In what seems like the blink of an eye, 2017 is already gone. One of the biggest changes to the Pennsylvania construction industry is now over a year old. That’s right, the Pennsylvania Construction Notices Directory—the state-operated construction project database that can, under various circumstances, affect the lien rights of owners, contractors, suppliers, and subcontractors—went live over a year ago.
But even after a full year of operation, many in the industry still seem unaware that the Directory exists or unsure of how it works. And those who do know about it are likely wondering how it has impacted the construction industry in its first year. Given the potentially high stakes of not using the Directory, we have provided a recap of the essential features of the Directory and how it has been used.
What is the Pennsylvania Construction Notices Directory?
The Directory is a searchable, online database of construction projects. Whether a project is registered in it is at the discretion of project owners. An owner’s contractor may also register a project if the contractor is an authorized agent of the owner. To register a project, owners and contractors can file a “Notice of Commencement” in the Directory as long as the project’s costs are at least $1.5 million. When an owner or contractor registers a project, all suppliers and subcontractors are required to file a “Notice of Furnishing” within forty-five days of either beginning work on or first providing materials to the job site. Suppliers and subcontractors that fail to comply with the forty-five day Notice of Furnishing requirement forfeit their lien rights for the project.
Use of the Directory to restrict or enforce lien rights is somewhat limited. A searchable project’s owner or contractor can only limit supplier and subcontractor lien rights via the Directory if the searchable project’s contract contains language stating that failure to file a Notice of Furnishing will result in loss of lien rights, and if the owner has posted a copy of the Notice of Commencement at the job site. Additionally, a supplier or subcontractor seeking a lien against a project must file a Notice of Furnishing, as specified above, and provide an owner with notice of intent to file a lien at least thirty days before actually filing the lien.
What was the impact of the Directory in its first year?
By all appearances, the Directory’s first year of operation was a success. As we expected, owners and contractors wasted no time in registering projects. As of this writing, we estimate that in 2017 over two-hundred projects were registered. Given the Directory’s heavy use thus far and the possible legal requirements or consequences one could face if one’s project is registered, it may be time for you to run a quick Directory search to ensure your compliance and protect your rights.
The Directory’s operation also led to a need for contractors to “tune-up” their contract documents to reflect the Directory’s contractual notice requirement. The statute requires a contract to contain language essentially warning suppliers and subcontractors that failing to comply with the Notice of Furnishing requirement will result in the loss of their lien rights. By making Directory-driven contract revisions, contractors can add significant value to their business by ensuring the business’ ability to restrict the group of potential lien claimants to only those that complied with the Notice of Furnishing requirement.
We believe that the Directory’s operation is also leading to an increase in bond claim activity. Though this is difficult to assess with certainty, an increase in bond activity is likely because the governing statute requires that an owner or contractor’s Notice of Commencement filed in the Directory contain the name and contact information of any surety provides performance or payment bonds and the applicable bond numbers. Given the difficulty of obtaining this information in private projects not registered in the Directory, and that a number of private projects registered in it comply with the statute’s surety disclosure requirement and include this information, it is reasonable to assume that unpaid suppliers, subcontractors, and the like made more bond claims in 2017 than in previous years.
From a legal perspective, the statute providing for the Directory remains entirely intact. In other words, it appears that no courts in the Pennsylvania judicial system expanded upon or further defined any of the statute’s provisions during 2017. This is not surprising to us given that twelve months in real time can often feel more like twelve minutes in judicial time; however, we anticipate a judicial review of the statute in the near future. We believe that the statute contains a number of provisions that may need to be litigated to determine their true meanings. But until that happens, the Directory continues to operate as described.
Conclusion
If you are a player in the Pennsylvania construction industry, it is absolutely crucial for you to understand how the Directory works and how it can impact your legal rights and remedies. Owners, contractors, and subcontractors that fail to register projects in the Directory, or do so without proper notice language in the project’s contract, can lose the ability to restrict the number of possible lien claimants on a given project. On the other hand, suppliers and subcontractors on a project that fails to comply with the Notice of Furnishing requirement can lose their ability to file a lien on the project.
Throughout the course of 2017, our attorneys became very familiar with the nuances of the Directory. If you have any questions about how it relates to your construction business, feel free to contact us for assistance.
