California Construction Trucking Association (CCTA)

I'm going to veer away from my recent moaning and groaning concerning CARB and junk science and instead concentrate on another huge problem now all too common in our industry: slow pay or no pay from contractors and truck brokers.

During the past month, I have received numerous calls from members from all over the state concerning "no pay" from contractors and brokers, all of whom are supposed to have $15,000 bonds.

Having taken a few dozen calls now, my first question to a caller is, "Did you file a 20-day Preliminary Notice ("pre-lien")?" In law, a pre-lien is a notice to the general contractor, property owner and lender that if you are not paid as agreed, you may have a claim against the property in the form of a mechanic's lien. When I ask this question, the most common answers are:

1. I don't know how to do it.

2. I worked for this company in the past and they always paid.

3. The contractor said if I were to pre-lien the job they wouldn't use me.

I want to make it clear that the purpose of this article is not intended to make anyone feel ignorant; I want to believe that for the most part, many of you who have failed to file pre-liens are simply overwhelmed with everything else you're trying to do to keep it all running. You, like most, are probably overwhelmed with the day-to-day operations of running your trucking business; many of you are driving, wrenching in the evenings, and trying also to handle the paperwork. But the days of a handshake finalizing a deal are over, and for your protection and those working for you, this due diligence must be done.

So, let's look a little more closely at these three reasons I heard for not filing a pre-lien, starting with "I don't know how to do it."

Well, then, it is time you learned. I will be the first to admit that filing a pre-lien scared me also the first time I did it. I went to the office supply store and purchased pre-lien forms, which neither the store nor I realized were out of date. Strike 1. Luckily, I was paid on time, so this became a moot point.

The next time it was time to file a pre-lien, I learned of a service that would fill out and file all the necessary documents for me for a nominal fee of $25. This was a great decision! I didn't even have to make a trip to the post office to send it certified mail.

The second most common excuse for not following your business due diligence was "I worked for this company in the past and they always paid me." Strike 2.

The only job I ever lost money on was one I failed to pre-lien and or lien because the contractor "had always paid me." Well, this time they didn't, and when they quit taking my calls and I went to the owner, their first question was, "Did you pre-lien us?" And I had to answer "no." I was out of luck. The contractor collected from the general and promptly filed BK or bankruptcy. Luckily, I was the only one who took the hit since I didn't work any sub-haulers, but it was painful nonetheless when my bills came around the following month.

I watch enough "Judge Judy" to know that in a money dispute, her first question to the plaintiff is always, "Did you get it in writing?" And the answer is usually, "No, we had a verbal agreement," and while that may be a legitimate answer, it won't assure that you prevail because all to often it is your word or verbal agreement against their denial of such an agreement. The moral of the story is get it all in writing; that's what a pre-lien does for you.

Response number three, "If you lien me I won't work you," should send up red flags immediately, but we are facing tough times and some are so desperate they will grab at anything. This is happening now to a former member who now owes tens of thousands of dollars to sub-haulers he will most likely never collect. Not only will he end up bankrupt, but so will the truckers who worked for him. This is a vicious cycle for all those in its path.

CDTOA Looks to Partner with a Lien Service

Within the next few weeks CDTOA will finalize bringing on board a new endorsed affiliate member who owns and operates a business that specializes in pre-lien notices, etc. This type of service will prepare the necessary paperwork such as pre liens, mechanic liens, stop notices, and releases with only a phone call or fax from you. This will solve some of the issues, but by no means all your AR or collection problems. SLB Business Management has been servicing the construction industry for over 20 years. The company's owner Mark Garner said, "We can assist motor carriers in protecting their accounts receivable. That is achieved by knowing who you are doing business with and, on job accounts, filing a 20-day Preliminary Notice ("pre-lien"). We act as your offsite credit department." The company's website is: www.slbbiz.com

Slow or No Pay

The next huge issue that affects so many of our members who are owner-operators (who many times may not have lien rights on a job working through a broker) is the extremely slow pay that has been occurring for many years. I've heard that it is almost an epidemic in Southern California.

