The Importance of a 20-Day Preliminary Notice, or the Medusa Metaphor
And It Stoned Me…
Managing subcontractor compliance reminds me of the Greek mythological story about Medusa. There are many moving parts to it, like a head full of writhing snakes — and if you look at Medusa (like the many parts of the law) you’ll be turned to stone!
But call me a sucker for a happy ending. Perseus was able to behead Medusa using a mirrored shield; and it turned out Medusa was pregnant by Poseidon when Perseus beheaded her. When the sword killed Ms. Gorgon (one of three Gorgon sisters and the only human), Pegasus, a winged horse, and Chrysaor, a golden sword-wielding giant, sprang from her body! From the monstrosity rose the mighty Pegasus and a protective giant! And so it is with Lien laws. What doesn’t kill you will protect you.
20-Day Preliminary Notice
The first step for protection is to file a 20-day preliminary notice. As the name implies, the notice must be filed within (or any time before) 20 days prior to the first day on the jobsite. And it can also act as retroactive insurance (for example, a roofer can complete a job in 5 days, but he would still have 15 days AFTER the job to file and protect his right to payment). A succinct explanation found online: “…the preliminary 20-day notice is a written notice from a contractor/subcontractor/material supplier that is given to an owner, the general contractor, lender and/or construction financer of a property, advising them that the individual or company is either delivering supplies or performing construction related services on a particular parcel of property or on a building.” 1 Here’s Arizona’s legal web publication if you’re into legalese.
Next Step: Mechanic’s Lien
The 20-day preliminary notice must be filed PRIOR to a mechanic’s lien, which is standard practice in Arizona, New Mexico, Nevada, and California. Many larger construction companies hire third-party entities to submit the notice, as it is very strict form law (standard language and font styles must be adhered to). The consequence of NOT filing the notice is: you lose your legal right to recovery! You can’t sue the GC, a bankrupt owner, or the bank (with any real expectation to receive any money if there’s none to be had) – but by law you’re obligated to pay your suppliers!
In the end game, the purpose of the 20-day preliminary and a mechanic’s lien is to a) protect the subcontractor’s right for payment and b) also to notify owner of all of his obligations on the job (often the GC hires all of the subs and the owner is unaware of whom is doing what work).
Two snakes down. Next time, we’ll talk more about the mechanic’s lien.
Tony Merry is the resident expert at LAI on contract and compliance laws. Having worked in construction specialty companies including Yellowstone Electrical, Skyline Steel, and Klondyke Construction as Contract Administrator, Tony is very versed in how Sage 300 CRE manages the complexities of Subcontractor Compliance. Have a question for Tony? Email him at Tony@LedgerwoodAssociatesUSA.com or call 480.423.8300.