Receiving payment on a building job might be difficult. Construction companies must exchange numerous documents in order to obtain payment. The preliminary notice, an informational document delivered at the start of a project, is one of the most underappreciated documents in construction. It has huge advantages for everyone involved in a project, from the property owner to the tiniest equipment provider. Sending out preliminary notice is an important first step for anyone recruited to work on a construction project.
This in-depth essay will cover all you need to know about preliminary notifications, why they’re so important, and best practices for everyone involved in a construction project.
What is a preliminary notice?
A preliminary notice is a document used on construction sites to advise those in charge (such as the property owner and general contractor) of the work being done. Contractors and suppliers must submit preliminary notice in many states to retain the right to file a mechanics lien or make a bond claim if they are not paid.
Preliminary notices go by a lot of different names:
- Notice to owner (NTO)
- Notice of furnishing
- Pre lien
- And many more…
Preliminary notifications are unique in the construction industry, and some could even call them “magical.” One look at the definition of “preliminary” reveals how potent they are:
“denoting an action…done in preparation for something more substantial or essential.”
Indeed, preliminary notices are used to prepare for something more significant. In reality, payment is the reason that any construction enterprise exists in the first place.
As you might expect, preliminary notification is issued at the start of a project, or within a few days after work begins.
Why are preliminary notices important?
It all boils down to payments, both making and receiving them. At the end of the day, everyone who works on a construction project wants the same thing: for the project to be completed successfully and for everyone to be paid.
It may appear contradictory to claim that property owners want everyone to get paid. “Wouldn’t the property owner prefer not to pay anyone?” you may be wondering. Of course, everyone who finances a building project wants to keep their costs as low as possible. They also wish to prevent mechanical liens, which are legal claims made against their property.
Property owners want to avoid claims on their property
A mechanics lien is a legal document used by unpaid construction companies to effectively freeze the property. And the individuals in charge of a project do not want that to happen. Unfortunately, the intricacy of construction projects can pose a significant danger to owners. They can’t ensure that everyone gets paid if they don’t know who is working on their land. In addition, if someone is not paid, they have the power to file a mechanical lien against the property.
In truth, property owners are primarily to blame for the presence of construction signs! Property owners and construction lenders urged state legislatures in the 1960s and 1970s to help them defend against the problem of “surprise liens.” As a result of this lobbying, numerous states passed legislation requiring preliminary notices. The goal was to enable owners and lenders to identify and track job contributors so that they could pay everyone and proactively avoid lien claims.
Because a construction project is an expensive, complex, and frequently risky endeavor, preliminary notices are required. As the size of a project expands, so does the number of people needed to finish it. These signs assist property owners and lenders in knowing who is working on their project.
Subcontractors & suppliers want to get paid on time
Sub-tier parties, such as subcontractors and suppliers, want to avoid mechanical liens as well, but for a different reason: they would prefer to get paid in full and on schedule for their work so they can move on to the next project.
Sending early notices aids in the payment of sub-tier parties. This is because issuing the notice draws the attention of the owner and other persons in charge of payments to their contribution. When the owner is aware that a specific company is operating on their property, they might take actions to ensure that they are paid.
Benefits of preliminary notice
Even though they primarily aid in the management of payment on a building project, preliminary notices provide a number of advantages that extend far beyond a checkbook. They enhance communication, provide professional signals, assist GCs with waiver collection, and can remedy a power imbalance.
Improved communication is one of the most significant advantages preliminary notices bring to a construction project. It is tough for general contractors to coordinate everything that happens on a project, from coordinating subcontractors to managing design modifications to assuring smooth and timely payment. A successful project involves constant communication with all parties involved, from the architect to the subcontractors and material suppliers.
While the general contractor generally knows how to contact the architect, they may not know how to reach the electrician who was engaged by a sub-subcontractor. This becomes a problem when the architect gives a modification order, requiring the general contractor to rearrange the production timeline. The electrician must also be informed of the timetable modification. Sending a preliminary notification ensures that the GC is aware that he is on the job, allowing the GC to notify him of any significant project modifications or delays.
Relationships and reputation are important in the construction sector. Everyone wants to hire the most professional team to complete each task.
Most property owners and general contractors have recurring nightmares about a careless subcontractor that does bad work, doesn’t communicate about what they’re doing, and quits as soon as their check clears.
Sending a preliminary notification conveys to the hiring party that they are dealing with a professional. When a property owner receives a notice, they know that the company has established protocols and procedures, recognizes the need of communication, and runs a tight ship.
Better lien waiver collection
In order to be paid, general contractors must get lien releases from all parties involved in the project. However, identifying everyone who needs to send waivers and ensuring that they collect, organize, and manage all waivers can be difficult. Preliminary notices can help you prevent hassles when it comes time to pay. If they obtain preliminary information from each party, they can quickly match waivers to them and ensure that everyone is counted.
