What do you do when your customers won't pay? In this economy, more and more business owners and construction professionals are facing this question. Stites & Harbison attorney Anne Gorham shows you what you can do to get the money that's owed to you. Anne has more than twenty years of construction legal experience, representing contractors, design-builders, owners, developer and design professionals. She has also been involved with projects that range from industrial and commercial distribution centers, pipeline construction and chemical manufacturing facilities to highway construction and energy production facilities including coal gasification and biomass. For more information on construction law issues, please go to our website, www.Stites.com, or visit our constrution page at http://www.stites.com/services/126/construction

1. What to do when a customer
doesn’t pay?
Thirsty Thursday
May 26, 2011
Lexington, KY
Anne E. Gorham

2. Payment Remedies
 Retainage laws
 Public and Private Mechanics Liens
 Federal and State Prompt
Payment Statutes
 Payment Bond Claims
 Theft by Unlawful taking

3. Kentucky’s Fairness in
Construction Act
KRS 371.410
Retainage

4. Owner’s Release of
Retainage
 Not for materials provided by owner
 30 days after Substantial Completion

5. Contractors &
Subcontractors Release of
Retainage
 15 days after release from owner
– Business days

6. Failure to Release Retainage
 12% per year
 Send Notice

7. Mechanics Liens

8. Private Projects

9. Preliminary Notice
ID the
Owner
ID Yourself

10. Preliminary Notice ID labor, mtls
providing
Price
ID who contracted with
ID
Property
 Sign, Notarize, Send Copy

11. Notice of Intent to Lien
If no contract with owner
Anne Gorham
859-226-2308
859-425-7884 FAX
agorham@stites.com
[Insert name and address of [real estate owner]
 ID Your Relationship to Project
 Owner of Construction Project v. Real Estate Owner

12. Notice of Intent to Lien
 Time Limitations
– $1000 or more – 120
– < $1000 – 75
– Residential – 75
 Days after last day of work (LDOW)
 Owner of Project = Owner of Real Estate

13. Statement of Lien
ID ID
yourself LDOW
ID Owner
of Real
Estate
ID $
 File with County Clerk – 6 months of LDOW
 Copy to owner within 7 days of filing

14. Statement of Lien
ID
Property
 ID who contracted with

15. Statement of Lien
ID Process
Agent
The name and address of CONTRACTOR’s agent for service of process is
_______________; however, service of process may be accomplished by serving Anne E.
Gorham, Stites & Harbison, PLLC, 250 West Main Street, Suite 2300, Lexington, KY 40507.
The Affiant states that the foregoing statements are true:
______________________________
COMMONWEALTH OF KENTUCKY )
) ss.
COUNTY OF FAYETTE )
The foregoing instrument was acknowledged, subscribed and sworn to this ___ day
of _________, 2011.

16. Perfect the COMMONWEALTH OF KENTUCKY
Lien
ROWAN CIRCUIT COURT
CIVIL BRANCH
_____ DIVISION
CIVIL ACTION NO. ________________
 12 months PLAINTIFF
v.
 Other lien DEFENDANTS
holders or COMPLAINT
mortgage
holders * * * * *
For its cause of action, the Plaintiff states:

17. Design Professional’s Lien Statute
KRS 376.075
 Who Can File
– Professional Engineer
– Licensed Architect
– Licensed Landscape Architect
– Real Estate Broker (under certain
circumstances)
 Only if they contracted directly with
owner or owner’s agent

18. Design Professional’s Lien
 What does the lien attach to?
 What does the lien secure?

19. Design Professional’s
Lien Statement
 6 months
 Lien Requirements

20. Public Construction
 Kentucky Public Mechanics Lien Statute
– KRS 376.210

21. Statement of Lien
 File with County Clerk
 Later of
– 60 days
– or the date of S.C.
 Time not extended by
trivial or warranty work

22. ID Project

23. LDOW $
owed
Agent

24. Perfecting the Lien
Perfecting public Liens
 Attested by County Clerk
 Send letter and lien by certified mail
– to owner
– and person contracted with (if not the
owner)

25. Protests
 GC has 30 days to
file protest
 Owner to hold
funds
 If no protest –
owner pays
 If protest – file suit
& serve owner
within 30 days

26. Suit to Enforce Lien
 KRS 376.110
 Filed in Circuit Court in County where project is
located
 Parties
-- Party with whom you contracted
-- Any party who has an interest in the property
 Cause of Action
-- Breach of contract
-- Enforcement of lien – must be carefully drafted
-- Unjust Enrichment

27. Bonding Off
 Surety bond for twice the amount
of the lien
 Filed with the County Clerk
 Bond substitutes for property as
security for lien
 Property is free and clear of Lien

28. Overstating Lien
 Don’t overstate lien
 Public Projects
– KRS 376.220(3)
– Damages
 Slander to Title
– Malice
– 1 year SOL

29. Failure to Release Lien
 Release lien within 30 days of satisfaction
 $100 penalty per day
 Penalty increases to $500 per day after
45 days
- KRS 382.365(1)&(3)

30. Prompt Payment Act

31. Kentucky’s Fairness in
Construction Act
KRS 371.410
 Payment of Invoices
– Owner to pay within 30 days
- Notice within 25 days
–15 day rule for subcontractors

32. Kentucky Prompt Payment Act
Public Projects
 KRS 45.451 - .453
 Application - state purchaser
 Paid within 30 days
 1% penalty per month

33. Federal Prompt Payment Act
(31usc § 3902)
 Interest on unpaid amounts
 Rates change
 Use the calculator
– http://www.fms.treas.gov/prompt/ppinterest.html

34. Payment Bond Claims
Private Projects
 Before you start work
 Get a copy
 Deadlines are different
– Typical Notice - 30-90
days
– Suit – 1 year of date that
notice was provided or last
day of work

35. Payment Bond Claims
Public Projects
 Bonds required for public projects in
excess of $40,000
 Covers
– Subcontractors
– 1st tier subcontractors and materials
suppliers
 No coverage for 2nd tier

36. Federal Miller Act
Payment Bond Claims

37. Federal Miller Act
Payment Bond Claims
 Application - contract > $100,000
– public building of the United States
 Covered parties:
– The general contractor
– 1st tier
– 2nd tier

38. Federal Miller Act
Payment Bond Claims
 Notice of Claim on Bond
– 90-days LDOW
 Notice must state:
–$
– Name of party Claimant contracted with
 Send to general contractor by
registered mail

39. Federal Miller Act
Payment Bond Claims
 Enforcement of Claim Against Bond
– File suit within 1 year of the last date labor
or materials were supplied
– 40 U.S.C. §3133(b)(4)

40. Theft by Unlawful Taking &
Making Required Disposition
 KRS 514.030 &
KRS 514.070
 KRS 446.070
– injured by the
violation of any
statute may
recover damages

41. Things to Remember
 Develop a checklist of deadlines
– Liens (every state different)
– Notice requirements (bonds, claims, etc)
 Don’t wait to call
 Document, Document, Document
 Lien Releases
 Final Payment

42. What to do when a customer
doesn’t pay?
Thirsty Thursday
May 26, 2011
Lexington, KY
Anne E. Gorham