"The Nuts + Bolts of Construction Financial Management" was presented by Stephanie P. Union and Peter Berg on September 23, 2015, at the office of Kegler Brown. The morning briefing covered the nuts and bolts of construction financial management, including, but not limited to, the steps and best practices for prompt collection.

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Steps for Prompt Collection
+ Keep Close Eye on Receivables
+ Easier to Collect when “Younger”
+ Demand Letters
+ From you
+ From an attorney
+ Act on them if no response

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Improving Your Position
at the Start

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Get as much info as you can
Verify the information using public information or
trustworthy documents from client
Get personal guaranties if able
Credit Applications

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Security Agreements
+ Think outside of the box in taking security: real
property, vehicles, IP, A/R, etc.
+ Make sure to file a financing statement in proper
place or notate on title
+ Make sure to note date to refile financing statement
to keep it current

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Collection via
Litigation

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Small Claims Court
Can pursue without counsel
Municipal Court
Must have counsel if corporation
Common Pleas
Must have counsel if corporation

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No Response?
Obtain a Default Judgment

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Legal Process +
Construction Claims
Jumping Off the Deep End

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Legal Process to Defend a Claim
+ 18-24 months from the time a lawsuit is filed to
when a trial or arbitration hearing is conducted
+ Diversion from your core business – will feel like you
are playing short-handed

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Legal Cost Thermometer
+ Generally, legal costs are not recoverable
+ Notable exception is if permitted by contract
HOT - $1 million+
MEDIUM - $500k+
MILD - $250k+

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LITIGATION
+ Courthouse setting
+ Decided by judge or jury
+ Extensive discovery
+ Appeal process
+ Extends the time for
resolution
ARBITRATION
+ Conference room setting
+ Decided by panel of
industry experts/attorneys
+ Semi-extensive discovery
+ No appeal process
+ Less formal than litigation
v.

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Various project agreements should be
consistent as to whether disputes are
resolved by arbitration or litigation
Architect CM/GC
Subcontractor
Owner

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Discovery
Project Viewed Under A Microscope
+ Project schedule
+ Bid
+ Job cost report
+ E-mails - including internal e-mails
+ WIP reports
+ Correspondence with surety
+ Daily reports
+ Meeting minutes
+ Tickets

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Figure Out 80% of the Case with
20% of the Legal Costs
80/20 Rule

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What Happens in Mediation
Stays in Mediation
+ May be contractually required
+ Any resolution/settlement is voluntary
+ Use an experienced construction attorney
+ Both parties need to be ready to make significant
concessions while recognizing the benefits of avoiding
future legal costs and diversion of resources

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Collecting the Judgment
+ Via wage garnishments
+ Via bank account garnishments
+ Via attachment of assets
+ Can take Judgment Debtor Examination
+ Can certify judgment and attach to real property

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Mechanic’s
Liens

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Mechanic’s Liens
+ Allow Contractors, Subs, Laborers and Material men
to put liens on properties where they work
+ Time of the essence in filing them
+ Determine whether project is “public” or private”
+ Public= 120 days from last day of work to file
+ Private (commercial)= 75 days from last day of work
+ Private (residential)= 60 days from last day of work

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Notice of Commencement (NOC)
+ Recorded by owner
+ If filed, suppliers need to serve Notice of Furnishing
(NOF) on owner or designee + original contractor
+ Serve before beginning work
+ Sometimes within first 21 days after work or materials delivered
+ Preserves the right to file lien if not paid

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+ Notice of intention to claim, hold lien + amount thereof
+ Amount is due and owing to the claimant for labor performed
or for skill, material, or machinery furnished + to what
improvement the same was done or supplied
+ Amount due is over and above all legal setoffs and before
name and addresses of claimant and person to or for whom
work was performed or the material was furnished
+ Date when 1st material or 1st laborer was furnished/performed
If not paid timely, need to include
in Mechanic’s Lien:

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+ Date when last material or labor was performed
+ Description of premises to be charged again described with
reasonable certainty (Use legal description)
+ Name of owner(s) at the time of making such affidavit
+ Post office address of the claimant
+ Name of original or prime contractor
+ Interest of owner, lessee or vendee upon which lien is claimed
If not paid timely, need to include
in Mechanic’s Lien:

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Rights
+ Once have lien, can file a foreclosure on property
where work done
+ Need to name other lienholders, including mortgage
holders
+ Liens paid in order of their priority, but all mechanic’s
liens share pro rata