Risk management is an important aspect of properly managing a construction project. Preliminary letters lessen the danger of double payments for property owners and lower the chance of nonpayment for subcontractors. Most states require contractors and suppliers to submit preliminary notice in order to protect their right to seek a mechanics lien or bond claim later on.
Preliminary notice and the mechanics lien process
A mechanics lien is a strong instrument that contractors and suppliers can employ if they are not paid. But it does not happen by itself. In general, the mechanics lien process consists of three needed documents:
- Preliminary notice
- Notice of intent to lien
- Mechanics lien
Of course, no one begins a project with the expectation of not being paid. Too many contractors put themselves in jeopardy because they did not believe they needed to submit preliminary notice – until it was too late.
Unfortunately, that scenario occurs far too frequently. A lot of moving components must align perfectly for money to go through the network of contractors and suppliers on a job. Problems develop all the time, and there is no way to foresee when or where they will occur.
As a result, issuing a preliminary notice on each and every job is simply good business. Send a preliminary notification if it is not necessary in your state. Send a preliminary notice if you do not anticipate a payment difficulty. Send a preliminary notification if you’re conducting a roofing job on your best friend’s house.
You must follow certain criteria in states where preliminary notice is necessary to safeguard your lien rights. These include delivering complete and correct information, conveying notice at a certain timeframe, to the appropriate people, and via the suitable ways.
However, due of the significant benefits they give, sending prelims is a smart practice even if your state does not require it.
Calculating your deadline
Each state establishes its own timetable, and some are tighter than others. For example, in California and Arizona, you must send preliminary notification within 20 days after initially delivering labor or goods. But if you miss the deadline, you’re not out of luck. You can still send one, but the lien protection will be restricted to the labor or supplies delivered 20 days prior to the notification and all subsequent work.
Many other states have a definite and quick deadline. If you fail to deliver a preliminary notification within the appropriate date, you forfeit your right to file a mechanics lien. If you are not compensated, your recovery choices are significantly more limited, costly, and time-consuming.
Sending a prelim as soon as you begin any project is a smart idea. This eliminates the need to calculate deadlines in multiple states or on separate projects. You may always be confident that your lien rights are secure.
Information to include on a preliminary notice
While it is crucial to check your state’s unique regulations, preliminary notices will often include the following information:
- Name and contact information for your company
- Name and contact information for the property owner
- Name and contact details for the general contractor
- Name and contact information for the lender (if one exists)
- Surety bond company (if a payment bond exists)
- Property address and/or legal property description Description of the work and/or supplies provided
- Estimate of total cost
Furthermore, many states that require preliminary notice also need explicit notice language on the form informing the recipient of your ability to file a lien if they do not pay you on time.
Instead of combing through state statutes and creating a preliminary notice document from scratch, simply download a free preliminary notice form designed by construction attorneys:
Preliminary Notice Forms are available for free in all 50 states.
Delivering preliminary notice
Most states specify how preliminary notices must be sent. The ideal practice is to send the notice via certified mail with return receipt desired, so that you have a record of the service in case there is a disagreement later on. Personal service, such as hand delivery, is often permitted by states, but it can be difficult to show.
Most of the time, you’ll need to serve notice on the property owner (thus the name “Notice to Owner” in several states). Depending on the state, project type, and project role, you may be required to deliver it to the general contractor and, potentially, the lender.
Regardless of the rules, sending notice to all parties up the payment chain is a good practice. You can’t really send out too many preliminary notices. The more people who know you’re working, the more probable it is that you’ll be paid on time.
Letter of Project Awareness
A non-statutory preliminary notification is a project awareness letter. This implies that there are no regulations governing how or when to send it, and it will have no effect on your lien rights. It is a document that provides information about your company to the parties above you. It offers a description of the work you’re doing as well as the contract price for which you’re working.
Fundamentally, there is no distinction between an awareness letter and a preliminary. The key difference is that material in preliminary notice states must be supplied in a specified format, by a specific deadline, and in a specific manner. In reality, several states require a preliminary to include language such as “This is an informational notice required by law.”
In states where a statutory preliminary notice is not required, construction companies may utilize a project awareness letter instead. While they do not have the same legal weight, they include the same information. Providing an awareness letter enhances communication, increases transparency, and increases the possibility of on-time, complete payments.
Other construction notices vs. preliminary notice
There are numerous notices related to the payment procedure in the construction industry. Each state has a different name for them. The entire process can appear to be far more complicated than it is.
Consider a preliminary notification to be one that construction companies send to convey information to those in control at the start of a construction project. That is the primary distinction between this and other sorts of notices.
Take, for example, the Notice of Intent to Lien (NOI). In some places, this is required before a mechanics lien can be filed. It is only used when a payment is late. As a result, sending it at the start of a project makes no sense.
Another sort of notice used at the start of a building project is a Notice of Commencement. However, it is not employed by a contractor or supplier. This document is filed by the property owner (or, in some cases, the general contractor) to serve as a public record that a project has begun.