Boots on the Ground

Subcontractors, The Heartbeat of Construction
February 22, 2014

Reverse Auctions…. The Only Way to Win the Game is to Not Play

In 2013, the Department of the Interior and Army Corps of Engineers announced they were considering expanding the reverse auction method to eastern North Carolina for jobs that small businesses can perform. This is a method whereby the Owner posts a price online and registered bidders will bid the price down until time expires and a low bidder is declared.

I had some experience with reverse auctions about 20 years ago when Target Stores decided they were going to start using reverse auctions for their construction projects. Needless to say, we didn’t get much work with Target until they stopped the practice. We only got one in Lawton Oklahoma where we were the only bidder. A sophisticated company, even in the worst of times, will not price below the cost of labor and materials, plus taxes and overhead, and the cost of working capital. They may price at cost hoping to buy it down, but they will never knowingly go into a job at a loss. An unsophisticated company, hungry for work, can be tempted to take work too cheaply. Work they may not be able to afford the interest on for the duration of the project until they can collect final payment and retainage.

In other words, reverse auctions deprive contractors of a fair profit. I am in favor of reducing government waste, but not at the cost of unfair business practices.

Rep. Richard Hanna (R-NY), has introduced a bill, HR-2751, to ban these practices. The Associated General Contractors has testified before Congress in favor of this bill and recommends everyone ask their Congressman to co-sponsor or support this bill. It is scheduled for a committee vote in March, 2014. Subcontractors should support this bill as well.

http://newsmanager.commpartners.com/agcleg/issues/2014-02-20.html#0

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February 22, 2014

The Case of the Hidden Owner

If you are a Contractor or Subcontractor, at some time or other you will be doing business with a tenant, or a Contractor working for a tenant. If something happens and you do not get paid, don’t think the NC Lien Laws are going to help you.

The idea of a mechanics lien is written into the Constitution of the State of North Carolina. The Constitution provides that state law provide adequate protection to suppliers of labor and materials. When Thomas Jefferson first envisioned the mechanics lien and wrote it into the Virginia Constitution, things were pretty simple. If a carpenter did work on a man’s house and did not get paid, he could claim a lien against the house to enforce payment. Things are more complicated now. Owners can be pretty nebulous. The owner may be a REIT or an insurance company or a pension fund. You may be dealing with an Agent or a Management Company and you may only know the Owner by an entity formed solely for a single project, something like ABC123, LP.

Under current NC Lien Law, as adjudicated in Pete Wall Plumbing Co. v Sandra Anderson Builders, Inc. (2011), the mechanics lien can only be enforced against the lease. Under the standard lease agreement used in North Carolina, if a tenant defaults on a lease or the owner terminates a lease for cause, all improvements and fixtures become the property of the owner. At that point, there is absolutely no value to the mechanics lien.

In his opinion in the Pete Wall case, judge Steelman wrote: 

“I am concerned that the present state of our law does not provide adequate protection to suppliers of labor and materials as envisioned by Article X, section 3 of the North Carolina Constitution. In addition, the increasingly complex real estate arrangements now being used make it virtually impossible for a supplier of labor or materials to protect themselves under our lien laws.”

The legislature re-wrote the statutes to protect the Title companies against “hidden liens.” Now is the time for the legislature to correct the problem that affects the very people lien laws are supposed to protect.

The North Carolina Subcontractors Alliance has produced a position paper that will be presented to the legislative study committee that will meet on March 3, 2014. Hopefully, the law can be corrected and brought into compliance with the NC Constitution. The position paper can be read or downloaded from the NCSA’s website, http://ncsubcontractors.com/wp-content/uploads/2014/02/NCSA-Position-Paper-Leasehold-Liens-2-19-14.pdf

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