Construction suppliers are generally subject to the 4-year statute of limitations on sale-of-goods contracts.
In addition to breach of contract, construction law provides several statutory remedies for unpaid suppliers. These statutes don’t focus on suppliers specifically but include them in payment rules for construction projects.
Private (Non-Government) Projects – The Construction Lien Law
The Construction Lien Law (NJSA 2A:44A-1, et seq.), which applies only to private projects, gives you the right to file a lien on the improved property when you supply the owner, contractor or a subcontractor pursuant to a written contract.
Your maximum lien will be for the contract price of your materials, but is limited by an amount known as the Lien Fund. Depending on where you are in the contractual hierarchy, the Lien Fund is essentially the lowest balance of the general contract, your own contract and any contract above you.
The lien isn’t automatic, and you need to carefully follow the procedure in the statute.
For commercial projects, you have 90 days after last supplying materials to file a lien claim with the County Clerk where the property’s located, and then 10 days to serve the owner and any contractor or subcontractor against whom you assert it.
For residential projects, you have 120 days to file the lien claim and then 10 days to serve it. However, there are other steps along the way. You have 60 days from the last supplying materials to file a Notice of Unpaid Balance, and then 10 days to serve the NUB with a demand for arbitration. If you receive a favorable arbitration decision, you then have 10 days to file the lien claim, which must be within the 120 day period.
If you still aren’t paid, you can enforce the lien by filing a suit in Superior Court. The goal of the suit is to sell the property in order to pay you. You need to commence the action within 1 year of last supplying materials, but if the owner demands that you commence it, you must do so within 30 days.
Public Projects – 3 Statutes
In contrast to the CLL, three statutes deal only with public projects.
The Municipal Mechanics Lien Law
The first is the Municipal Mechanics Lien Law (NJSA 2A:44-125, et seq.). This doesn’t create a lien on the land itself, since you can’t have a lien on government property, rather it’s a lien on the monies owed by a public agency to the general contractor. Once the public agency pays the contractor, the lien is moot.
In this context, “public agency” doesn’t include the State — it means municipalities below the State level which are authorized to make public improvement contracts. Examples include counties, cities, towns and public commissions.
The statute covers you when you supply the contractor, its direct subcontractor or a sub-subcontractor.
To obtain this lien, you must file a Notice of Lien Claim with the public agency before the contractor completes the job, or within 60 days thereafter. If supplying a subcontractor, you also need to provide a Notice of Delivery to the municipal clerk within 20 days of first delivering materials.
Once you file your Notice of Lien Claim, the public agency must hold project funds in the amount of your claim until it’s resolved. The agency may (but isn’t required to) notify the contractor and any other interested parties. If it does so, they have 5 days to challenge the lien, otherwise the agency may opt to pay you.
If you still aren’t paid, you can enforce the lien by filing a suit in Superior Court. The goal of the suit is to have the Court release the funds to you. The last day to commence the suit is also 60 days after the contractor completes the project, so if you wait until the last day to file your Notice of Lien Claim, you’d need to commence the suit the same day.
The Public Works Bond Act
The Public Works Bond Act (NJSA 2A:44-143, et seq.) requires the general contractor for all public projects – State included – to file a performance and payment bond. This protects the government against the contractor’s nonperformance and protects you against nonpayment.
The statute covers you when you supply the contractor or its direct subcontractor.
If you’re supplying the contractor, you don’t need to give it any notice. If supplying a subcontractor, you need to give the contractor notice, before supplying materials, that you’re a beneficiary under the bond.
If you haven’t been paid, you have 1 year after last supplying materials to commence a Superior Court action for payment under the bond. However, before you can sue, you must first give the contractor and bond sureties a Statement of Amount Due and 90 days to pay. Effectively, this requires you to send the statement 9 months or less after last supplying materials.
The Construction Trust Fund Act
The Construction Trust Fund Act (NJSA 2A:44-148), which applies to all public projects at the State level and below, provides that monies paid to the contractor create a trust fund for the payment of all labor and materials.
The trust fund applies throughout the contractual chain, and isn’t limited, for example, to suppliers of contractors and subcontractors. If you supply another supplier, and that supplier gets paid, it holds the funds it receives in trust to pay you.
In addition, violations can result in personal liability. Let’s say you supply a subcontractor: if the contractor pays the sub, and the sub pays a supplier from a different project instead of paying you, you could sue it under the Trust Fund Act, plus the owner or officer responsible for the violation.
Also, you don’t need to satisfy any procedural requirements. Once the government pays the contractor, the trust fund exists automatically.
Private and Public Projects – The Prompt Payment Act
Finally, unlike the statutes discussed above, the Prompt Payment Act (NJSA 2A:30A-1, et seq.) applies to both private and public projects.
Under the PPA, unless the parties agree otherwise in writing, a contractor has 10 days after receiving payment to pay its providers, who themselves have 10 days to pay their own providers. The statute appears to cover suppliers to the contractor, to a subcontractor or even a supplier.
The PPA not only provides interest on late payments (at the rate of Prime plus 1%), but if you sue under the statute, the prevailing party is entitled to reasonable attorney fees.
In summary, the CLL, MMLL and Bond Act are all fast-tracked remedies. If you’re going to use them, you need to move quickly, and need to be familiar with all the required procedures. However, they can be very powerful tools for getting paid.
A standard collection action for breach of contract, which adds counts under the Trust Fund Act and PPA, not only gives you more time to react, but also provides grounds for personal liability, statutory interest and attorney fees. This can also be very powerful.
If you’re a construction supplier, you and your lawyer should be aware of the various remedies available to you, what their requirements are and how to best use them to your advantage.
I’ve prepared an easy-reference chart summarizing the statutory remedies and requirements. Download your free copy.
To learn more about collections for construction suppliers, download your free copy of The Construction Supplier’s Guide to Getting Paid (Quickly) in New Jersey.
I practice throughout New Jersey (all counties), and also accept cases in Southeastern Pennsylvania.