Construction Industry – Top 3 Construction Law Trends Of Today



By: Guy W. Bluff, Esq. (17-Jun-2010)

Any individual involved with the construction industry will do good to understand the construction law trends, especially the ones that have come through in the last decade or so.   The dynamics of the construction industry has changed significantly beginning in the fall of 2007, and it is important for construction contractors and construction companies to pay attention to these construction law trends.

Here are the top 3 construction law trends for your reading:

1.   Covering of defaults on incomplete construction projects – A significant number of projects have run into troubled waters due to lack of funds (Most significantly blamed on the credit crunch in the market).  The long impending credit crunch has resulted in a number of project owners and contractors looking to bankruptcy as an option.   Bankruptcy does come with its own legal hassles and thus, it is required for project developers and construction companies to hire experienced bankruptcy lawyers  who can assist and complete the filing of the bankruptcy petition and numerous required schedules (for the debtor), or when representing the creditor, timely and properly completing the proof of claim forms, request for relief from automatic stay, or complaint to determine discharability (adversary proceedings).

A common failure of debtors is the failure to timely file and complete the ongoing schedules and for the creditors, failure to timely and properly complete a proof of claim.  For contractors or suppliers seeking to pursue their Mechanic Lien claims, special procedures are required which must be timely complied with.

2.  Contract Protection – With an increasing number of project developers claiming lack of funds as a reason for the projects’ incompletion, it is important for construction contractors, subcontractors, materials suppliers, and even design professionals adequately protect themselves against potential default.  The most significant of this is to avoid performing work or supplying materials beyond the traditional 30 to 45 day period between progress payments.  Another option is to require the developer to make bi-monthly progress payments to avoid extending the amount of unpaid labor, materials, and equipment beyond a survivable level.  

3.  Mechanic liens – Mechanic liens are assuming increased importance in today’s construction environment and should not be ignored.  While it is true that the construction lender generally will take a first priority position against the project in event of default, there are numerous instances where such “priming” liens have not been properly perfected by the lender  Even in cases involving bankruptcy, the contractor or supplier can significantly iimprove the change of payment by becoming a secured (vs. unsecured) priority creditor.  Taking all steps necessary to perfect the mechanic’s lien, including the mandatory premiminary notice filings is critical to maintain this secured creditor status.

Posted in Arizona, Bankruptcy, Mechanic Liens, Preliminary Notices