What to do when a customer
doesn’t pay?
Thirsty Thursday
May 26, 2011
Lexington, KY
Anne E. Gorham

Payment Remedies
 Retainage laws
 Public and Private Mechanics Liens
 Federal and State Prompt
Payment Statutes
 Payment Bond Claims
 Theft by Unlawful taking

Kentucky’s Fairness in
Construction Act
KRS 371.410
Retainage

Owner’s Release of
Retainage
 Not for materials provided by owner
 30 days after Substantial Completion

Contractors &
Subcontractors Release of
Retainage
 15 days after release from owner
– Business days

Failure to Release Retainage
 12% per year
 Send Notice

Mechanics Liens

Private Projects

Preliminary Notice
ID the
Owner
ID Yourself

Preliminary Notice ID labor, mtls
providing
Price
ID who contracted with
ID
Property
 Sign, Notarize, Send Copy

Notice of Intent to Lien
If no contract with owner
Anne Gorham
859-226-2308
859-425-7884 FAX
agorham@stites.com
[Insert name and address of [real estate owner]
 ID Your Relationship to Project
 Owner of Construction Project v. Real Estate Owner

Notice of Intent to Lien
 Time Limitations
– $1000 or more – 120
– < $1000 – 75
– Residential – 75
 Days after last day of work (LDOW)
 Owner of Project = Owner of Real Estate

Statement of Lien
ID ID
yourself LDOW
ID Owner
of Real
Estate
ID $
 File with County Clerk – 6 months of LDOW
 Copy to owner within 7 days of filing

Statement of Lien
ID
Property
 ID who contracted with

Statement of Lien
ID Process
Agent
The name and address of CONTRACTOR’s agent for service of process is
_______________; however, service of process may be accomplished by serving Anne E.
Gorham, Stites & Harbison, PLLC, 250 West Main Street, Suite 2300, Lexington, KY 40507.
The Affiant states that the foregoing statements are true:
______________________________
COMMONWEALTH OF KENTUCKY )
) ss.
COUNTY OF FAYETTE )
The foregoing instrument was acknowledged, subscribed and sworn to this ___ day
of _________, 2011.

Perfect the COMMONWEALTH OF KENTUCKY
Lien
ROWAN CIRCUIT COURT
CIVIL BRANCH
_____ DIVISION
CIVIL ACTION NO. ________________
 12 months PLAINTIFF
v.
 Other lien DEFENDANTS
holders or COMPLAINT
mortgage
holders * * * * *
For its cause of action, the Plaintiff states:

Design Professional’s Lien Statute
KRS 376.075
 Who Can File
– Professional Engineer
– Licensed Architect
– Licensed Landscape Architect
– Real Estate Broker (under certain
circumstances)
 Only if they contracted directly with
owner or owner’s agent

Design Professional’s Lien
 What does the lien attach to?
 What does the lien secure?

Design Professional’s
Lien Statement
 6 months
 Lien Requirements

Public Construction
 Kentucky Public Mechanics Lien Statute
– KRS 376.210

Statement of Lien
 File with County Clerk
 Later of
– 60 days
– or the date of S.C.
 Time not extended by
trivial or warranty work

ID Project

LDOW $
owed
Agent

Perfecting the Lien
Perfecting public Liens
 Attested by County Clerk
 Send letter and lien by certified mail
– to owner
– and person contracted with (if not the
owner)

Protests
 GC has 30 days to
file protest
 Owner to hold
funds
 If no protest –
owner pays
 If protest – file suit
& serve owner
within 30 days

Suit to Enforce Lien
 KRS 376.110
 Filed in Circuit Court in County where project is
located
 Parties
-- Party with whom you contracted
-- Any party who has an interest in the property
 Cause of Action
-- Breach of contract
-- Enforcement of lien – must be carefully drafted
-- Unjust Enrichment

Bonding Off
 Surety bond for twice the amount
of the lien
 Filed with the County Clerk
 Bond substitutes for property as
security for lien
 Property is free and clear of Lien

Overstating Lien
 Don’t overstate lien
 Public Projects
– KRS 376.220(3)
– Damages
 Slander to Title
– Malice
– 1 year SOL

Failure to Release Lien
 Release lien within 30 days of satisfaction
 $100 penalty per day
 Penalty increases to $500 per day after
45 days
- KRS 382.365(1)&(3)

Prompt Payment Act

Kentucky’s Fairness in
Construction Act
KRS 371.410
 Payment of Invoices
– Owner to pay within 30 days
- Notice within 25 days
–15 day rule for subcontractors

Kentucky Prompt Payment Act
Public Projects
 KRS 45.451 - .453
 Application - state purchaser
 Paid within 30 days
 1% penalty per month

Federal Prompt Payment Act
(31usc § 3902)
 Interest on unpaid amounts
 Rates change
 Use the calculator
– http://www.fms.treas.gov/prompt/ppinterest.html

Payment Bond Claims
Private Projects
 Before you start work
 Get a copy
 Deadlines are different
– Typical Notice - 30-90
days
– Suit – 1 year of date that
notice was provided or last
day of work

Payment Bond Claims
Public Projects
 Bonds required for public projects in
excess of $40,000
 Covers
– Subcontractors
– 1st tier subcontractors and materials
suppliers
 No coverage for 2nd tier

Federal Miller Act
Payment Bond Claims

Federal Miller Act
Payment Bond Claims
 Application - contract > $100,000
– public building of the United States
 Covered parties:
– The general contractor
– 1st tier
– 2nd tier

Federal Miller Act
Payment Bond Claims
 Notice of Claim on Bond
– 90-days LDOW
 Notice must state:
–$
– Name of party Claimant contracted with
 Send to general contractor by
registered mail

Federal Miller Act
Payment Bond Claims
 Enforcement of Claim Against Bond
– File suit within 1 year of the last date labor
or materials were supplied
– 40 U.S.C. §3133(b)(4)

Theft by Unlawful Taking &
Making Required Disposition
 KRS 514.030 &
KRS 514.070
 KRS 446.070
– injured by the
violation of any
statute may
recover damages

Things to Remember
 Develop a checklist of deadlines
– Liens (every state different)
– Notice requirements (bonds, claims, etc)
 Don’t wait to call
 Document, Document, Document
 Lien Releases
 Final Payment

What to do when a customer
doesn’t pay?
Thirsty Thursday
May 26, 2011
Lexington, KY
Anne E. Gorham