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Pre-Lien Notice
What is a Pre-Lien Notice?
A pre-lien notice, also known as a preliminary notice, is a legal document used in the construction industry to secure payment rights for subcontractors, material suppliers, and other parties involved in the construction project. It is a crucial step in securing the right to payment and can, therefore, directly impact subcontractor cash flows.
The purpose of a pre-lien notice is to inform the property owner, general contractor (GC), and other relevant parties that a subcontractor or supplier has provided labor, materials, or services to the project. By submitting a pre-lien notice, the subcontractor establishes their right to file a mechanic's lien if they are not paid for their work.
The steps to secure payment through the pre-lien notice process are as follows:
- Pre-lien (preliminary) notice: This notice should be submitted at the start of every project, typically within a specified time frame after the subcontractor begins work or delivers materials. It serves as a formal notification of the subcontractor's involvement and their intent to protect their right to payment.
- Notice of intent (NOI): If the subcontractor is not paid for their work after submitting the pre-lien notice, they can issue a notice of intent (NOI) to the property owner, general contractor, and other parties involved. The NOI is the final warning before filing a mechanic's lien, indicating that the subcontractor intends to take legal action to secure payment if the outstanding balance remains unpaid.
- Mechanic's lien: If the subcontractor still does not receive payment after issuing the NOI, they can file a mechanic's lien against the property. A mechanic's lien is a legal claim that encumbers the property, preventing the owner from selling or refinancing until the debt is resolved. This action is typically a last resort to recover unpaid balances. (Check out this blog post to better understand how mechanic’s liens work.)
—the only billing software built specifically for subcontractors—centralizes and tracks billing statuses across all projects. It provides real-time notifications when payments become overdue, empowering accounting teams to take an active role in collections—like, issuing an NOI (the next step after submitting a pre-lein notice)—to promptly recover payments.
Interested in seeing how Siteline can give you more visibility into your cash flow? Schedule your personalized demo here.
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Other construction terms
What is Retainage?
Retainage is a common practice in the construction industry where a portion of a subcontractor's payment is withheld until the project reaches substantial completion or a specific milestone. This withheld amount, typically 5-10% of each progress payment, serves as a safeguard for the project owner, ensuring that the work is completed to their satisfaction. However, retainage can significantly impact subcontractors' cash flow, as it ties up a portion of their earnings and limits their access to working capital.
This restriction on cash flow can create challenges for subcontractors, especially smaller businesses with limited financial resources. They may need to secure additional financing or lines of credit to cover ongoing expenses like labor, materials, and overhead. This can lead to increased borrowing costs and potentially reduce their profit margins. In some cases, subcontractors may even delay starting or completing work until retainage from previous projects is released, causing potential disputes.
To mitigate these challenges, subcontractors should carefully review and negotiate retainage contract terms, ensuring they fully understand the percentage withheld, release conditions, and payment schedule. Proactive financial planning, including budgeting for delayed payments and potential additional financing, is crucial for navigating the pitfalls associated with retainage.
Siteline can be a valuable tool in this process. It allows subcontractors to track retainage meticulously—ensuring they always collect retention payments—and provides a centralized repository for all closeout documentation. Additionally, Siteline streamlines the billing process, generating accurate and timely pay applications and submitting the correct lien waivers, further simplifying the complexities of retainage management.
If you're looking to gain control over your retainage tracking and improve your overall billing efficiency, book a demo with Siteline today.
What is a Project Manager?
A Project Manager in the construction industry is a professional responsible for overseeing and directing the progression of projects from conception to completion. This role entails coordinating a team of professionals such as architects, engineers, and builders to ensure the successful completion of a construction project. Key responsibilities include preparing budgets, scheduling work plans, monitoring progress, managing risks, and ensuring quality standards. It is essential for a Project Manager to possess skills in leadership, negotiation, risk management, and problem-solving. Overall, their primary goal is to manage the project to finish on time, within budget, and in keeping with safety standards and regulations.
What is Depreciable Life?
Depreciable Life, in the context of the construction industry, refers to the estimated period during which a tangible asset like a building, machinery, or equipment used for construction purposes, can generate income before it becomes outdated or reaches the end of its useful economic life. The Internal Revenue Service (IRS) often stipulates the depreciable life of an asset, typically ranging from 15 to 39 years for commercial real estate. This expected lifespan is vital in determining depreciation rates for businesses to recover the cost of assets over time via tax deductions. It assists in shaping financial and investment decisions on repairs, replacements, and asset acquisitions in construction businesses.
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