In recent years, linear construction projects throughout the country have been stalled, suspended or terminated. While owners and outfield service companies have felt the pinch, pipeline, rail, road and transmission and distribution contractors, subcontractors and suppliers are increasingly faced with the risk of nonpayment. How do these trades mitigate the risk of nonpayment?
Payment bonds are often the best form of protection when facing upstream insolvency. But payment bonds are not required and are often not secured in the private project setting.
Making claims in bankruptcy court is another avenue of recovery. While bankruptcy court affords parties the opportunity to make a claim for payment, it also poses challenges. Once bankruptcy has been filed, parties typically find themselves at the end of a long list of debtors, with rights subordinate to those of lenders and other secured creditors. The best-case scenario is often a recovery of pennies on the dollar.
Mechanics’ lien laws offer another avenue of recovery. With payment bonds often not secured, and the prospect of diminished returns in bankruptcy court, parties commonly turn to mechanics’ liens to secure their right to payment.
The nature of linear construction, however, poses a unique challenge for parties making mechanics’ lien claims. Mechanics’ lien laws in many jurisdictions are drafted to address traditional vertical construction on a single plot of land. Because rails, roads, pipelines and transmission lines snake through miles of public and private property on rights-of-way and easements, mechanics’ lien laws in many jurisdictions are not equipped to address linear construction and present unique challenges and considerations for those defending against or enforcing lien claims at every tier.
In this program, an experienced panel of in-house and outside counsel will discuss strategies and considerations in mitigating payment risk on linear construction projects.
Upon completion of this session, participants will be able to:
- Understand strategies for drafting and negotiating key terms in their contracts for mitigating payment risk at the outset of a project.
- Understand the challenges and risks faced by parties in making and defending against claims in bankruptcy proceedings.
- Understand the challenges and risks faced by parties in making and defending against mechanics’ lien claims, particularly on linear construction projects and the unique, jurisdictional considerations implicated, including the intersection of bankruptcy and lien law.