I have always been amazed that it was considered "the norm" in the southern part of the state to wait for subhaul payments 60 or 90 days or even more. This has many wishing for re-regulation. While we are beginning to see some very late payments here in the North from some, it is nothing compared to what the South has been dealing with for the last 4-5 years. The threat of "I'll use someone else if you ask for your money" seems to have the trucking industry running scared, brokers and sub-haulers alike. Brokers are afraid to demand money from contractors, and sub-haulers are afraid to aggravate the brokers. And what's really sad about all this is that the law (which CDTOA spent tens of thousands of legal dollars and staff time to get put into statute) is on your side. The problem is, you ALL have to have the guts to use it these collection tools. If everyone took a position not to accept anything later than the 20th or 25th of the month, then that would become the norm, the standard. Unfortunately, once the first subhauler says it's OK to be paid 30 or 60 or 90 days late, that unfortunately becomes the norm, and it all becomes a very slippery slope to your eventual demise.

CDTOA's 27 Years of Payment Protections Legislation

The following are sections from the California Business & Professions Code, §7108.6 and §7120 (leginfo.ca.gov/calaw.html) which deal with licensed contractors requirements to pay transportation charges of contracted or authorized motor carriers. This section was added to the B & P Code in 1984, and it was meant to protect dump truck motor carriers from slow or non-payment by licensed contractors, much like protections subcontractors have under B & P Code §7108.5. In fact, both sections in B & P Code, §7108.5 and §7108.6 are almost identical.

B & P Code §7108.6 initially did not include an attorney's fees provision, as there was less need when the dump truck industry was regulated by the PUC, which required more formal contracting requirements and offered more recourse to carriers in payment disputes. In 1996, shortly following industry deregulation, the California legislature (as a result of a CDTOA sponsored bill) added the 2% penalty and attorney's fees language to §7108.6. It is identical to Public Contract Code §10262 and B & P Code §7108.5.

In 2004, CDTOA sponsored AB 2201, and the bill went into effect January 1 2005. The bill contained valuable clarification to the CVC. But the most important legislative changes where the same protections defined in §7108.6 for motor carriers who work through newly defined construction truck broker entities.

It is strongly suggested that you understand and utilize these tools to secure payment for the work you perform. It is also strongly suggested that you include the language in §7108.6 on your freight bills and your haul contracts. CDTOA's standard freight bills reflect this language on the back of each copy; see Terms 1 and 2. CDTOA also can provide members with Haul Contractors that clearly state these same terms.

Business & Professions Code, Chapter 9, Contractors, Article 7, Disciplinary Proceedings - §7108.6

A licensed contractor is required to pay all transportation charges submitted by a duly authorized motor carrier of property in dump truck equipment by the 20th day following the last day of the calendar month in which the transportation was performed, if the charges, including all necessary documentation, are submitted by the fifth day following the last day of the calendar month in which the transportation was performed. The payment shall be made unless otherwise agreed to in writing by the contractor and by the duly authorized motor carrier of property in dump truck equipment. In the event that there is a good faith dispute over a portion of the charges claimed, the contractor may withhold payment of up to 150 percent of the disputed amount or an amount otherwise agreed to by the parties. A violation of this section constitutes a cause for disciplinary action under §7120 and shall also subject the contractor licensee to a penalty, payable to the carrier, of 2 percent of the amount due per month for every month that payment is outstanding. In an action for the collection of moneys not paid in accordance with this section, the prevailing party shall be entitled to his or her attorney's fees and costs. This section applies to all private works of improvement and to all public works of improvement.

§7120. Willful or deliberate failure by any licensee or agent or officer thereof, to pay any moneys, when due for any materials or services rendered in connection with his operations as a contractor, when he has the capacity to pay or when he has received sufficient funds therefore as payment for the particular construction work, project, or operation for which the services or materials were rendered or purchased constitutes a cause for disciplinary action, as does the false denial of any such amount due or the validity of the claim thereof with intent to secure for himself, his employer, or other person, any discount upon such indebtedness or with intent to hinder, delay, or defraud the person to whom such indebtedness is due.

Are Collection Laws Available to Permitted Motor Carriers Who Work for Brokers of Construction Trucking Services?

Section 3322 (effective January 1, 2005) An owner-operator and his/her legal counsel in a civil action, can point to this section and make a solid argument that the law in California clearly states: a broker of construction trucking services (as defined in subsection (b)(1)) shall pay all transportation charges submitted by a motor carrier of property in dump truck equipment by the 25th day following the last day of the calendar month in which the transportation was performed, if the charges, including all necessary documentation, are submitted by the fifth day following the last day of the calendar month in which the transportation was performed. And a broker who violates this section shall pay to the motor carrier of property in dump truck equipment a penalty of two percent per month on the improperly withheld amount. In an action for the collection of moneys not paid in accordance with this section, the prevailing party shall be entitled to his or her attorney's fees and costs.

