Thursday, Nov. 16, 2000 | 11:06 a.m.
As a bitter fight drags on over $300 million in mechanics liens filed against the Venetian resort on the Las Vegas Strip, a group of contractors' organizations is pushing for an overhaul of Nevada's lien laws in the 2001 legislative session.
The groups argue the reforms are necessary to prevent a repeat of what happened at the Venetian -- a $1.5 billion job where dozens of contractors still have not been paid for their work as the Venetian and general contractor Lehrer McGovern Bovis battle over who is responsible for paying the resort's huge cost overruns and fight over other construction problems there.
Contractors' advocates say the case highlights the need to refine laws that date back a century, and are so confusing that only a lawyer can truly understand them.
"It's absolutely imperative and crucial this legislation be presented in this session because of the urgency of the issues in the Venetian case," said Las Vegas attorney Michael Brimley, who is working with eight different contractors' organizations to draft a bill. "If something isn't put into place to clear this up, we'll see the same kinds of litigation over and over.
"What we're trying to do is simplify the lien process so it doesn't get used as a snare to trap innocent subcontractors and contractors."
But Venetian officials argue a change to the law would amount to little more than government interference in negotiations between contractors and project owners.
"No one holds a gun to anyone's head and forces them to sign a contract," said David Friedman, assistant to Venetian owner Las Vegas Sands Inc. Chairman Sheldon Adelson. "What they're asking the legislature to do is get involved in the negotiating process between private parties, and I don't see how that's appropriate."
A mechanic's lien is a legal method of last resort for an unpaid contractor. By filing a lien, a contractor attempts to force a property to be sold at auction to cover unpaid construction bills.
That's what happened at the Venetian, following huge cost overruns and disputes at the project. The Venetian refused to pay Bovis for the extra costs, saying it had already paid the project's maximum guaranteed price. Bovis then refused to pay the contractors for the extra work, saying it would not do so until Bovis was paid by the Venetian.
The dispute resulted in more than $300 million in mechanics liens being filed against the Venetian, though the Venetian has prevented a court-ordered sale by providing bonds that can be used to make payments to contractors.
Contractors have prevailed on their claims in initial hearings, but appeals mean that any payment is a long way off. Some contractors, unable to weather the wait, sold their claims to Bovis at a fraction of their cost.
Though the Venetian has been the most prominent example of the tangle of lien law in Nevada, it isn't the only place where contractors have been hurt, said Steve Holloway, executive director of Associated General Contractors. In a recent case, a contractor was forced to settle a $1 million lien against a homebuilder for $300,000, Holloway said. And difficulties in mechanics lien laws have been experienced by lienholders against the Regent Las Vegas and the Aladdin, he said.
"The Venetian was the straw that broke the camel's back," Holloway said. "We have probably the hardest to follow lien law in the country. The industry has talked for years now about going in and simplifying it.
"It's much more than a gaming industry problem. I would not put this onus on the gaming industry as a whole."
One of the most critical changes the contractors are trying to make to Nevada law is the elimination of "no-lien" clauses in construction contracts. Many subcontractors on the Venetian project signed contracts that forbade filing mechanics liens against the property.
The Venetian attempted to have many mechanics liens thrown out because of these clauses. State Judge James Brennan ruled against such a move -- but did so because he believed the language of the contract obscured the fact that contractors were waiving their lien rights, not because "no-lien" clauses were banned by state law.
"If the court would have enforced that provision, those lien claimants would have been in a heap of trouble," Brimley said. "There are contractors who would go under if that happened."
But Friedman responds that sometimes such clauses are necessary. In the Venetian's case, Friedman said financiers demanded the no-lien provisions in order to protect their first claim against the property. That first claim would mean that the bankers, not the contractors, would be first to receive any funds from a liquidation sale.
Asking bankers to give up this insurance, Friedman said, will inevitably make projects more expensive, since bankers will charge higher fees and interest rates to cover their increased risk.
"If you say that you can't negotiate a no-lien provision, it's going to increase the cost of financing a major construction project," Friedman said. "What the contractors could be doing is self-defeating, by creating a situation where you make it more difficult for developers to get construction loans. So you have less construction, and they end up with less business and fewer paid construction jobs for employees.
"Nothing happens in a vacuum. When you start tinkering with the market, it has all kinds of implications, some of which may not be anticipated or intended."
A second alteration would come in the law's "pay-if-paid" provisions. A pay-if-paid clause means subcontractors only receive payment if a contractor is paid -- but Nevada law still requires a subcontractor to continue to promptly deliver services while waiting for payment.
The result can be disastrous for contractors, trade groups argue.
"In the Venetian's case, many people felt they had to continue performing work, even though it was putting their companies in financial jeopardy," Brimley said.
The contractors aren't trying to banish pay-if-paid, but instead hope to give contractors the right to simply stop working on a project unless prompt payment is made -- essentially, a contractor's equivalent of a strike.
Other reforms will be made in the proposed law, though it isn't clear exactly which "ambiguities" will be cleared up yet. One problem, Holloway said, is that the law contains provisions that courts have previously ruled can't be used to block a lien -- but since these court decisions haven't been put into the law, the provisions can be used as an argument against a lien, delaying the process.
"Every provision that's been litigated before, they'll litigate again," Holloway said. "They're able to do so, because it hasn't been (put into law). Some owners will drag this on ... until a contractor goes belly-up."
Another provision could include the creation of a standard, easy-to-use form contractors could use for filing liens, Brimley said.
The hope is that a bill can be introduced in the Senate Judiciary Committee when the legislature meets in April 2001. So far, Holloway said, state legislators have shown broad support for such a measure.
The Venetian isn't saying yet whether it will fight, though Friedman believes the state is heading down a slippery slope.
"Why doesn't the legislature create a form all contractors will use in all deals, one size fits all?" Friedman said. "You get to a certain point where I don't know if it's an appropriate role for the legislature."
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