Mechanic’s Lien
FEATURED PAPER
By Xionghuan Zhan
SKEMA Business School
Paris, France
ABSTRACT
This article describes the definition of lien and the use of lien in construction contracts. After understanding the main concepts, we used MADM to compare three debt recovery options, and found that use lien laws are the best way to ensure payment to contractors, subcontractors, and suppliers.
Finally, we conclude that Assigning the project manager to prepare a Mechanic’s Lien at the start of the project is the quickest and most effective way. Mechanic’s Lien works extremely well, but the requirements are quite onerous. Therefore, to record lien’s reports at the beginning of the project can greatly simplify the process. If necessary, submit the application directly to the court and complete the early procedures quickly.
Key words: Lien, payment, priority, Mechanic’s lien, notice of lien, Arbitrate
INTRODUCTION
Along with the increase of commercial activities, more and more payment problems have appeared, which will result in three apparent outcomes as followed. For the first place, it is the increase of time-cost for many small and medium-sized companies. Besides, it is the lack of money to pay for their downstream companies which will result in a credit crisis. Furthermore, it is a shortage of cash flow.
Therefore, two actions ought to be taken to deal with the payment problems. On the one hand, it requires project managers to take emergency measures to avoid these problems, on the other side, using the lien law is an effective strategy when the contractor, subcontractor, and supplier did not receive payment from the owner or the payment was overdue. There are different types of lien: one is Consensual Lien covering Purchase-Money Security Liens and Non-Purchase-Money Security Liens. There are other types of liens are the Mechanic’s Liens and Tax Liens. The last one is Judgment Lien; “a Judgment Lien can occur in a variety of circumstances. Basically, any event that makes you in court will result in a Judgment Lien.”[1]
There are some details from the UK: “FSB research exposed the UK’s paid late problem, which costs the UK economy £2.5bn each year and kills 50,000 small firms. It has a significant impact on downstream companies. The FSB’s survey of approximately 1,000 small businesses shows the size of the delay. 30% of payments are usually late. Only 12% of companies are always paying on time. About one-tenth of small companies say that 80% or more of their payments are usually late. Subcontractor companies and supplier report that 60% of deferred payments are worth more than £1,000 and the average value are £6,142. Large private companies are most likely to pay late to downstream companies.”[2]
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Editor’s note: This paper was prepared for the course “International Contract Management” facilitated by Dr Paul D. Giammalvo of PT Mitratata Citragraha, Jakarta, Indonesia as an Adjunct Professor under contract to SKEMA Business School for the program Master of Science in Project and Programme Management and Business Development. http://www.skema.edu/programmes/masters-of-science. For more information on this global program (Lille and Paris in France; Belo Horizonte in Brazil), contact Dr Paul Gardiner, Global Programme Director paul.gardiner@skema.edu.
How to cite this paper: Xionghuan, Z. (2019). The Best Guard – Mechanic’s Lien, PM World Journal, Vol. VIII, Issue IX, October. Available online at https://pmworldlibrary.net/wp-content/uploads/2019/10/pmwj86-Oct2019-Xionghuan-best-guard-mechanics-lean.pdf
About the Author
Xionghuan Zhan
Paris, France
Xionghuan Zhan, Chinese, 25 years old, major in Project and Programme Management & Business Development (PPMBD) at SKEMA Business School in Paris, France. I graduated from XiMen Institute of Technology University in China. I enjoy making friends, and I am good at dealing with people.
In my past student life, I often appeared as an activity organizer. The duties and obligations of the class made me willing to communicate with others and help others in need. Traditional family education has shaped my character of respecting teachers, being kind to others, being grateful and being honest. Accepting education, an overseas graduate student, has brought me a diversified cultural impact. Empathy, patience, tolerance, and normalcy have become the norm.
In 2017 (May-November), I worked as an intern in Zhengda company and experienced the working state for the first time. Although the internship was not long, I got a lot of exercises. Participated in competition on behalf of the company for the first time and won the prize; The first time as the host and colleagues to complete the publicity session; Completed four recruitments independently for the first time; Introduced talents for the company for the first time.
These experiences enriched my social experience, and I am more looking forward to future tasks. Now I live in Paris and can be contacted at xonghuan.zhan@skema.edu and https://www.linkedin.com/in/熊桓-詹-484577158
[1] Different Lien Types Provide Creditors with Different Rights. Retrieved from https://www.bizfilings.com/toolkit/research-topics/running-your-business/asset-strategies/different-lien-types-provide-creditors-with-different-rights
[2] Federation of Small Businesses. (2016). Time to Act: The economic impact of poor payment practice. Retrieved from https://www.fsb.org.uk/docs/default-source/fsb-org-uk/fsb-report—late-payments-2016-(final).pdf?sfvrsn=0
