#54:  Liening the Flow of Funds on Public Works Projects

Most subcontractors and suppliers who perform work or furnish materials for state and municipal projects know that the GC is required to provide a payment bond for their benefit – a substitute for the mechanic’s lien that, for public policy reasons, is not allowed on state or municipal property. What they may not know, however, is about an alternative to a payment bond claim, one that may actually be of greater value to them: the right to lien the money coming from the owner to the GC. The rarely-invoked statute is RSA 447:15:
“The liens given by RSA 447:5-14, inclusive, shall attach to any money due or to become due from the state or from any political subdivision thereof by virtue of any contract for any public work or construction, alteration, or repair, in the performance of which contract the lienor participated by performing labor, providing professional design services, or furnishing materials or supplies. Such liens shall not attach, however, unless filed within 90 days after the completion and acceptance of the project by the contracting party, whether such contracting party is the state or any political subdivision of the state.”
The lien works like a “trustee process,” requiring the public agency to act as a “trustee” of the funds and hold back the amount of the lien from any payments due or to become due to the GC until the lienor’s underlying claim against the GC is resolved. Unlike a bond claim which may take months to be investigated by the surety and will cost the GC only eventual reimbursement of the surety’s expenses, the effect of this lien on the GC is immediate. This affords a bit of leverage to the lienor that a bond claim does not. And the lien is superior to the bond claim in another way: once the underlying claim is proven, payment by the public agency is immediate as well. A surety’s check may take longer to arrive.
While the intent of the statute is clear enough, its procedural aspects are not a model of clarity. Given the statute’s opening six words, it is safest to assume that the prerequisites to mechanic’s lien actions found in RSA 447:5 through :14 must be complied with – including the deadline of 120-days after the last of the labor or materials was furnished in which to get the attachment. That the lien must also be “filed” within 90 days of completion and acceptance of the project by the public authority – the same deadline that applies to bond claims – appears to be an additional time constraint rather than a potential enlargement of RSA 447:9’s 120-day duration after the lienor’s labor and/or materials were last furnished.
Because the lien is on money rather than on real estate, the “attachment of the property” required by RSA 447:10 is not achieved by recording a writ of attachment at the registry of deeds. But the statute does not say how that attachment is to be made. The only thing that is literally “filed” is the attachment petition itself – in court. Service of a writ of attachment on the public entity must still be made, and perhaps that service is the “filing” that the legislature had in mind in requiring the lien to be “filed” within 90 days following project completion and acceptance. No court cases have shed any light in this regard.
Obviously RSA 447:15 will be useless if, due to the owner’s setoffs for faulty or incomplete work, no money will fall due to the GC. In that event, the bond claim will be the only remedy worth pursuing. But nothing prevents a sub or supplier from pursuing both the lien remedy and a bond claim simultaneously. General Insulation Co. v. Eckman Construction, 159 N.H. 601, 608 (2010) (characterizing the lien remedy as being “[i]n addition to the remedy of seeking payment on the bond”). Since a sub or supplier cannot be sure that there will ultimately be any money falling due to the GC, it makes sense to pursue both claims as an initial matter, and drop the bond claim if the lien pays off. More often than not, it will.
Original Article