Preliminary notices might be some of the most useful documents in the construction industry. We often have conversations with construction industry professionals where they question if filing a preliminary notice on a project is a good idea. In every case, our answer is always the same: Filing a preliminary notice on the project can help you get paid, regardless of whether or not the state requires the notice to be given. Contractors and material suppliers choose not to file preliminary notices for many reasons, but no reason is good enough to forfeit your lien rights and potentially go unpaid on a job.
Here are some of my favorite reasons I have heard for not filing a preliminary notice on a project, and why they are wrong:
1. Preliminary Notices Are/Are Not Required
This common misconception is actually widely mistaken in a number of different ways. First of all, 37 states do require preliminary notices to be sent on in order to secure lien rights on a private project. Failing to send a notice in one of these states may invalidate your lien rights on a project. And while there are a handful of remaining states where preliminary notices are not required by lien law statutes, it’s still a best practice to send preliminary notices on every project, even when it’s not required.
There are several reasons why it’s a good idea. Perhaps the most compelling reason is that Levelset’s data shows that sending preliminary notices helps construction companies get paid faster. Levelset customers have been able to shave up to 38 days off of their DSO, just by sending preliminary notices as a part of an overall lien rights process. One explanation for this is that the companies on a project that send preliminary notices tend to get paid first, before the companies that did not send notices.
A second benefit to sending notices is that it actually helps construction companies to avoid filing liens. Again, Levelset’s data shows that our customers are forced to file a lien in only 2% of the cases where they sent a preliminary notice and notice of intent to lien (NOI) using the Levelset platform. We’re not just in the lien filing business here at Levelset – we’re in the business of Getting You Paid, and sending preliminary notices, even when they’re not required, is one of the best ways we help our customers do just that.
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2. I don’t want to offend my client by sending a preliminary notice
We talk to construction industry professionals every day here at Levelset, and so we know that this persistent belief is widely shared. While the construction industry is based on relationships (this is probably true for most industries), it’s simply not true that sending notices is going to ruin your business relationships. In fact, our research shows the opposite to be true, with 83% of notice recipients stating that they found the documents to be useful.
Preliminary notice requirements were created for the benefit of GCs, owners, and other parties at the top of the payment chain (see graphic, right). As we’ve written about before, top-of-the-chain parties should love receiving preliminary notices, because it’s good-faith, proactive communication from lower-tier parties that alert other project stakeholders that they’re working on the project as well. At Levelset, we call this Visibility, and we believe that more project visibility would help fix the industry’s infamous payment problem.
Finally, sending notices is simply more professional and shows to other project stakeholders that you’re running a tight ship, and when it comes to securing your payments, you mean business.
3. It’s too much hassle to send preliminary notice
Okay…so this one’s sort of a gimme, because while sending notices can certainly be a tedious, time-consuming, and difficult task, it doesn’t have to be! We can’t deny that the challenges are there, with thousands of variables that must be managed in order to send legally compliant notices. Notice requirements and deadlines vary from state to state, change according to the project type, and the role on the project of the company that’s sending the notice may impact the requirements as well. Even companies with the best intentions, like this California-based insulation contractor, can still fall behind when it comes to sending notices because their manual, in-house process becomes too overwhelming.
But that’s where the Levelset platform comes in! Our customers use the Levelset platform to make lien rights easy, eliminating the legal guesswork and administrative headaches associated with the lien process. Our technology manages all of the deadlines, all of the requirements, all of the documents – really, the entire lien rights process, from end-to-end. (If you’d like to get a sense for how our software works, check out Payment Rights Advisor, a free resource built on the same encyclopedic lien law database as our core product).
Find out more
Industry education has been a significant part of Levelset’s DNA since our inception. We have an extensive collection of informative, free resources for construction industry professionals in every state and for every type of company, to use and learn from. We also have several eBooks and guides – click on the image (below) for one of our most popular guides devoted to preliminary notices.
And of course, we’d love to show you how the Levelset platform works, and how it can help to get your company’s lien rights process under control, adding value, and positively impacting the bottom line. Please click the button (below) to set up a demo for you and your team.
