After forty years in the trades, I should have a pickup truck full of stories about getting burned on different jobs.
But I don't.
Probably because when I look back at my contractor days, there were only two projects where I got burned on payments.
Each time I learned a valuable lesson. And both times, it nearly put me out of business.
I was working on what I hoped would be my last job as an employee since I had just passed my contractors' state exam. I was the foreman on a shopping center in Santa Ana, installing suspended ceilings in the anchor tenant space with a couple of other guys. Across the street sat a sandwich shop where we ended up nearly every day for lunch.
Then one day, some guy in a nice suit struck up a conversation with us while waiting for his sandwich. He asked if we were working at the new shopping center, what we did, and when we would finish the job.
This went on for a few weeks, and one day he asked if I ever did side-jobs? He wanted to update the ceiling tiles in his real estate office, about a block away.
I told him I didn't do side-jobs anymore, but I was ready to launch my suspended ceiling business very soon. After seeing the job, we agreed on a price of $10K, and I landed my first contract.
The job went without any issues, except that I was working the weekends. Now it's time to get paid, and that's when my "lessons" started. The guy had signed my standard proposal form, which said, "payment is due within 30 days after acceptance by the customer." So for the next four weeks, he's gone MIA on me.
I assumed that he wanted to keep the money in his account for as long as possible before writing my check.
Nope, that wasn't the reason for no payment.
Fast forward another fourteen days, and still no sign of a check. But now my supply house is looking for their material payment from me.
It's my first project as a contractor, and I'm more than just a bit freaked out at the moment. So, I called a painter friend who had been in business for a couple of years. He told me when people didn't pay him, he would threaten to file a mechanic's lien, and the payment would appear.
My painter buddy faxed me a copy of the mechanic's lien form, so I filled it out immediately and sent it off to him. I assumed that once he saw it, he would realize it was finally time to pay me for my work.
I'm sure you can imagine my frustration here; I was tired of waiting around to get paid by this clown. But, based on what the painter told me, I was confident the payment would show up in the mail now.
That check never did appear.
A few days later, I got a phone call from the guy, who also happened to be the property owner. He told me that since I didn't file a prelim notice, I couldn't file a lien, and he was off the hook.
The guy/owner knew I hadn't filed a preliminary notice since I never asked him for the prelim info or where to send it. He told me that he loved the new ceiling tiles and that I did a great job. However, even though he loved my work, my first customer wouldn't pay me a single cent of the $10K that he owed me.
I made a lot of calls (I probably should have mentioned that it's 1993, and the internet was just rea), trying to figure out what I could do to get paid. Finally, I called my former employer, Larry Stallings, asking for some advice, and I can still hear him saying, "Kiddo, you can't play the game and expect to win - until you know and then follow - the rules of the game yourself."
I told Larry I had a lead on a lawyer who seemed confident he could get me paid, and Larry just started laughing. When he finally stopped, I asked him what exactly I did wrong.
The rules and laws of California are apparent regarding mechanic's liens. The first step is to file to required 20-day preliminary notice to the required parties within, you guessed it, 20 days of providing any material or labor for the project.
After filing the prelim, then and only then can I file a lien for non-payment in the future. I wish I had known all this before I started that first project.
A little help from my friends
I never did get paid for that first job, not one single cent, which meant I worked my first job for free.
After a few weeks of dodging collection calls, I went to the supply house to explain what had happened. My (brand new) account rep sat me down with their office staff. I learned most of what I know about prelims, progress billing, conditional and unconditional waivers, and labor releases that day.
What about the outstanding material balance?
My supply house gave me 90 days to get that balance paid off. Yes, they did have to charge me a late fee, but I managed to pay them off within six weeks, thanks to a whole lot of hustle on my end.
And let's just say that getting back in the wife's good graces took quite a bit longer than six weeks.
But, I got paid on every project for the next eleven years moving forward from that first job.
I used the threat of a mechanic's lien a couple of times. But as soon as I mentioned filing a lien, the payment logjam would magically clear, and the payment would show up rather quickly.
My small ceiling company did approximately $11,000,000.00 of gross receipts total. After that expensive lesson from the first job, we collected over 98% of what we were owed. It's much easier to grow your business when you don't have to spend time chasing down payments.
Every state has a mechanics lien process in place. Most states require prelims to file liens, while some don't. And it goes without saying that some state laws are much better than others.
We're working on a resource list with quick links to the different mechanic's lien laws, rules, and requirements very soon.
Spending the few minutes and dollars required to send a prelim ensures that all your.
progress (monthly) billing invoices
retention payments are protected.
When you file a lien, your company will have to get paid by the owner/GC for the completed work at some point.
Because in most states, a property with a mechanics lien attached to it can't be sold, traded, or even refinanced. The property is essentially "frozen" until the lien is satisfied and removed. (Specifics do vary from state to state.)
But by following the rules, you will be in line to get paid when the project gets finished. On the other hand, if you don't follow the rules, you probably have a snowball's chance in hell of ever getting paid, just like me on my first project.