What is a Contingency?

Revenue recognition in the construction industry is a principle that determines when a company earned revenue is considered. It's not as simple as recognizing revenue when cash exchanges hands. Rather, it's a method used to determine the precise point when contractually stipulated work has been completed for which payment can be recognized. Often, this involves matching invoices to the percent of completed work on a given project. Stage of completion or percentage-of-completion method is utilized, allowing them to record revenue progressively as the project progresses. It's a critical aspect of financial reporting, ensuring revenues, and profit margin correctly reflect the company's current operations. This principle is guided by GAAP and IFRS standards.

A notice of intent to lien (NOI)—sometimes called an intent notice or notice of non-payment—is a legal document that serves as a final warning from a subcontractor or supplier to the property owner, developer, or general contractor (GC) indicating their intent to file a mechanic’s lien against the property in the event of non-payment.

The purpose of an NOI is two-fold: First, it protects the subcontractor’s or supplier's rights to establish a legal claim against the property, allowing them to file a lien—or pursue legal action—if the outstanding payment is not made within a specific time frame. Second, it motivates the responsible party (i.e., property owner, developer, or GC) to settle the outstanding payment(s). This is because once a mechanic’s lien is filed, the property owner can’t sell or refinance the property until the debt is settled.

Currently, NOIs are only legally required in nine states:

• Arkansas (10 days before filing lien)
• Colorado (10 days before filing lien)
• Connecticut (Within 90 day lien period)
• Louisiana (material suppliers on residential projects 10 days before filing lien)
• Missouri (10 days before filing lien)
• North Dakota (15 days before filing lien)
• Pennsylvania (30 days before filing lien)
• Wisconsin (30 days before filing lien)
• Wyoming (10 days before filing lien)

However, regardless of state requirements, sending NOIs can be a beneficial and inexpensive step that increases subcontractors’ chances of getting paid (ideally without actually having to file a lien). Note that subcontractors must first submit a pre-lien (or preliminary) notice before submitting an NOI. Making both of these a standard part of accounting processes for past-due payments can improve A/R collection processes—and get payments in the door faster.

Along this vein, Siteline empowers subcontractors by providing visibility into outstanding payments across all projects, alerting them when it's time to pursue overdue balances—or issue an NOI for the most persistent cases.

To experience how Siteline can help your subcontracting business proactively manage payment processes, leverage NOIs when necessary, and accelerate cash flow, book a personalized demo today.

In the construction industry, liabilities refer to the financial obligations the company owes to external entities, often as a result of past transactions or activities. These include payments to suppliers, wages to employees, loans from financial institutions, taxes to government bodies, etc. Additionally, in this industry, liabilities may also include future commitments to complete ongoing construction projects within a stipulated time frame and specific budget. Unfulfilled such obligations may lead to penalties or legal action, enhancing the liability further. Also significant are potential liabilities such as compensation for any work-related accidents or damages occurring at construction sites. Hence, managing liabilities effectively is vital for the financial health and reputation of any construction firm.