Professional Liability: Lien Rights and Lien Waivers
Lien Rights and Lien Waivers
The creation of lien rights is a statutory enactment. A lien allows a party to secure payment for labor and materials used to improve real property. Liens are seen as an effective remedy if the client refuses to pay since a lawsuit is a lengthy and expensive method of collecting money. Lawmakers recognize that once labor has been performed and materials provided and incorporated into some improvement to real property, such labor and materials cannot be readily repossessed or reclaimed if the property owner fails to pay for them. Lien rights are based on the equitable concepts of restitution and the prevention of unjust enrichment.
Professionals occasionally want to place liens on property to assure payment for their services. In many states the services provided by professional service firms that are directly related to the construction of a project qualify the firm to seek liens against the property. Often, as a condition of their contract, professional service firms are asked to waive any rights they have to place such liens. In addition, many times they have a contractual commitment to secure the waiver of lien rights from contractors and subcontractors prior to the design professional's approval of an application for payment.
Most state laws allow contractors, subcontractors, or other parties to waive any right to file a lien. The waiver can usually be made at nearly any point during the course of construction. The act of waiving is the intentional relinquishing of a right or claim and therefore for a lien waiver to be effective, the waiving party must know its rights. Usually only a partial waiver is obtained; it covers a period of time such as "up to the present requisition for payment" for the construction work performed or the materials supplied. Some clients, often on the demand of their lenders, include lien waivers in the owner-contractor agreement. Such blanket waivers may apply equally to subcontractors. Many states prevent such blanket waivers in construction contracts.
The issue with either design professionals or those performing construction work having lien rights or providing waivers of such rights is highly dependent on state law. While it is obvious that an owner would want those performing the construction work to provide lien waivers as a condition precedent for payment, in many cases such design professionals have no similar lien rights. And, as to requiring the design professional to secure the waivers of lien rights from construction contractors or subcontractors, it makes little sense to have the design professional serve as anything more than the conduit for the transmission of those lien waivers.
© 2009, Victor O. Schinnerer & Company, Inc. Statements concerning legal matters should be understood to be general observations based solely on our experience as risk consultants and may not be relied upon as legal advice, which we are not authorized to provide. All such matters should be reviewed with a qualified advisor. Victor O. Schinnerer & Company Inc. is managing underwriter for the CNA/Schinnerer Professional Liability Insurance Program, commended by NSPE/PEPP since 1957.
New NSPE Blogs
NSPE now has three new blogs, in addition to the president's blog.
PE Licensing Blog: written by Craig Musselman, P.E., F.NSPE
Sustainability in Engineering Blog: written by Brad Aldrich, P.E., F.NSPE
Young Engineers Blog: written by Austin Lin,P.E., the Young Engineers Advisory Council Representative to the NSPE PEI Executive Board
Sign up to receive an e-mail notification whenever a new post is made by entering your e-mail address under "Email Notifications," which you'll find on the left-hand side of any blog post.
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Top 10 Items To Include in Your Contracts: A Profit Perspective
Herbert M. Cannon
10. Be Sure to Have a Well Designed Scope of Work
Including a specific scope of work in your contract can save a great deal of aggravation and money. If we don't have a clear scope of work in the contract, the only way I can see of performing this work is on an hourly basis with no upset limit. Even then we need to have a written understanding with our client as to our ultimate goal.
9. Propose a Fixed Fee for Your Reimbursable Expenses
While it won't work for every project or client, receiving a fixed fee for reimbursable expenses has the potential of producing a substantial profit. When firms are working on a familiar project type for a good client, I have seen fixed fees produce a 30%+ profit. Of course, you need to price it properly and make every effort to keep your costs in check—but it is worth the effort. Think of the time saved on copying, collating, and invoicing alone! The client also benefits by having price certainty for their project.
8. Include a Contract Termination Date in the Contract
All good things must come to an end—including contracts. By putting a reasonable contract termination date, you reinforce the project schedule and set up the case for invoicing hourly for any services beyond the termination date.
7. Include Limitation of Liability
Include a limit of liability clause in your contract. The amount should be limited to the amount of your fee. Why should we have unlimited liability to the client when we are receiving a $5,000 fee? You won't always be able to get it included, but give it a try.
6. Include a Royalty Clause
Many firms are worried about ownership of documents but pay little or no attention to their intellectual property rights. I personally couldn't care less who owns the paper documents but I do care a great deal about someone reusing my ideas as presented in the documents. For this, I want to get paid a royalty. Include a royalty clause in the contract to compensate you for your ideas and guarantee you a consulting role in any reuse or adaptation.
5. Be Wary of Payment Not Contingent Upon Third Party Reimbursement
I am not necessarily talking about being a subconsultant to the prime. I have experienced some unfortunate situations when working for a "not for profit." After the work was performed, I was then told they needed to apply for a grant or do fundraising before we could get paid. Of course they acted surprised that I wasn't aware of this. Be careful when doing work for nonprofits. Many of them have no problem spending your money to further their cause.
