12 Sep Disaster Recovery Cheat Sheet
Part One: For Owners of Damaged Property
Property owners should research any party before hiring them to do work. A quick online search of a company or an individual’s name can help spot red flags. Better yet, ask for references from recent projects and see how they respond. Don’t be scared to follow up on a few references to verify information. When you have settled on a contractor, put everything down in writing. Use a good contract template, make sure the contract has a set price, and include terminology that requires approval for any change orders or alterations not in the contract.
By utilizing notices, property owners can better understand what is going on with their project. It’s a good idea to request every party on the project provide some preliminary notice that includes a description and price of their work. Notices create better communication and transparency on the job site, and any potential issues can be nipped in the bud.
A conditional waiver waives lien rights, but only for the work that has been completed. They must be drafted with great care and attention to detail, but when done right, they’re fair. Partial waivers waive lien rights for some portion of the overall project, and conditional waivers only waive lien rights for work that has been paid for. By properly pairing a conditional or partial waiver with payment, a subcontractor only gives up lien rights when they can safely do so.
Claims should be made as soon as they can be put together. Many states (Louisiana included) have specific time limits by which insurance companies must pay undisputed amounts when proof of loss has been submitted. If those amounts aren’t timely paid, insurance companies can be found in bad faith and could be subject to treble damages and penalties. Insurance may not cover everything, and sometimes funds won’t be available at all, so make sure your insurance dollars stretch as far as they possibly can. Aid may come in other forms and from other places, but never assume that it will. In any event, don’t let your guard down – protect whatever aid you do receive as if it’s your last dollar.
It’s a good idea to keep records of anything even remotely related to your insurance claims. Be sure to pay attention to change orders and progress payments from your insurer as well. Typically, an insurer will refuse to pay for changes that were not originally contemplated or subsequently approved by the insurance provider. As for progress payments, insurers often subtract the amount of an owner’s deductible when paying the contractor. Owners will be liable for the difference.
Part Two: For Construction Companies
Where licensing is required, only perform work you are licensed to do. Licensing requirements vary from state to state. For out-of-state contractors, it’s important to understand the requirements of the state where work will be done. Just because you are licensed in one state does not mean that license is valid everywhere else. That being said, after a disaster it is fairly common for a state to suspend some licensing requirements or to issue emergency waivers to help with recovery efforts. This does not happen after every disaster, and even when requirements are relaxed, not all licenses will be affected. A failure to hold the proper licensure could result in serious penalties and affect your right to payment. In many states, unlicensed contractors have limited lien rights or none at all.
Properly vetting the parties you’ll be working with must be a high priority. It’s not always possible to work with someone you’re familiar with. When working with someone for the first time, do your research. Do an online search for their name or the name of their business. Ask them about licensure, insurance, and prior projects-referrals from past contractors and subs should shed a lot of light on them.
It also might be helpful to ask if they’ve done insurance or disaster recovery work before. After accepting a job or hiring another party, put everything down in writing.
LIEN AND NOTICE LAWS CHANGE FROM STATE TO STATE
To secure payment, contractors, subs, and suppliers need to know the applicable lien and notice laws. These laws vary greatly from state to state, so pay attention if you’re traveling to perform work. Even if you’re at home, these laws will be more important than ever. If you don’t think you want to file or enforce a lien, there’s still no harm in preserving your lien rights. Regardless of what the law requires, send preliminary notice on every project. Doing so lets an owner know you’re providing work on their property and will help nip some disputes in the bud.
USE PARTIAL AND CONDITIONAL LIEN WAIVERS
Utilizing waivers is a great way to make sure a project goes smoothly. Using these waivers should speed up the payment process while limiting the risk of waiving lien rights. When using a partial waiver, only a portion of lien rights are given up. With conditional waivers, rights are only waived if and when payment comes. It is incredibly important that waivers are properly drafted. Otherwise, you may be prematurely giving up lien rights. Pay very, very close attention to the language of anything you sign, especially lien waivers.
DEALING WITH INSURANCE
Insurance checks rarely come quickly, and waiting for payment could put your lien rights at risk. It may frustrate the property owner, but take the necessary steps to preserve lien rights. Also, industry members should beware of issues that arise with progress payments as well as the effects of change orders. When progress payments are made by an insurer, often times they will subtract the amount of the property owner’s deductible. The remaining sum will be owed by the owner, but these amounts are often overlooked – be sure to protect your recovery. Do not underestimate the effects of change orders, either. Changes and adjustments may not be covered by the insurer and could lead to disputes with the owner.