicing is done! However, in view of the current pandemic, chances are this number would be doubled and will present serious cash flow issues for construction companies.
With delays in construction projects, supply chain disruptions, and lockdowns, businesses are going to have more problems with tight cash. After taking everything into consideration, it is a fact that payment will begin to delay or decline. Therefore, if you are facing non-payment issues, a mechanics lien is the best defense to help you get your due payments.
Mechanics Lien Can Stop Bankruptcy
There is another notable issue that your business should prepare for as Coronavirus spread: Financial Struggles and liquidity. As the Coronavirus keeps spreading, the global economy is going into recession, construction projects are being put on hold, and more and more companies are filing for bankruptcy.
If a general contractor, or the owner files for bankruptcy, its financial consequences affect every party involved in the project. In such cases know, that a mechanics lien is a “secured debt” protected by collateral, i.e., the property. It means that if you file a lien, your debt is secured legally, even if the GC files for bankruptcy. According to the US Bankruptcy Code,
“an allowed claim of a creditor secured by a lien on a property in which estate has an interest…is a secured claim.”
Scarcity of Construction Work
Another reason to file a lien right now to ensure payment is that construction work will start to become scarce if it already is not. Many governments are shutting down all sorts of businesses, including construction, which means there is going to zero revenue generation.
Your next project may not be for months, especially if the outbreak surge continues. Therefore, to make sure your company stays afloat, get your accounts receivables in check. Take every measure possible like mechanics lien to secure those debts, or otherwise, your business will experience a downturn.
Using Mechanics Lien to Secure Payment Amidst Coronavirus Outbreak
Mechanics Lien is hands down the most effective way to ensure payment in the construction industry. It’s a statuary right that protects the contractor’s right to payment for their work. Once a lien has been filed, the claim can either be paid by the owner in cash or by the sale of the property.
Therefore, there is no better way to secure your payment on a construction project, especially during a crisis like the current pandemic. Hence, it is advised that you consult a delay expert to ensure you are aware of all your rights under the contract.
Here are some of the ways how a mechanics lien can help you get paid for your work:
- A mechanics lien restrains the property of the owner so it cannot be sold before your payment is settled.
- Lien is a legal document, so it gets the attention of the Owner and Construction Lender regarding the non-payment issue.
- Filing a lien involves all the parties involved, and they become obligated to your debt, which means there are more accounts to collect money from.
- By filing a mechanics lien, you set a deadline for payment. If the other party fails to meet the deadline, they will have to face legal consequences.
- In case your payment issue is not settled event after the lien, you can use the property for payment. If the owner cannot keep the promise of payment, you can collect payment through the property.
Time to File Mechanics Lien is Running Out!
One of the most important reasons to file a lien right now is because time is running out! No one knows how long the virus continues to surge or how long it will impact the economy. As record offices are closing down, consult construction claim professionals and file remotely.
Always remember, mechanics lien works on the principle of “first come, first served,” so the claimant who files first has the right to payment.