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Lien Waivers to Third Parties on Notice of Furnishing

Hello, I work in an Accounting Department for a construction company. On most of our jobs, we are hired as the General Contractor. I am the person that collects a copy of the recorded NOC, files the NOFs we receive from subcontractors, as well as prepare and send lien waivers before payment is issued to subcontractors. I do have a question regarding the NOFs along with lien waivers. Say for instance we are working with an electrical company, ABC Electrical, and they get their supplies from 123 Electric. The NOF that we we would typically receive would be from 123 Electric, and it would state that the "undersigned is furnishing to ABC Electrical." Do I need to have any sort of full lien waiver signed by ABC Electrical for 123 Electric stating that once we pay ABC Electrical, they agree to pay 123 Electric? I am confident in the lien waivers that I send directly to subcontractors with that we have signed contracts with. What I am not so sure about is when we get NOFs from companies that our subcontractors are working with. Any insights that you would find helpful related to this matter would be extremely appreciated. Thank you, Lexie Bruske FED Design/Builders lexie@fedcorp.com 989-246-9122

3 replies

Aug 4, 2021

The issue is has the subcontractor supplied you with a SWORN STATEMENT supporting their invoice? The sworn statement indicates which sub-sub contractors or suppliers have not been paid (if any) and you can withhold payment and pay them directly to avoid liens. MCL 570.1110 states in section 7 (7) After the contractor or subcontractor provides the sworn statement, the owner or lessee may withhold or, upon written demand from the contractor, shall withhold from the amount due or to become due to the contractor or to the subcontractor for work already performed an amount sufficient to pay all sums due to subcontractors, suppliers, or laborers, as shown by the sworn statement, or due to lien claimants who have provided a notice of furnishing under section 109. From the amount withheld, the owner or lessee may directly pay subcontractors, suppliers, or laborers the amount they are due as shown by the sworn statement. If the contract provides for payments by the owner to the general contractor in the normal course of construction, but the owner elects to pay lien claimants directly under this section, the first time the owner elects to make payment directly to a lien claimant, he or she shall provide at least 5 business days' notice to the general contractor of the intention to make direct payment. Subsequent direct disbursements to lien claimants need not be preceded by the 5-day notice provided in this section unless the owner first returns to the practice of paying all sums to the general contractor. As between the owner or lessee and the contractor or subcontractor, all payments made under this subsection are considered the same as if paid directly to the contractor or subcontractor. If an amount is withheld under this subsection from the contractor or subcontractor, the owner or lessee, upon request, shall prepare and provide to the contractor or subcontractor an itemized statement of the sums withheld. If an amount is paid directly to a lien claimant under this section, the owner or lessee shall, if requested by the contractor or subcontractor, provide to the contractor or subcontractor an itemized statement of the sums paid.

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Aug 5, 2021

The receipt of a NOF is "notice" to you that you need to get a release of lien at some point. Typically, you (as the general contractor) would require your subcontractor to deliver lien waivers from all of the subs hired by them, before you pay them. You could, alternatively, require conditional lien waivers and then pay your sub's subs directly. There is no required procedure. However, you need to get waivers from all contractors who provided materials or labor on the project. The lien waivers are your best defense, in the event that a lien is ever filed.

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Aug 13, 2021

Hi Lexie,

My initial thoughts are that Sworn Statements and Notices of Furnishing should match. In your example, FED Design / Builders is contracting with ABC Electrical, who is in turn contracting with 123 Electric for supplies. Much of the law is based on notice and opportunity to respond. Since your typical NOF is from 123 Electric, I would want Lien Waivers from both ABC Electrical and 123 Electric. I would think ABC Electric would supply you with a NOF as well. Only those construction participants supplying NOFs preserve lien rights, but on the scale of good-better-best I would error in favor of lien waivers for all known contractors, suppliers and labors would do or should supply Lien Wavers. Good luck!

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