Georgia Lien Law Amendment Fixes Some Problems But Opens the Door to Other Ambiguities

This week Governor Nathan Deal signed Georgia HB 434 which amended the Georgia Lien Law to allow lien claimants to include overhead costs and interest in amounts claimed in mechanic’s and materialman’s liens.

As I discussed in my last post, the changes were sought by contractor groups to overcome a 2012 decision of the Georgia Court of Appeals that specifically held that overhead and administrative costs were not lienable. See 182 Tenth, LLC v. Manhattan Construction Company.

 

Problem solved, right?!  Not exactly.

Unfortunately, the new language potentially causes new problems and case-by-case litigation over whether certain costs are lienable.  This is because the standard now for determining the amount of the lien is “the amount due and owing the lien claimant under the terms of its express or implied contract, subcontract or purchase order.” O.C.G.A. §44-14-361(c).

This change appears to make the lien claimant’s contract the controlling authority on what amounts are lienable rather than looking to statutory definitions or references for that answer.  This would be a significant departure from how the Georgia Lien Law has been interpreted in the past. And, more importantly, it will turn the issue of “what is lienable” into a case-by-case determination.

 

What is “due and owing?”

Here are a few situations that I think will arise as a result of the new statutory language:

• We now know that interest can be included in the amount of the lien, but at what rate?  The new Lien Law is not clear on that issue.  If the contract contains an interest clause, then presumably the contract rate would apply, but often contracts do not provide for interest on unpaid amounts.  If that is the case, should the general pre-judgment interest rate apply, the rate for commercial accounts, or should the interest rate of the Georgia Prompt Pay Act apply?

• Another issue that will almost certainly be raised by this new language is whether attorneys’ fees can be included in a lien if the lien claimant’s contract allows recovery of attorneys’ fees.  But, what if the contract allows for recovery of attorneys’ fees only if the lien claimant prevails?

• Historically, delay damages for extended overhead and idle equipment have not been lienable because these were not labor and materials that were actually incorporated into the project.  However, it is at least arguable now that a lien claimant can include delay damages if its contract allows recovery of delay damages.  However, what if the lien claimant is a subcontractor whose contract provides that the sub recovers delay damages only to the extent that the prime contractor recovers from the owner, but it has not yet been determined that the delay was caused by the owner or that the prime will recover delay damages from the owner?

There is a potential here for contractors to use this new and untested language to inflate or exaggerate the liens by including significant amounts for items that are actually in dispute.  For example, claims for delay damages and attorneys’ fees can outsize contract balances and change orders by exponential amounts.  If this starts to happen, expect owners to take action—either by seeking relief from the courts in the form of penalties or damages for overstated liens, or by lobbying the Georgia Legislature for further amendments to the Georgia Lien Law that provides better guidance as to what items are lienable.

Advertisement

 

Important Changes to Georgia and North Carolina Lien Laws

Georgia Lien Law Changes

Last year, the Georgia Court of Appeals issued a decision in a case called 182 Tenth, LLC v. Manhattan Construction Company, in which it narrowly defined the scope of costs that could be included in the amounts claimed in a lien.  For contractors, especially prime contractors and construction managers, it was a horrible decision because it effectively eliminated a substantial portion of the amounts that could be included in a lien against an owner.

More specifically, the Court held that various overhead and administrative costs contained in Manhattan’s pay applications, which were part of the contract price, were “unlienable” because they were not labor or materials that actually went into the property.  Those “unlienable” costs included:

staff mobilization power safety office supplies small tools temporary road job site copier progress photos job site communications job signage dumpster rentals/pulls unit certifications general liability insurance	preconstruction phone/water job site trailer job toilets computers fuel and oil blueprints record drawings postage/courier temporary fence cleanup crew final clean builder’s risk insurance

This year, Georgia contractors lobbied the legislature to change the lien law in order to overcome the limitations imposed by the narrow interpretation of the Court in the Manhattan case.  HB 434 was passed on the last day of the legislative session.  A copy of the version that passed and is on its way to the Governor can be found here.

Georgia HB 434 modifies O.C.G.A. §44-14-361 to include the following language:

 (c) Each special lien specified in subsection (a) of this Code section shall include the amount due and owing the lien claimant under the terms of its express or implied contract, subcontract, or purchase order subject to subsection (e) of Code Section 44-14-361.1.

 (d) Each special lien specified in subsection (a) of this Code section shall include interest on the principal amount due in accordance with Code Section 7-4-2 or 7-4-16.

 Under the new law (after it is signed and goes into effect), contractors should be able to include in lien amounts the costs found “lienable” in the Manhattan case as long as those amounts are due under the terms of the contract.  But, I think the new language will not add clarity or guidance in a situation where the parties dispute whether an amount is “due and owing” under the terms of the contract.

In my next post, I’ll give at least two examples of how this new statutory language will lead to continued uncertainty and further litigation over what can be included in a lien.

North Carolina Lien Law Changes

North Carolina’s legislature made big changes to the state’s lien laws that went into effect this year.  One of the most critical changes—the “Mechanic’s Lien Agent” requirement—became effect on April 1, 2013.

The new law requires project owners or prime contractors to designate a Mechanic’s Lien Agent at the time of contracting and to post the information relating to the Lien Agent at the project site.  Any contractor or supplier that may potentially be a lien claimant must provide the Lien Agent with a preliminary notice of its involvement of the project within 15 days after first beginning work or supplying labor or materials.

To support these new requirements, North Carolina has created an online clearinghouse/filing system called the NC Online Lien Agent System at www.liensnc.com, which became active on April 1^st.

My friend and fellow construction lawyer Bryan Scott, who practices with Spilman Thomas & Battle in Winston-Salem, North Carolina, has written two very detailed and practical articles about the new requirements of the North Carolina lien law [click here] and the new NC Online Lien Agent System at www.liensnc.com [click here].

 

Georgia Legislators Consider Bills that Will Impact the State Construction Industry

It’s that time of year again when Georgia legislators work to pass the laws that will take effect for 2013-2014.  This year, there are a couple of bills working their way through the chambers that will directly affect construction contractors and construction projects in this State.

HB434

Introduced by Representatives Tom Weldon, Wendall Willard, and Mike Jacobs, HB 434 adds language to the Georgia mechanic’s lien law (O.C.G.A. §14-44-361) that specifically allows a lien holder to include in the lien amount “the amount due and owing…under the terms of its contract, subcontract, or purchase order.”

It also provides that in the absence of a contract, the lien may include amounts for “the unpaid value of the labor, materials, and services provided by the lien claimant for the improvement of real estate.”

HB 434 is currently before the Judiciary Committee.

SB70

Senate Bill 70 allows the Georgia Department of Transportation greater flexibility in using the design-build delivery method for procuring construction related services and expands the use of design-build projects.  The bill allows the DOT to skip over the Request for Qualifications step, and procure a design-build contract simply through a Request for Proposals.  The bill also eliminates some of the restrictions and requirements relating to design-build procurements.

SB 70 passed the Senate unanimously on February 25, 2013 and is now making its way through the House.

Check back for updates on these bills in the final weeks of the legislative session.

Do you know of any other bills pending in the Georgia Legislature that might be of interest to the construction industry?  If so, tell us about it.