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Indiana Waivers


Indiana is one of a small group of states with a mechanic's lien statute that permits contracts between property owners and principal contractors for the construction of single or double family homes to include clauses providing that mechanic's liens may not attach. The Indiana Court of Appeals recently enforced a no-lien contract in Feitler v. Springfield Enterprises, Inc. finding that the four statutory requirements for an enforceable no-lien contract were met. Specifically, the construction contract:
  • Was in writing;
  • Was acknowledged as in the case of deeds;
  • Contained a specific reference by legal description to the real estate to be improved; and
  • Was filed and recorded in the recorder's office of the county where the real estate was located within five days of the execution of the contract.

If these four statutory requirements are satisfied, property owners can generally protect themselves from mechanic's liens on non-commercial construction projects arising from the principal contractor's failure to pay its subcontractors or material suppliers.

  • Pay-if-paid clauses have no effect on lien rights on non-utility commercial projects.
  • For a lien waiver to be given effect in Indiana, it must be direct, positive, and contain an express covenant against its lien rights.
  • “Paid if Paid” is enforced if explicit.
  •  The existence of a payment bond does not ensure you payment where a paid-if-paid clause exits in your subcontract or purchase order. A surety is entitled to assert the same defenses as the principal, including a defense based on a paid-if-paid clause.“Pay when Paid” suggests time for payment.
  • Pay-when-paid clause in the subcontract or purchase order does not create a condition precedent to payment.

Retainage Provisions

Public

  • IC 4-13.6-7-2 Contract provisions for retainage of payments; escrow accounts and agreements State projects other than universities (with some exceptions):   If the estimated cost of a public works project is one million dollars ($1,000,000) or more, the division shall include as part of the public works contract provisions for the retainage of portions of payments by the division to the contractor, by the contractor to subcontractors, and for the payment of subcontractors and suppliers by the contractor.
  • IC 4-13.6-7-3 Amount of retainage withheld.  It may withhold a maximum of 6 percent until the work is 50 percent complete or it may withhold a maximum of 3 percent until the work is substantially complete. If, upon substantial completion, there are incomplete minor items, the division may withhold an amount equal to 200 percent of the value of each unfinished item.   This provision can also be applied to contracts for less than $1,000,000. IND. CODE§ 4-13.6-7-1.  
  • IND. CODE§ 5-16-5.5-3.5; 36-1-12-14 Certain types of state projects (including universities) and local government and school projects: Generally, the agency or unit may elect one of two options with regard to retainage. for contracts over $200,000: It may hold between 6 percent and 10 percent of the value of the work until the project is 50 percent complete. Upon 50 percent completion, no additional funds may be withheld. Alternatively, it may retain a maximum of 5 percent, but not less than 3 percent, of the value of the work, until the project is complete.  If there are minor incomplete items, the agency or unit may withhold an amount equal to 200 percent of the value of those items. IND. CODE§ 5-16-5.5-6.; 36-1-12-14. The Indiana stadium and building authority created by IND. CODE§ 5-1-17-6 may opt for greater retainage if it does not require a performance bond. IND. CODE§ 36-1-12-14.