Subcontractors and suppliers deliver labor and materials to jobsites on credit with an understanding that payment will be forthcoming. Lien laws exist to secure that credit risk should the subcontractor or supplier not be paid timely for the value they provided to the project.
Owners and contractors understandably want to ensure that payments get downstream to those who earned the money without having to “pay twice.” Typically, lien waivers are utilized to minimize or eliminate that risk. Subcontractors and suppliers don’t mind signing lien waivers so long as they know the money has been received, or will be received, upon receipt of the release.
But problems arise when an owner or contractor demands an unconditional lien waiver in advance of payment. A subcontractor or supplier who signs an unconditional lien waiver before payment is at risk of not being paid and still losing lien rights. Therefore, many subcontractors and suppliers will only agree to a conditional lien waiver in advance of payment (followed by an unconditional lien waiver after receipt of payment).
These problems are sometimes compounded when the contractor uses a payment platform like TEXTURA. While designed to enhance efficiency in the payment process, subcontractors may be asked to sign overly broad lien waivers online as a condition of receiving electronic payments of draws.
More and more, lien waivers contain waiver or release language that is far broader than simply waiving lien rights through a particular date or pay request, in exchange for that payment. Many also purport to release outstanding change orders, potential claims, or future payments in exchange for the desired payment.
For this reason, subcontractors and suppliers are strongly cautioned to carefully review lien waivers, particularly those containing broad or lengthy legal language. If there is overbroad language, the subcontractor or supplier should try to carve out the disputed unpaid items with “reservation of rights” language modifying the lien waiver form. And all parties to the payment process are encouraged to discuss and agree upon a mutually acceptable payment/lien waiver process well in advance of the first disputed or delayed payment.