The Issue with Lien Waivers (and how to solve it)
Lien waivers (also called lien releases) are a necessary part of the construction industry in the U.S. They were designed to protect the paying party in construction jobs, typically the general contractor. The lien waiver is signed by the payee and in exchange the payee waives the right to file a lien for the amount of payment they received. This frees the general contractor of a possible lien liability. As vital as lien waivers are in the payment process, every general contractor should have a good system in place to collect, create, organize, and distribute lien waivers. We’ve found that the more manual the process around lien waivers, the more this step bottlenecks your payment application process. Luckily, we have a solution to streamline and automate this process.
Get to know your lien waivers
First and foremost, it’s important to know the types of lien waivers and the different between them. Conditional waivers are used prior to receiving or when receiving payments. Remember, lien waivers are only valid when the payment is made. The lien waiver is conditional on payment being made. Unconditional lien waivers should only be used when the payee receives the final payment – ACTUALLY receives, like money is in the bank. If that check bounces you are S-O-L, and we do not want that. If you happen to sign an unconditional lien waiver first, you are essentially giving up your lien rights whether you receive payment or not. We do not recommend this!
And don’t forget that lien waiver policy varies state to state. Be sure your subcontractors are aware of the rules around lien releases in the state where you’re doing business.
Why is the process such a bottleneck?
Typically, a lien waiver is a required attachment with a subcontractor’s application for payment. You can ask any Accounts Payable Manager or Controller at a GC what it’s like to receive applications for payment straight to their inbox, and they’ll likely tell you the process is crazy. Not only are they receiving the tens if not hundreds of AFPs per job, they’re chasing down those who did their math wrong, or who included an unapproved change order, or didn’t attach their lien waiver. And even if you received the lien waiver, you have to check to be sure it’s the right kind, not expired, and properly signed. The email trails go on and on as your team tries to track these things down. And even if they receive all the documents in a timely fashion, trying to keep these files organized is a nightmare.
Long story short, trying to organize this chaos has led to companies putting manual processes in place. And these processes do usually work. But as GCs grow and take on more and more jobs, manual processes slow you down and can negatively impact your bottom line – not to mention the mental strain on your accounting teams.
How do we make this process better?
The point of this article is that collecting and signing lien waivers is going to happen at your company thousands of times a year. Even with a solid workflow in place, you’re still looking at hours and hours of attaching the lien waivers, organizing the lien waivers, and creating new waivers for every application for payment from your subcontractors.
We have a solution that’s (not surprisingly) way better than attaching lien waivers to emails and printing them out or digitally storing them. We offer a system where you can easily call up any lien waiver – no digging though email or filing cabinet required. GCPay is a payment application management software and also manages the lien waiver creation and exchange that goes along with it. Having the ability to create, organize, and associate these waivers with every pay app across the entire organization is vital to keep the process moving quickly and accurately. We offer a full view of the status of all of these waivers and the associated payment application. Even better, we have customizable settings so you can require that these waivers are signed before the application for payment is even submitted so there’s zero risk. This is one of the many features the GCPay platform offers.
Click here to learn more.