General Contractor Asking You To Not Send Preliminary Notice? Is That Legal?

The article discusses the legality and implications of general contractors (GCs) requesting subcontractors and vendors not to send preliminary notices. This practice, observed at a Construction Financial Management Association’s Annual Conference, involves GCs imposing strict prequalification requirements and dictating contract terms to shift financial risk and insulate themselves from exposure to mechanics lien rights. They often state that they will not do business with companies that send preliminary notices, framing this stance within a narrative of valuing “relationships.” The core question explored is whether this demand is equivalent to an illegal “No Liens Clause.” Mechanics lien and bond claim laws are designed to protect lower-tiered parties like subcontractors and suppliers from the financial risk-shifting tactics employed by GCs, owners, and lenders. These laws exist because top-tier parties often control contract terms and cash flow, placing subcontractors in a vulnerable position. Historically, GCs have used various mechanisms to circumvent these protections, such as “no lien clauses” and contingent payment provisions like “pay-when-paid” and “pay-if-paid.” However, many legislatures have invalidated these clauses, recognizing their intent to undermine subcontractor rights. Demanding that subcontractors forgo sending preliminary notices is presented as a creative, yet potentially illegal, method to achieve the same outcome as a “no lien clause.” A “no lien clause” explicitly requires a subcontractor to waive their lien rights before receiving payment. The article argues that a policy of refusing to work with subcontractors who send preliminary notices effectively imposes the same requirement: subcontractors must waive their lien rights (by not sending a notice, which is often a prerequisite for filing a lien) before payment is received, even if not explicitly stated in a contract provision. From a relationship perspective, the article highlights the abusive nature of such policies. While GCs might claim to prioritize relationships, their actions, such as demanding joint checks, flagging subcontractors for payment inquiries, and inserting risk-shifting clauses, contradict these assertions. Stripping subcontractors of their lien rights leaves them vulnerable and unprotected if project problems arise, regardless of who is at fault. The article posits that GCs who implement such policies prioritize their own insulation from risk over fair treatment and the well-being of their subcontractors, creating relationships based on their terms, which can be detrimental to subcontractors. For a subcontractor facing such a demand, the article suggests potential legal recourse. First, a mechanics lien could still be filed, arguing that the GC’s policy of refusing preliminary notices is against public policy and thus exempts the subcontractor from the notice requirement. This approach acknowledges that while the subcontractor technically waived rights by not sending a notice, the GC's illegal policy created the circumstance. The article notes that this could negatively impact the owner and lender, who may or may not be aware of the GC's practice, potentially leading to unexpected liens. Second, the GC could be sued for unfair trade practices and fraud. The basis for this would be that the GC’s policy explicitly violates mechanics lien laws and their legislative intent. Such a lawsuit could seek damages for lost lien rights and additional penalties under state and federal unfair trade practices acts. The article concludes that GCs employing such policies are engaging in a bad and potentially illegal practice that creates abusive relationships and puts themselves at significant legal risk. #GeneralContractor #PreliminaryNotice #MechanicsLien #ConstructionLaw #SubcontractorRights #NoLienClause #FinancialRisk #UnfairTradePractices #GeneralContractor #PreliminaryNotice #MechanicsLien #ConstructionLaw #SubcontractorRights #NoLienClause #FinancialRisk #UnfairTradePractices