4. Include a Schedule of Deliverables
Yes, in item number 10, I talked about a carefully defined scope—but I am getting much more specific. Include a drawing list and schedule of other specific items they will receive. It avoids "confusion" by the client as to what they will get.
3. Define What Is not Included in the Scope of Work
This is particularly important when dealing with the nonprofessional consumer of A/E service. By nonprofessional, I mean those clients or institutions that are not regularly involved in design and construction projects. For example, they might expect that a professional rendering or landscape design is included in your base fee. I have also had the experience of an experienced developer claiming that professional renderings are always included in basic services. Let's not go down that road—layout in detail what is not included in basic services.
2. Ask For Retainers
Be sure to ask for a retainer on every project. How do you get a retainer? You ask for it! Especially with a new client or one you have had a bad experience with. There is no commitment from the client until they write a check. If you don't have the nerve to ask for a retainer, have one of your junior project managers ask—they don't know any better. (More about this in a future issue of my newsletter.)
1. Exercise Your Right To Stop Work for NonPayment
What a radical thought! Let's include a clause that says if the client doesn't pay within 60 days, we have the right to stop work and withhold all work produced to date. I know that many of you will say that we already have this right or we can't stop working in construction. Well, to this I say there is no reason that I know of to legitimately keep this right out of the contract. If the client objects to this clause, proceed with the project at your own financial risk. Do I want to stop work? No. But I do want to use this clause to force a face-to-face meeting in which we resolve the nonpayment issues. If they won't agree to the meeting, I stop working until the issue is resolved.
Herbert M. Cannon, president of AEC Management Solutions Inc. and publisher of AEC Managing Partner Newsletter, is a management consultant, seminar provider and speaker exclusive to the A/E Industry. He is available to speak at company meetings and conferences. For more information contact Herb via e-mail . Or visit his website.
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Young Engineers Needed
Each year for the past seven years, a group of NSPE members under 35 and working in private practice have joined together to create products and services for the good of PEPP and NSPE. This group has been generously funded to meet together and attend leadership and education sessions through PEPP. Work is continued on a regular basis through monthly conference calls.
If you are looking to meet your fellow PEPP Young Engineer members, network, and create products and services for NSPE, and if your employer is willing to support you in these endeavors, we've got just the spot for you.
To learn more about the group and the opportunities to get involved, contact David Conner PEPP-YEAC 2009-2010 chair.
Past PEPP-YEAC products include the following and are all free to members:
NSPE's Mentoring Guide for Small, Medium, and Large Firms
Strategies For Member Retention and Attraction
How-to Manual for Seminars, Socials, and Ceremonies: A Practical, Step-By-Step Guide to Organizing and Hosting Events for Local and State Chapters
A Guide to Enhancing Professional Development: From College Student to Company Principal
Motivation Factors of Young Engineers
Engineers in Elected Office Canned Presentation
A Guide to Enhancing Professional Development: From College Student to Company Principal Web Seminar
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Become a 2010 PEPP Sustaining Firm
Your support is needed for the efforts of the Professional Engineers in Private Practice (PEPP) as we strive to promote the hard-earned professional engineer (PE) designation and enhance the image of the PE in private practice. Becoming a 2010 PEPP Sustaining Firm has many benefits including:
- Online Exposure: You will be included in a searchable directory that includes a complete description of your firm's specialties. NSPE's Web site receives more than 75,000 user sessions per month. Let owners and other customers and partners find you! All PEPP Sustaining Firms are listed at www.nspe.org/PEPP/Supporters.
- Recognition: Listing in an issue of NSPE's PE magazine (circulation is over 50,000) and in PEPP Talk, a monthly electronic newsletter sent to more than 11,000 PEPP members.
- Valuable Discounts: 25% discount on ads in PE magazine, NSPE’s Update, Web banners, and job board postings.
Your options to participate include the following (*Price reflects 10% discount for payments received by 10/31/09).
Bronze Level $121* (regularly $135) Listing only. Includes listing and link to firm's Web site and e-mail address.
Silver Level $180* (regularly $200) Listing plus Logo. Includes Bronze level package plus firm logo/banner graphics. E-mail your firm's logo (.gif or .jpg file, up to 10KB) to email@example.com (703-684-2833)
Gold Level $517* (regularly $575) PEPP Featured Firm package. Includes Silver level package plus complimentary registration to the 2010 Synergy HR & Finance Roundtable in Alexandria, Virginia.
If you are interested, please complete the form and MAIL or FAX them back today! Your participation will not only help you reach potential clients and partners, it will also provide valuable support for our industry and profession. Please visit www.nspe.org/PEPP for a complete list of PEPP programs. Thank you for your continuing support of NSPE/PEPP.
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NSPE Fall 2009 Web Seminars Offer PHD Credits
NSPE's fall Web seminars offer a wide variety of topics from ethics to social media to GNSS systems. Earn one PDH for each of the sessions while sitting at your desk or in your conference room. The member price is $119 for each session. The price is per site, you can get together with others in your office or chapter to participate.
