Ultimate Guide to Preliminary Notices in Construction

Getting paid on a construction project can be hard work. There are a lot of documents that construction businesses need to exchange in order to receive payment. One of the most underrated documents in construction is the preliminary notice, an informational document sent at the start of a project. It brings enormous benefits to everyone involved in a project, from the property owner down to the smallest equipment supplier. Sending preliminary notice is a critical first step for anyone hired to work on a construction job.

This comprehensive article will explain everything you need to know about preliminary notices, why they’re so important, and best practices for everyone on a construction project.

What is a preliminary notice?

A preliminary notice is a document used on construction projects to provide information to the people in charge (like the property owner and general contractor) about the work being performed. In many states, contractors and suppliers must send preliminary notice to retain the right to file a mechanics lien or make a bond claim if they are unpaid.

Preliminary notices go by a lot of different names:

• Notice to owner (NTO)
• Notice of furnishing
• Prelim
• Pre lien
• And many more…

The construction industry uses a variety of notices, but preliminary notices are special – some might even say “magical.” One look at the definition of “preliminary” gives you an idea of how powerful they are:

“denoting an action…done in preparation for something fuller or more important.”

And indeed, preliminary notices are used in preparation for something more important. In fact, it’s the reason why any construction business exists in the first place: Payment.

As you might have guessed, preliminary notice is sent at the beginning of a project, or at least within a few days  after work begins.

Why are preliminary notices important?

It all comes back to payments – making them and receiving them. At the end of the day, everyone who works on a construction project wants the same things: to complete the project successfully, and to ensure that everyone gets paid.

It might seem counterintuitive to suggest that property owners want everyone to get paid. You might be thinking, “Wouldn’t the property owner rather not pay anyone?” Of course, everyone financing a construction project wants to minimize their costs. But they also want to avoid legal claims against their property, known as mechanics liens.

Property owners want to avoid claims on their property

A mechanics lien is a legal document that unpaid construction businesses can use to essentially freeze the property. And the people in charge of a project definitely don’t want that to happen. Unfortunately, the complexity of construction projects can create a huge risk for the owners. If they don’t know who is working on their property, they can’t make sure that everyone gets paid. And if someone doesn’t get paid, they have the right to file a mechanics lien against the property.

In fact, property owners are largely responsible for the existence of construction notices! In the 1960s and 70s, property owners and construction lenders lobbied state governments to help them protect against the problem of “surprise liens.” This lobbying led many states to create laws requiring preliminary notices. The purpose was to give owners and lenders the ability to identify and track the contributors to the job, so that they could pay everyone and proactively avoid lien claims.

Preliminary notices are necessary because a construction project is an expensive, complex, and often risky undertaking. The number of people required to complete a project grows exponentially as the project size increases. For property owners and lenders, these notices help make sure they know everyone who’s working on their project.

Subcontractors & suppliers want to get paid on time

Sub-tier parties, like subcontractors and suppliers, also want to avoid mechanics liens, but for a different reason: They would much rather get paid in full and on time for their work, so they can move on to the next project.

Sending preliminary notices helps sub-tier parties get paid. This is because sending the notice brings their contribution to the attention of the owner, and other people in charge of payments. When the owner knows that a particular company is working on their property, they can take steps to make sure they collect what they’re owed.