Co-author: Tim Fandrey
In these unprecedented times, every bit of revenue is critical to the continued operation of nearly every business operating within the construction industry. Fortunately, there are a myriad of remedies to aide collection efforts. Perhaps the most commonly discussed remedy is the mechanic’s lien provided by Chapter 53 of the Texas Property Code Chapter.
Mechanic’s liens are most frequently used by contractors and suppliers to obtain payment security for the valuable labor and materials that they furnish to a construction project. In Texas, unlike many other states, design professionals are also given the right to lien for certain professional services that they perform for the project. In today’s uncertain climate where collection of money for valuable design services performed is a concern, the lien provides the design professional the opportunity to secure payment.
Like their contractor counterparts, design professionals must satisfy certain requirements to maintain and perfect a mechanic’s lien in Texas.
- The lien for professional services is limited to architects, engineers and surveyors.
- The types of professional services for which the property can be liened are limited to the preparation of a plan or plat in the case of architects and engineers, and the conducting of a survey in the case of a surveyor.
- The design professionals must be in privity of contract with the owner or the owner’s agent.
Thus, it appears that sub-consultants are unable to lien. Given the requirement of direct privity requirement, lien perfection is relatively straight-forward. The lien affidavit must simply be filed by the 15th day of the fourth month after the design contract is completed, terminated or abandoned.
Under many standard construction industry forms, including the American Institute of Architects and the Engineers Joint Contract Documents Committee, architects and engineers are required to perform construction administrative services, including review of submittals and change orders, and periodic inspections of the project site. These are no doubt valuable services, but cannot be liened unless there is a change to the plan or plat. Architects and engineers may, however, lien for construction supervision services because such services are considered “labor” and thus can be liened.
Despite the existence of this powerful, albeit somewhat limited, right to lien, engineers and architects do not file liens with the frequency of contractors and suppliers. One reason is that the cost of design services relative to the cost of construction is typically small. Accordingly, design professionals may not often find it necessary to secure payment through a lien. Relatedly, design professionals generally perform the bulk of their lienable services at the beginning of the project during a period before large amounts of project funds have been spent on other items, including construction and payment is therefore less frequently an issue. Further, design professionals that are able to lien have contractual privity with the project owner and merely use a lien as payment security. By contrast, subcontractors and suppliers typically do not have contracts with the project owner and can also be subject to a contingent payment clause in their contracts with the general contractor. A lien provides the subcontractor not only payment security, but also functions as a powerful method of extracting payment from the owner that has not made payment to the general contractor.
Given the changing payment landscape in the midst of the COVID-19 pandemic, architects, engineers and surveyors should consider giving their lien rights a first or second look. It is a powerful tool that can give the design professional security to perform work on credit to a project owner.