September 29, 12:30–1:30 p.m. (E.D.T.), Communicating Technical Ideas Persuasively
Speaker: Mel Lester
Description: Got a good technical idea? You're halfway there. In the competitive marketplace of ideas, it takes more than innovative thinking to succeed. You must also be able to persuade others that your ideas are worthy of their attention, acceptance, or investment. There are many competent engineers who can generate sound technical solutions. But few of them have mastered the art of persuasion. This session describes the basic dynamics of persuasion, explains why engineers in particular struggle with persuasive communication, and outlines some keys to selling others on your technical ideas.
October 7, 12:30–1:30 p.m. (E.D.T.), Ethics Forum Part II: Objectivity, Truthfulness, and Preserving Confidentiality.
Speaker: Arthur Schwartz
October 8, 12:30–1:30 p.m. (E.D.T.), Social Media and Engineering
Speaker: Stephanie Brown
Description: This presentation will highlight the following: introduction to social media; how, why, and where social media is a fit for B2B, AEC; strategy is key; case studies; dangers and pitfalls; benefits; case studies; HR perspective; monitoring & measurement; policies; the impact of social media on SEO (Search Engine Optimization); success with your Web site.
October 14, 12:30–1:30 p.m. (E.D.T.),GNSS Capabilities for Engineering, Surveying and Mapping
Speaker: Tim Kerr
Description: Satellite positioning technologies have become prominent in our daily lives. This Web seminar will provide an overview of the location technologies available today at various levels of precision. These range from pure autonomous navigation to sub-centimeter location for high precision monitoring and mapping projects. Emphasis is placed on selection the proper tool to meet the requirement of any project
October 15, 12:30—1:30 p.m. (E.D.T.), Solving the Risks in Green Design and Construction
Speaker: George Dubose, Liberty Building Forensics Group
Description: The great irony of building green is that the very concepts that are intended to enhance a building's performance over its lifetime are many of the same things that also make it highly susceptible to catastrophic moisture and mold problems during the first few years of operation.
This presentation will identify the specific reasons that green buildings are at increased risk for failures and what contractors and developers/owners must do to avoid problems— in short, what practices are being promoted as green but are also place the entire development team at risk.
October 20, 12:30–1:30 p.m. (E.D.T.), A Sustainable Approach to Planning and Design
Speaker: Paul Horton
Description: Have you been wondering how to make your projects more sustainable? Have your clients been asking for more sustainable planning and design? Paul Horton will provide an overview of the critical elements necessary in order to achieve a higher level of Sustainability in projects. While we won't be able to make every project super green, we should nonetheless have a clear strategy (or approach) and a set of tools to allow us to make meaningful sustainable advances or improvements based on the specific situation and the current client conditions.
October 22, 12:30–1:30 p.m. (E.D.T.), Comparing Contracts Documents: EJCDC, Consensus DOCS, and AIA
Speaker: Justin Weisberg
Free! November 4, 12:30–1:30 p.m. (E.S.T.), Qualifications-Based Selection: Under Attack
Speakers: Dan Tanksley, JD, P.E.; Christopher Stone, P.E., F.NSPE; William Fendley, P.E., F.NSPE
Description: Have you ever wondered what qualifications-based selection was really all about? Our panel of experts will explain QBS without the jargon, discuss its value to you and your clients, and tell you about how QBS is being threatened right now by legislative and regulatory actions at the state and federal levels and how you can help.
November 11, 12:30–1:30 p.m. (E.S.T.), Ethics Forum Part III: Conflicts of Interest and the Ethics of Gifts
Speaker: Arthur Schwartz
November 17, 12:30–1:30 p.m. (E.S.T.), Forensic Engineering (Co-Sponsored by National Academy of Forensic Engineers)
Moderator: Marvin Specter, P.E., LS, F.NSPE, Hon M.ASCE
Panel: Michael Kravitz, P.E.; Michael D. Leshner, P.E.; W. T. (Dusty) Yaxley, P.E., CSP
Description: This session, based on real life cases, will highlight three different situations in which engineers are required. In addition, each of the cases involves a different level of penetration of the legal system.
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EJCDC Revised Documents Now on Sale
The Engineers Joint Contract Documents Committee, a leading publisher of construction contracts and forms, has published revised editions of its Design/Build set of documents, its Owner Engineer Agreement (Task Order Edition) E-505 and its Owner Engineer Agreement-Short Version E-520.
EJCDC documents are immediately downloadable in MS Word format and are user-friendly. Their usability for multiple projects makes them a cost-saving alternative to other documents on the market. They are also peer-created and consistently reviewed, meaning users get the most balanced, fair, and updated documents available on a continual basis.
In addition to the newly updated documents, EJCDC offers contract documents in the following categories: construction, owner/engineer; engineer/subconsultant; and environmental remediation and procurement. NSPE members enjoy a significant discount on the cost for the documents, which can be immediately purchased and downloaded at www.nspe.org/ejcdc
EJCDC members include NSPE-PEPP, the American Society of Civil Engineers, the American Council of Engineering Companies, the Associated General Contractors of America, and the participation of other professional engineering, design, construction, owner, legal, and risk management organizations.[ return to top ]