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Features Industry Insight Ultimate Guide

The 101 on Lien Waivers in Construction

When a contractor agrees to take on a project for a set price, they expect to get paid for their work. If a project owner decides not to pay them, the contractor then has the right to file a lien against the property. While this does initially put the contractor in the driver’s seat, another document exists to protect project owners as well: lien waivers. 

So, what is a Lien Waiver?

A lien waiver is a document that a contractor or subcontractor can sign to give up their lien rights in exchange for payment. This form is exchanged during the payment process, and it states that for a certain amount of money, the contractor will agree not to file a lien against the owner’s property.

This is a powerful document.

If a contractor has lien rights, they can file a lien against the property if they don’t receive money for their work. If the owner still doesn’t make good on the payment, the contractor can act on the lien and force the sale of the property. Once the property sells, the contractor is able to take their cut from the proceeds.

This creates a lot of risk for the project owner. Although most owners want to pay their contractors to keep them happy, they also prefer a bit of reassurance that the contractor won’t file a lien against the property. That’s exactly what a lien waiver does. 

Two Types of Lien Waivers

There are two types of lien waivers: unconditional and conditional. If a contractor signs either one, they’ll give up their rights to a lien. However, exactly when they give up their rights changes based on the waiver type.

  • Unconditional waivers essentially state that the moment the contractor signs them, they give up their rights to a lien. These are excellent documents for project owners because they essentially wash their hands of risk. For contractors, they might be signing this document before receiving any money, meaning they’re shouldering all the risk. If the project owner doesn’t pay, there’s no recourse other than a long, drawn-out lawsuit process.
  • Conditional waivers are a bit more diplomatic. A signed conditional waiver states that a contractor will give up their right to a mechanics lien when they get paid for their work. These forms are essentially like receipts for the project owner and create very little risk for the contractor. If the contractor doesn’t get paid, they still retain their right to a lien. 

Nailing the Lien Waiver Process

These documents carry a lot of weight, so it’s important that they’re handled correctly. Project owners need to ensure they’re receiving lien waivers from the general contractor before or at the time they pay them. However, it’s also important that the GC get lien waivers from their subs as well.

One missed lien waiver throughout the payment chain can lead to a lien.

So how should a project owner or general contractor handle the lien waiver process? The best route is through automation. 

Automated Lien Waiver Generation

Tracking down lien waivers from every contractor, sub, trade, or material supplier can be a nightmare. And, it can drag the payment process out far longer than necessary. Instead of manually handling the process, lean on automatic waiver generation.

Premier Construction Software can be programmed to generate lien waivers automatically. Contractors and subs can generate them and send them when submitting invoices, or the system can require them before issuing payment. The system’s customizable workflows can send these documents to everyone who needs them, including internal and external personnel.

This automated process can provide a bit of relief for the GC or project owner. As the system automatically generates proper lien waivers (unconditional, conditional, or even final payment), they’ll know that money won’t switch bank accounts until the document is signed. This lessens the risk for these parties tremendously. 

Electronic Signatures

When a contractor or sub receives or submits a paper lien waiver, they have to sign in and include it in their payment application paperwork. This creates yet more risk, as the document could easily get misplaced, leading the project owner’s accounting staff to believe the contractor never submitted the document, so they withhold payment until they receive it. Since the contractor isn’t getting paid, they might consider filing a lien. 

It’s a nasty cycle caused by one misplaced document. 

Since Premier Construction Software allows for electronic signatures, the risk of losing a lien waiver is almost non-existent. Contractors are able to access documents on any mobile-enabled device. Once they review the form, they can sign it and submit it to the project owner. This happens in real-time.

Storage and Review

Keeping all those lien waivers organized in hard copy form can be challenging for office staff, and it allows more room for human error than is necessary. Poor file management can mean time wasted looking for a specific lien waiver, or not knowing who even submitted them.

Premier Construction Software puts secure storage at the users’ fingertips. Premier automatically stores signed agreements on its cloud, and then sends the contractor or sub a copy of the signed document. The project owner knows who’s submitted the doc, and the contractor knows their lien waiver is on file. 

And, once the waiver is in the system, it enters an approval inbox. Users can access this inbox to view approved documents (such as signed waivers) and drill down for important information like payment amount, dates, and who signed the document. 

Customizable and Repeatable Lien Waivers

Depending on the owner, GC, and sub, lien waivers can look very different between each party. The owner’s customary lien waiver they send with payment could look different than the version coming from the GC or subcontractor. While they all serve the same purpose, standardizing them into one document can streamline the payment process.