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Bankruptcy of Client
+ Intended to give debtors a fresh start
+ Sets up priority system for different claims + creditors
+ Creditors can influence case
+ You should receive notice of filing

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Automatic
Stay

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Creditors cannot take action against the
debtor or against the property of the estate,
or exert control over property of the estate
+ Make collection calls/send demand letters
+ File a lawsuit or enforce a judgment
+ Repossess collateral or setoff debt
+ Allow prior actions to proceed

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However, you CAN
preserve your lien rights
by filing a mechanic’s lien

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Penalties for Violating
1. Compensatory damages for any violation
Lack of actual notice is not a defense
2. Punitive damages for willful violation
3. Courts are very hard on creditors who received notice of
bankruptcy, even if creditor didn’t have actual notice (i.e., if
creditor’s system didn’t catch the notice)
+ Very broad interpretation of the stay
+ Obtain relief from stay to pursue foreclosure

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DISCHARGE

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Fresh Start
+ Debtors allowed to strip away debt that arose prior
to petition in bankruptcy being filed
+ Individual debtors allowed to exempt some basic
property in order to facilitate fresh start

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Exceptions
1. Not an individual
2. Lies during bankruptcy or conceals assets
3. Received discharge filed in past 8 years
4. Fails to cooperate with bankruptcy laws +
orders

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Non-Dischargeability
+ Money/services obtained by false pretenses, false
representations or actual fraud
+ Embezzlement, larceny, or defalcation
+ Debts for willful or malicious injury by debtor to another
entity or to property of another entity
+ Failure of the debtor to name creditor in bankruptcy,
unless creditor had notice or actual knowledge of case

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Preferences: 5 Elements
Transfer of property of debtor
To or for benefit of creditor
On account of antecedent debt
Made while debtor was insolvent
Presumption of insolvency in 90 days prior to
bankruptcy (1 year for insider)
Enabling creditor to receive more than it
would have received in Chapter 7 case if
transfer hadn’t been made
1
2
3
4
5

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Most Common Defenses
1. Contemporaneous exchange for new value
2. Ordinary course of business (of debtor or creditor)
3. Amounts at issue
+ if individual + primarily consumer debt, limit is $600
+ if not primarily consumer debt, aggregate value of
transfer has to be over $6,225

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Thank You!
Stephanie P. Union
Director, Kegler Brown Hill + Ritter
sunion@keglerbrown.com
keglerbrown.com/union
614-462-5487

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What is a “Claim”?

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Avoiding Claims
Preparing For Claims
Submitting Claims
Preserving Claims
Keys to
Successful Claims

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Avoiding Claims

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See the future
Dispute Avoidance
Begins at Bid Time
Do the Impossible

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Responsible Estimation
Always a Gamble, Price the Risk

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Ask Questions!

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Throw the “Red Flag” on
Bad or Insufficient Details
Submit RFI’s + Force Architect to Tell You
What He/She Wants
“We’ll Build It As Drawn, But Don’t Blame
Us if It Leaks”

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Scrutinize
SUBS

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Importance of Low Price
How Low is it Really?

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Know Your Teammates
+ Responsible?
+ Trustworthy?
+ Sufficient Capital?

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Avoid Your Zombie
Subcontractors
Recently Gone Out of Business + is Now
Working Under a New Name
Back from the Dead

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Avoid Owners that Treat Design +
Construction Like Commodities
A sophisticated owner understands the value
that comes with good design documents and is
willing to pay + wait for them
There is more to design +
construction than shopping for the
cheapest price

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Avoiding
Disputes
After
Contracting

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Collaborative Project
Administration
+ Teamwork
+ Cooperation
+ Coordination
+ Partnering

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Tie Up Loose Ends
+ Partial Lien Waivers
+ Partial Releases

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Smart
Financing
Should You Finance
Your Sub?

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Document Your Work
+ Correspondence
+ Meeting Minutes
+ Daily Reports
+ Job Cost Report
+ Photographs

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Daily Reports
Daily reports are helpful to support a claim when they
consistently include the following information:
Workforce (Example – 6 carpenters, 3 laborers)
Equipment (both rental and company owned)
Description of the events of the day
Areas where crews are being delayed

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No Delays or Problems
Are Identified
Nothing Listed For
Equipment
Daily Reports: Common Problems

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» Create a check-the-box daily report and follow through
» Delays Encountered
» Waiting on other Trades
» Waiting on RFI Response
» Inefficiencies Encountered
» Loss of power
» Lack of building enclosure
» Stacking of Trades
» Have Your Superintendent/Foreman Take Pictures That Can Be Later
Identified By Date
Writing Daily Reports Takes Time
Away From Running the Work
Possible Solutions

