Confusion Regarding "Lienable" Change Order Work Hurts Contractors in Construction Disputes

Nearly 20 years ago, in 2005, the Nevada legislature amended its mechanic's lien statutes, codified within NRS Chapter 108. As part of these amendments, the legislature revised NRS 108.222, which provides what a lien claimant is entitled to include within the value of a mechanic's lien. Specifically, the legislature revised NRS 108.222(1)(b) to permit a contractor to include work that has been furnished, but is disputed, changed, or additional to the work contemplated by contract, in its mechanic's lien, as well as work directed but not yet performed.

Yet, advocates for property owners and other interested parties often contend that, where the parties have a construction agreement, NRS 108.222(1)(a) expressly precludes the inclusion of funds arising from additional or changed construction work, even if actually performed, in a mechanic's lien, if the work is not included in a written change order that is signed by the owner of the project. This contention ignores the revisions made in 2005 and the legislative intent behind those revisions.

This interpretation primarily arises from an opinion issued by the Nevada Supreme Court in 2003, titled California Commerical Enterprises v. Amedeo Vegas I, Inc., published as 119 Nev. 143 and 67 P.3d 328. The California Commercial decision, among other things, interprets NRS 108.222(1) and concludes: "a lienholder is limited to the contract price when a contract exists." 119 Nev. at 146; 67 P.3d at 330. However, this conclusion is made about a statute that no longer exists, as two years after its publication, it was revised -- specifically, to provide the opposite.

Importantly, in coming to the above conclusion, the Court is persuaded by Respondent Amedeo Vegas I, Inc.'s argument that: "the legislature knew that a subcontractor could incur costs above the contract price when it enacted NRS 108.222 but chose not to include language to address that possibility in the statute." 119 Nev. at 144-145. Arguably, when the California Commercial decision was published, this conclusion was reasonable, as NRS 108.222(1)(a)-(b) provided:

1. Except as otherwise provided in subsection 2, a lien claimant has a lien upon the property and any improvements for which the work, materials and equipment were furnished, for:

   1. If the parties agreed upon a specific price or method for determining a specific price for some or all of the work, material and equipment furnished by or through the lien claimant, the unpaid balance of the price agreed upon for such work, material or equipment, as the case may be, whether performed or furnished at the instance of the owner or his agent; and

   2. If the parties did not agree, upon a specific price or method for determining a specific price for some or all of the work, material, and equipment furnished by or through the lien claimant, an amount equal to the fair market value of such work, material or equipment, as the case may be, including a reasonable allowance for overhead and a profit, whether performed or furnished at the instance of the owner or at the instance of his agent.

See 2005 Statutes of Nevada, Pages 1839-1950 (providing the changes made to the existing statute in 2005).

Thereafter, though, the statute was revised, seemingly in response to the Court's conclusions noted above, and now provides the following (changes in bold):

1. Except as otherwise provided in subsection 2, a lien claimant has a lien upon the property, any improvements for which the work, materials and equipment were furnished or to be furnished, and any construction disbursement account established pursuant to section 4 of this act, for:

   1. If the parties agreed, by contract or otherwise, upon a specific price or method for determining a specific price for some or all of the work, material and equipment furnished or to be furnished by or through the lien claimant, the unpaid balance of the price agreed upon for such work, material or equipment, as the case may be, whether performed, furnished, or to be performed or furnished at the instance of the owner or his agent; and

   2. If the parties did not agree, by contract or otherwise, upon a specific price or method for determining a specific price for some or all of the work, material, and equipment furnished or to be furnished by or through the lien claimant, including, without limitation, any additional or changed work, material or equipment, an amount equal to the fair market value of such work, material or equipment, as the case may be, including a reasonable allowance for overhead and a profit, whether performed, furnished or to be performed or furnished at the instance of the owner or at the instance of his agent.

See 2005 Statutes of Nevada, Pages 1839-1950. No further changes to the statute have been made. Importantly, the use of the word "and" between subsections "a" and "b" of NRS 108.222(1) is further evidence of the legislature's intent that lien claimants be permitted to include amounts due for unpaid work pursuant to agreement and the unpaid value of additional or changed work performed if the parties do not agree.

When these proposed revisions were discussed during the 73rd legislative session, proponents stated that the changes were made: (1) "to make sure the courts recognized change work was able to have a lien" (Steven Holloway of the Associated General Contractors, Las Vegas Chapter); (2) "to make sure that a lien claimant had a lien for additions, changes and extras with a priced lump sum, unit price, or tracked on a time-and-material basis" (Richard Peel, representing several subcontractor organizations). See: Minutes of the Senate Committee on Judiciary, Seventy-Third Session at 6-7, April 5, 2005.

In a later meeting during the same session, advocates noted: (1) "we have attempted to address ... confusion regarding change work, which is always the subject of most litigation in our industry" (Steven Holloway); (2) "Sections 12 and 13 confirm that a lien claimant has a lien for additions, changes, and extras, whether priced lump sum, unit price, or tracked on a time and material basis. This is a clarification of the 2003 legislation, we made it clear that we did have the right to lien for extra changes and additions" (Richard Peel). See: Minutes of the Assembly Committee on Judiciary at 22, Seventh-Third Session, May 13, 2005.

Thus, these changes should be interpreted and understood to be a direct response to the conclusion made by the Court in 2003, that the legislature, "knew that a subcontractor could incur costs above the contract price when it enacted NRS 108.222 but chose not to include language to address that possibility in the statute." Cal Commercial, 119 Nev. at 144-145. In the very next legislative session, the legislature specifically revised the statute to include language to address the issue. Since the passage of SB 343 in the 73rd Nevada Legislative Session, no further changes have been made to NRS 108.222. The statute's language remains, as amended in 2005, today.

Despite this, today's advocates often argue, sometimes successfully, that NRS 108.222(1) plainly provides that a lien claimant may only include the unpaid balance of an agreed upon price for work in its lien amount -- and rely on the Cal Commercial decision, and its progeny, in doing so.

In addition to hiring advocates well-versed on these issues when disputes arise, best practices for contractors to secure payment for additional and changed work include the following (and doing so before any additional or changed work is started): (1) make efforts to obtain a signature or written approval for such work from a representative of the owner or higher-tiered contractor; (2) send notifications and requests regarding changed or additional work in writing; and (3) do not rely on oral approval of additional or changed work.

Nevada's mechanic's lien statutes were promulgated to protect Nevada's contractors, who have to expend significant funds, material, equipment, labor, and other resources before receiving payment for the same. See In re Fontainebleau Las Vegas Holdings, 128 when faced with litigation, having confirmed the work in writing usually works in the contractor's favor.

Disclaimer: This post is written without reference to any particular set of facts or circumstances and is based upon the overall experience and understanding of the author. Nothing in this post should be relied upon by any person as legal advice, nor is it written for the purpose of replacing consultation with a licensed attorney about any particular dispute or legal question.