Everyone knows that you cannot place a lien on the real estate that is the subject of a public improvement project.1
This is for good reason. Allowing a contractor to foreclose on city hall or a police station is not in the public’s best interest.
However, this does not mean that a subcontractor or material supplier has no lien rights on a public improvement project. Pursuant to Wis. Stat. section 779.15(1), first-tier subcontractors and material suppliers do have limited lien rights arising from public improvement projects. Although, these lien rights attach to funds, not real property.
Brian R. Smigelski, Marquette 1987, is a partner with DeWitt LLP, Brookfield, where he concentrates his practice in civil litigation, with an emphasis in construction law.
The statute provides that a person who furnishes labor or materials to a prime contractor shall have a lien on the money due the prime contractor on the project (except on a City of Milwaukee project) if “the lienor, before payment is made to the prime contractor, serves a written notice of the claim on the debtor state, county, town or municipality.”2
If this notice is properly served, and the prime contractor either admits the claim or fails to object to it in writing within 30 days, the public body is to withhold a sufficient amount to cover the lien claim.3
If the prime contractor timely disputes the claim, the right to the lien and to the money at issue is to be determined in an action brought by either the claimant or the prime contractor within three months from the time that the lien claimant’s notice is served.4 If the action is not brought within three months of the initial notice, “the lien rights are barred.”5
The public improvement lien statute also provides that, within 10 days after the filing of a certified copy of a judgment in the action to determine the lien rights, the money that would have been paid to the prime contractor shall be paid to the clerk of court, to be distributed in accordance with the judgment.6
Accordingly, for subcontractors and material suppliers on public improvement projects who are having problems getting paid, it is important to keep in mind that, in addition to bringing a breach of contract claim and/or a claim on the payment bond for those projects large enough to require such bonds7, they also have the ability to file a lien against the proceeds to be paid to the prime contractor.
When seeking recovery of funds for services or materials supplied, it is generally best to bring as much pressure to bear as possible in order to obtain the funds. Thus, a prudent subcontractor or material supplier should consider pursuing a lien claim whenever it is available.
The Construction and Public Contract Law Section is offering a lunchtime CLE webcast seminar, "Dealing with Disaster," on Wednesday, May 22, 2019, on how to manage a construction accident. For more information, please see wisbar.org/SA7616.
1 See Druml Co. v. City of New Berlin, 78 Wis. 2d 305, 310, 254 N.W.2d 267 (1977)
2 Wis. Stat. § 779.15(1). Under the public improvement lien statute, second-tier subcontractors are not included in the universe of parties with lien rights and therefore are not entitled to lien funds. Wis. Stat. § 779.15(1). See Lehmann Tire & Supply, Inc. vs. Mashuda Constr. Co., 14 Wis. 2d 176, 180, 109 N.W.2d 650 (1961) (tire supplier to subcontractor not entitled to lien funds pursuant to public improvement lien statute).
3 Wis. Stat. § 779.15(3)
6 Wis. Stat. § 779.15(4)(c)
7 See Wis. Stat. § 779.14(1m)