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Sonoma County contractors fight to get paid


These days, the most popular classes for Sonoma County builders have nothing to do with bidding projects or framing homes.

Instead, contractors are filling up courses that teach them how to get paid after the job is done.

"Those classes have been sellouts," said Robert Cantu, president of the North Coast Builders Exchange, a Santa Rosa trade group that offers the classes.

Contractors today must struggle not only to find work but also to collect on their bills, said Cantu, also owner/president of Western Builders in Santa Rosa.

For some, including two local building materials companies, the worst period for bad debts came a few years back when a wave of contractors filed bankruptcy during the worst construction downturn in decades.

But others said that many companies are still getting hurt by unpaid bills.

"It's pretty clear that people in the construction industry are having a hard time paying their bills," said Tim Hannan, a Santa Rosa attorney who specializes in construction law. "I've had many clients melt away because they're losing their businesses. They're losing their houses. The landscape is littered with tragic cases."

In the Builders Exchange classes, contractors learn how to file a mechanic's lien. The legal claim gives contractors or their suppliers the right to collect payment for work and construction materials directly from the owner of the property. As a last resort, the property can be sold at auction to pay the debt.

If a subcontractor is not paid by the general contractor overseeing the project, the subcontractor can file a lien to force the property owner to pay them — even if he or she has already paid the general contractor, attorneys said.

To use a mechanic's lien, a company must give the landowner a preliminary notice, sometimes called a "pre-lien," within 20 days of starting the work. The notice explains what can happen if the contractor doesn't get paid.

Clay Green, owner of Cats 4 You, a Healdsburg excavation company, said he now routinely sends out the preliminary notices. He didn't on one job during the latest downturn and then didn't get paid when the general contractor filed bankruptcy.

"If we'd pre-liened the thing, we'd have gotten paid," Green said.

The number of mechanic's liens has declined in Sonoma County over the last two years, but many suggest the drop does not signal a turnaround in the construction industry's financial woes.

In 2005, contractors filed 491 mechanic's liens, according to the Sonoma County Recorder's Office. That number peaked in 2008 at 879, and by last year had declined to 363.

However, construction activity plummeted in Sonoma County over the last five years, dropping more than 70 percent based upon the value listed on building permits.

As such, the percentage of unpaid jobs is probably greater now than in recent years when there was more work, said Dan Galvin, a Santa Rosa attorney who teaches the Builders Exchange classes.

"In the last two or three months we're seeing an upswing in mechanic's liens and the potential for lawsuits," Galvin said.

Others agree.

"This has been our worst year for not being paid," said Tammi Medeiros, an office worker for Morton Smith Electrical in Santa Rosa. It also has been the first year where the company has needed an attorney's help in seeking payment, she said.

One Sun Inc., a Graton company that builds solar systems for commercial properties, has three completed projects for which it hasn't been paid. Owner Warren Brown said he has filed mechanic's liens for two of those jobs.

"In 40 years I've never had to do that before," said Brown, who has owned his company for 20 years.

Others said it simply takes longer for companies today to collect what is owed.

"It's not that people aren't paying," said Cantu of Western Builders. "It's just that they're so much slower to pay."

The most prominent example stems from a dispute between movie director Francis Ford Coppola's winery in Geyserville and contractors who worked on a renovation project estimated to cost $30 million.

Coppola representatives said the winery withheld payments on the final invoices while it attempts to resolve a dispute with the general contractor, Grassi & Associates of Napa, over uncompleted work.

Eleven contractors have filed $1.8 million in mechanic's liens against the winery, but that includes some duplication between the general contractor and subcontractors. A Coppola spokeswoman said the amount of unpaid work stands at $1.3 million.

When customers don't pay promptly, it can squeeze construction companies, disrupting cash flow, forcing them to cut costs and leaving them unable to pay their suppliers and lenders.

"It's this awful domino effect that really slows down the whole construction economy," said Keith Woods, chief executive officer at the Builders Exchange.

Both Randy Destruel, CEO of Mead Clark Lumber Company, and David Proctor, chief financial officer for Friedman's Home Improvement, said the problem peaked two years ago, when a number of contractors went out of business. Fewer contractors are stiffing them today, they said.

"In the last 12 months I don't find it to be any slower or any better than in a normal year," said Destruel. "In other words, I think we're at the bottom."

Last year, Friedman's extended $27 million in credit to contractors, Proctor said. Of that, $60,000 went uncollected, an amount he said was less than what the company would have spent to process the transactions using bank credit cards.

Both men said they expect business activity to improve this year.

Contractors said experience has taught them to carefully pick their clients, to ask tough questions about project financing and to stay on top of unpaid accounts.

Phyllis Reason, who with her husband owns Mike Reason Painting in Santa Rosa, said customers with late payments will learn that "I'm going to start asking questions, and I'm not going to go away."