Hello, I am a mechanical contractor whom is about to enter into a large Service/Maintenance Contract with a client.
1) How do I protect myself against the client not paying his bills?
2) Is there anything equivalent to Mechanic's Lien in the service industry?
3) Isn't Mechinac's Lien used in CONSTRUCTION only?
Thank you for your help
While there is no way to guarantee payment, there may be certain things you can do to increase the chances. As just one example, you may be able to negotiate with your new client to allow you to record a UCC statement on the business and it's assets. This gives you s security interest on the assets and makes it a lot easier to collect if you don't get paid. This is usually done with business loans. You should really speak with an attorney who can go over your specific situation and draft the service contract for you to protect you as much as possible.
The suggestion to provide for UCC protections is a valid provision you may place in your "service contract." I also suggest that if your work adds to or makes changes in the "work of improvement" you do have a colorable right, as a licensed contractor, to use the Mechanic's Lien law to assure your payment.
Your best protection is to prepare a good and valid service agreement that recites the issues necessary to protect you. Provides for attorneys fees, UCC rights, costs, default interest in compliance with law, late payment requirement and the host of other issues involved in the nature of work you are going to perform when "servicing" a mechanical system.
DISCLAIMER—This answer is for informational purposes only under the AVVO or LinkedIn systems and their respective terms and conditions. It discusses general legal principles, trends, and considerations and is not intended as specific legal advice regarding your question. This answer does not establish an attorney client relationship.
Your question lies in California Civil Code 3110 and 3112 whether your work would be defined as work of improvements on the property. Since your entering into Service Agreements/Maintenance this may not be as well defined. But, the Code is wide in compassing most subcontractor work To clarify, there is an assumption your company is a licensed HVAC/Plumbing Specialty Contractor in California per CSLB. If not, these statutes may not apply for other reasons. Based on the limited information, your scope appears to qualify. Pre-Lien procedures should be considered if your not contracting directly with the Owner.
Along with some of the previous suggestions, its important to impliement reasonable progress payments in all agreements and payment at certain critical paths in your work. The larger the contract price, the more this should be detailed. If your service includes delivery of equipment more advanced payment options should be implimented. This allows for an easy exit if one of your customers fails to pay. As for the attorney's fees provision, remember that recovery becomes mutual in California and something to consider on the down side of your own exposure. Other payment options include a Mediation and arbitration provision before either party can initiate a lawsuit.
However, we highly recommend you have your Service Agreeement reviewed carefully. There are advantages and disadvanages to an aribration provision. In fact, some arbitrations can be far more costly. You may want your Service Agreement drafted with certain levels of dispute (Under $10,000, over $25,000, etc).
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