Premier Construction Software offers users the ability to configure and customize their forms. This gives the owner and GC a standardized form they can use across the payment tiers. Subs submitting invoices will be filling out the same document the project owner sends to the general contractor. This consistent language not only makes the form easier to produce and send but also ensures everyone understands the form, allowing better transparency and communication. 

Lien Waivers Require Careful Handling, and Premier Can Do It

Lien waivers are vital to both project owners trying to keep their properties clear from litigation and contractors and subs looking to speed up their payment. Both entities can benefit from a system like Premier, like automatic generation, real-time electronic approval, and cloud-based storage takes the guesswork out of lien waiver management.

To see how Premier Software can help you structure your business for success, schedule a demo today.

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Industry Insight Tips & Advice Ultimate Guide

Why Embrace the Future of Automation in Construction

For construction companies, time is money. Both in the field and the office, time wasted is money lost. Using out-of-date processes and multiple software programs can quickly eat into slim profit margins. Construction companies must rely on technology to make their processes faster and avoid errors. If they don’t, they will continue to spend money and time fixing problems and repeating work.

Construction’s future?

Although no one has a crystal ball to tell exactly what the future holds, here’s where we think construction is headed:

Automation

Smart contracts will make the payment process faster. Technology will assess how much of the work has been completed, and payments will automatically be distributed to those contractors who have completed the work.

The software will analyze compliance documents, and automatically notify all pertinent parties when insurance or licenses have expired. Contractors will be able to submit compliance documents directly through a portal, where the software will analyze them and gather the required information.

All the documents that pertain to a specific project will be organized and searchable in one location. All team members will have access to these documents, and paper files will be a thing of the past.

Accounts payable invoices will be scanned by software, and the information will be automatically entered into the accounting system. The software will provide analysis and let operators know when contracts are overbilled or change orders are not updated.

Payments to subcontractors and suppliers will be processed automatically by the system, without the need for checks or other paper documents. Payments will be tied directly to the completion of the work.

Artificial intelligence (AI)

Project software will be infused with artificial intelligence that allows the software to provide predictive analysis based on past project data. As contractors process projects through the software, they will learn what activities cause the most delay or create the most risk and remind users when these possibilities occur.

Using the Internet of Things (IoT) and wearable technology, the software will be able to analyze the completion of work in the field. It will then compare that information to the project schedule to determine if there are any delays. Parties will be notified when the schedule slips, allowing the team to proactively respond.

Machine learning

Machine learning, a subset of AI, will assist estimators in project bid analysis, allowing them to select projects they will be the most successful on. AI will also identify the most common bidding errors and correct them before they bid goes out.

Photos will be taken of each worker as they arrive on-site and will be analyzed to determine if the proper personal protective equipment (PPE) is being worn. If there are missing items, the system will notify the worker and their supervisor, allowing them to correct the problem.

Problems with the status quo

Currently, construction teams work with a hybrid of software and paper documents. While some contractors strive to go paperless, many still rely on paper documents for certain activities, like material takeoff. This dual approach leaves contractors open to the following problems:

Lost time

The process of entering and analyzing information by hand takes more time than an automated system. Systems are available that capture data automatically directly from documents and provide analysis, saving contractors time.

Lost information

Paper documents are often lost or misplaced when they are filed incorrectly, or not filed at all. Even teams that rely on software often use multiple systems for different purposes (estimating, project management, accounting). This confuses users who don’t know where to look for the information they need. This takes extra time to determine the correct system and find the data they need. If documents are lost or misplaced, more time is lost in searching for them or re-creating the documents.

Errors are more likely

An experiment in 2009 showed that data entry workers made up to 10.23 errors when entering data from thirty spreadsheets. Data entry errors can cost companies millions of dollars. Workers can spend more time searching for errors and correcting them than in the initial data entry.

Hidden costs of mistakes

Besides lost time finding and correcting mistakes, it has been shown that incorrect data can cost companies up to 30% or more of their revenue. A 2018 Goldman Sachs report stated that the direct and indirect costs of manual paper invoice processing are $2.7 trillion for businesses around the world. The hidden costs of manual data entry can be enough to make or break your business.

Benefits of new technology

Embracing automation and other technological improvements can save companies real money.

  • Work is performed faster.
  • When there is only one integrated source of information, less time is wasted searching.
  • Accuracy is improved with automatic data capture.
  • Time and costs are saved by limiting time wasted on rework, searching through data, and fixing errors.

In a nutshell?

If your construction company is wasting time on manual processes and paper documents, it’s time to embrace automation. Premier Construction Software can help you reduce errors, speed up data entry, and waste less time looking for information. We bring the power of automation, artificial intelligence, and machine learning to construction accounting and project management. For more information on how our software can save you time and money, contact us today.