Construction is a capital intensive enterprise. Access to borrowed capital is critical for project owners and contractors alike. But, a loan must be secured with collateral such as real estate or anticipated contract proceeds. And, security interests sometimes create conflict among the various parties on the project.

In one recent case, a construction lender to the project owner held a security interest in the project real estate. The lender’s collateral increased with the ongoing improvement to the property. The project went over budget and the lender disbursed the remainder of the loan proceeds to the owner with the project only 75 percent complete. The lender did not inform the contractors, who continued to work until substantial completion. The project owner didn’t pay the contractors. But the liens of the contractors, whose work had enhanced the value of the project, were subordinate to the pre-existing mortgage of the foreclosing construction lender.

In another case, a subcontractor borrowed operating capital from a bank, secured by the anticipated payments from the subcontract. The prime contractor agreed to name the bank as a joint payee on all the subcontract payment checks. The prime then started naming the sub’s subcontractors and suppliers as additional joint payees. The bank complained that its collateral had been impaired. But nothing in the joint check agreement prohibited naming other payees.

In this week’s third case, a bidder on a federal project failed to meet the prior experience criteria set forth in the solicitation. Had it been more detailed in its bid, the result may have been different.