Section 3322 is added to the Civil Code, to read: §3322.

(a) (1) A broker of construction trucking services shall pay all transportation charges submitted by a motor carrier of property in dump truck equipment by the 25th day following the last day of the calendar month in which the transportation was performed, if the charges, including all necessary documentation, are submitted by the fifth day following the last day of the calendar month in which the transportation was performed. If there is a good faith dispute over a portion of the charges claimed, the broker may withhold payment of an amount not to exceed 150 percent of the estimated cost of the disputed amount.

(2) A broker who violates this section shall pay to the motor carrier of property in dump truck equipment a penalty of two percent per month on the improperly withheld amount. In an action for the collection of moneys not paid in accordance with this section, the prevailing party shall be entitled to his or her attorney's fees and costs.

(b) For purposes of subdivision (a), the following definitions apply:

(1) A "broker of construction trucking services" means any person, excluding a licensed contractor, that, as a principal or agent, arranges for transportation services to be provided by an independent contractor motor carrier of property in dump truck equipment and who is responsible for paying the transportation charges of the motor carrier.

(2) A "motor carrier of property in dump truck equipment" means a motor carrier of property permitted. by the Department of Motor Vehicles that hauls any type of construction commodity or material in dump truck equipment.

(c) Subdivision (a) only applies if a motor carrier of property is in compliance with Division 14.85 (commencing with Section 36000) of the Vehicle Code at the time the dump truck transportation work is performed.

In 2005, CDTOA approached three different attorneys to discuss the language in this legislation, and all agreed that the statute could not be worded any more strongly to protect the sub-hauler. The sad part is that our good brokers today are losing work to the no-pay scoundrels and briefcase broker thieves because they bid work cheaper and then sit on your money. Why would a contractor choose a broker who demands timely payment when he can find another who will wait many months, and then tell subhaulers that they will be paid when he/she is paid?

This game has got to end or no one will survive. Do those now wearing the "Broker Hat" communicate with each other? If John Doe Contractor is using a different trucking company every few months, does that not send up an alarm that something is wrong, like perhaps he isn't paying? That is exactly what happened in Sacramento last year when a large local contractor began playing "musical brokers." Broker #1 had his liens in order, promptly filed a stop notice, received his money, and moved on. Broker #2 was honored to get a call for trucks and promptly sent them out, and I'm sure you know the rest of the story. Broker #2 is now in bankruptcy.

CDTOA has continued to provide you with the necessary tools to help you run a successful business and has worked to have laws passed that clearly state when you are to be paid. It is up to you to make sure they are enforced. As devastating as the CARB rules are, my fear is that many won't be around to see even that pond more nails into the coffin. The days of being able to refinance your homes to take cash out are over. The lines of credit have all but disappeared for most. Credit cards are maxed out, and the fuel suppliers can't wait any longer for payment—and when your fuel is shut off, you are done. It is time that we make changes in our industry.

Fuel Surcharges

Can things get any worse with what is going on with no pay and fuel prices? This is a whole area that we need to help members understand. There is in general a lack of a fuel surcharge clause in most contracts these days. As we are currently seeing, any uncertainty in the Middle East causes oil to spike. We are at $4.50/gallon and quickly approaching $5.00 a gallon for diesel. What will happen if it goes to $7.00 or even $10.00? And yet I have been told that a major Northern California contractor has told truck brokers that anyone who includes a fuel clause in their bids will not even be considered, and their bids will go straight into the garbage. Someone, please enlighten me, who can work under these conditions?

Protect Yourselves

Sub-haulers should only work for a bonded broker. When all brokers demand to be paid by contractors according to the law and get the checks out promptly, it won't take long for the message to get out: No pay, no trucks. If you are going to go broke driving trucks, it is much less painful to do so sitting in your recliner, perhaps watching "Judge Judy."

I will try to continue to see the glass half full, and I must say that when I am finally able to meet some of you in person, it does a great deal to restore my faith in the quality of our members. Such was the case at ConExpo recently held in Las Vegas. Our members from throughout the state stopped by to say "hello" and it was greatly appreciated. We are grateful to Cozad/Reliance for allowing us to share their booth.

Thanks for all your support.

Betty Plowman - (707) 974-8961

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