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Pictures Are Great When . . .
Date + Area Easily Identified
Persuasive + Efficient Proof

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Compare Milestones

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4/29/10
Original Temporary Enclosure Milestone = 4/30/10
With What Actually
Happened

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Progress Meeting Minutes
Often Times Progress Meeting Minutes Do Not Reflect
The Discussions That Took Place
Two Pages of Progress Meeting Minutes

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Provide Written Notice that
Minutes are Not Accurate
Silence =
Acceptance

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Job Cost Reports

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Aligning Your Bid with the Job Cost Report
Job Cost Report Budget Entries
Framing
• Material $50k
• Labor
$100k
Drywall
• Material $75k
• Labor $50k
Ceilings
• Material $75k
• Labor
$100k
1100 Framing
• Material
$50k
• Labor
$100k
1200 Drywall
• Material
$75k
• Labor
$50k
1300 Ceilings
• Material
$75k
• Labor
$100k
Change Orders
1100 Framing
• $10k
• $5k
1200 Drywall
• $5k
• $10k
1300 Ceilings
• $15k
• $20k
Update With
Change Orders
Your bid + job cost report are discoverable
and often must be provided if there is a claim
Bid Entries

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Claim Management
Your claim is better the earlier you provide:
+ Written notice your work is being delayed/affected
+ State your damages
+ Back it up with project documentation
Value of the claim decreases the
longer you wait to provide notice +
quantify the claim.

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Avoid Sticker
SHOCK

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Occurrence of event for possible claim
• Missed Milestone
• Revised schedule
• RFI response
• Rejected change order pricing
10 Days -
submit written
Notice
30 Days-
Submit Certified
Claim
120 Days-
Obtain Final Administrative
Decision or Exhaust Jobsite
Dispute Resolution Process
2 Years –
File Suit or State Will
Argue Claim Is Waived
Free To File Suit
14 Days – Must Appeal CM
or A/E Decision or
Recommendation
Current as of
2015
Step 1 Step 2
Step 3
Graphic Timeline for Notice + Claim
Submission under State’s Article 8 Process

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Article 8
“Road to Nowhere”

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Key Elements for
Successful Claims
Goal: Convince claim reviewer of validity of CO request and
need for adequate compensation.
+ Understandable
+ Factual
+ Contract-complaint
+ Realistic
+ Compelling

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Components of Well-Prepared
Claim Document
Remove Roadblocks for
Settlement

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Preserving
Claims

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Proceeding Without a Change
Order or Written Direction is Risky

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Unless you indicate otherwise, we will proceed with the
additional work as we were directed in the progress
meeting earlier today, and this e-mail shall serve as
continued notice of our intention to receive additional
compensation for this change.
Protect Your Company

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If You Sign a Change Order
Be Sure Everyone Understands –
This is Your One
“Bite at the Apple”

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Typical Change Order Includes
All Costs Associated with that Change

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LETTER
We have only priced the direct costs, so Change Order Number
___ is returned to you as executed with one exception and
deletion. We have deleted and initialed the portion of the
change order that would waive claims for any delays,
inefficiencies, disruption or suspension, extended overhead,
acceleration, and the cumulative impact of this and other
change orders issued to this date. Please return an executed
and initialed copy to us. No additional time or costs are sought
as of this date based upon what is reasonably foreseeable now;
however, we are not waiving claims for additional time or costs
should circumstances change.
When There are Concerns a Change Order
Will Not Provide Sufficient Compensation
for Delays + Other Indirect Costs

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Broader + More Aggressive Language
(All Cost and Time Impacts To This Point In Time)

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Be Careful When Signing
Waivers for Progress Payments

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Same Applies with
Schedule Acceptance

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With its signature, Contractor does not verify the accuracy of the schedule nor
does it waive any claim with respect to additional costs it will incur as a result of
changes to previous schedules, additional costs for unresolved issues it has
previously provided notice of, additional costs if the work does not proceed in
accordance with this schedule because of others, or costs related to other matters
beyond Contractor’s control.
Insert This Language

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Be Mindful of Statute
of Limitations
Starting in October of 2012
8 Years From When The “Cause of Action Accrued.”
Reduced From 15 Years
Breach of Contract
Claims

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Thank You!
Peter Berg
Associate, Kegler Brown Hill + Ritter
pberg@keglerbrown.com
keglerbrown.com/berg
614-462-5494