The most important way to categorize construction is based on who owns the project or property. Why is that? Because state and federal laws care about who owns the project when it comes to contracts, payments, and the amount of risk that contractors and suppliers will carry on the project.
Laws aren’t concerned with the facility you’re working on and whether it’s industrial or heavy civil. Instead, they set requirements based on who owns the project. Just look at prompt payment laws, mechanics liens, and bond claim rights, and pretty much any other law that affects a contractor’s right to payment on a job.
Broadly speaking, construction project are either public or private, but those are further broken down into 4 types:
1. Private residential projects involve single-family dwellings or residential facilities with
several units.
2. Private commercial projects include restaurants, grocery stores, skyscrapers,
shopping centers, sports facilities, hospitals, as well as private schools and
universities.
3. State construction projects are government-funded projects that are not owned by
the federal government, potentially including public schools, civic buildings,
highways, or bridges.
4. Federal construction projects are government-funded projects that are owned by the
federal government. Like state projects, the actual construction work is often on
government buildings and infrastructure projects.
These categories are determined by who owns the property where the construction project is taking place. This is important because the property owner will determine what type of payment security contractors and suppliers have on the job.
On private projects, a mechanics lien provides construction professionals with a security interest in the property itself. If they are not paid, they can file a lien claim and encumber the property, making it difficult for the owner to sell or refinance until the contractor’s debt is paid.
Public land, whether state or federal, cannot be subjected to a lien claim from a contractor. Instead, payments on these projects are secured by the general contractor’s payment bond. The bond essentially takes the place of the property—if a construction business is not paid, they can file a bond claim with the surety that provided the GC’s bond.
Why do you need to know who owns a project? The differences are very important because the laws governing your construction project are significantly different depending on the owner.
First of all, the type of payment security available to contractors and suppliers on a project is different. On private projects (residential or commercial), unpaid construction businesses can file a mechanics lien.
But on public projects, the federal or state government that owns it doesn’t allow contractors to lien their property. Instead, the Miller Act (at the federal level) or Little Miller Acts (at the state level) typically require the general contractor to put up a payment bond to provide payment security to those working on it. If they’re unpaid, they can make a bond claim to recover the money.
But payment laws are not the only laws that are different. Labor laws and contracting rules are different depending on your project type, and more.
These legal differences are why the traditional classification system – based on the building type – are largely irrelevant. While the character of the underlying work is important to some degree, the big legal differences hinge on the private or public nature of the work.
Know your project type
The type of project you’re working on will often determine the type of contract, materials, and specifications required. If any construction participant fails to follow the code and safety requirements required for that building type, it can cause a building inspector to issue a correction or rejection that drags out the project completion and delays payment to everyone on the project.
But no matter what type of building you’re constructing, it’s critical to know the type of project owner—whether the project is a private, state, or federal project. This will determine the rules for getting paid, including the actions that contractors and suppliers must take if payment doesn’t come through.
Scott Wolfe Jr
727 articles Last updated: Mar 31, 2022
Published: Jan 21, 2013
About the author
A husband, dad, & entrepreneur in New Orleans, Scott founded Levelset to even the $1 trillion construction playing field and make payments easier, faster, and more predictable. Levelset is used by thousands of contractors and suppliers nationwide to make payments easier on billions in contract value each year. Scott is a licensed attorney who previously practiced construction law. Recognized by New Orleans City Business as an “Innovator of the Year” and part of their “Leadership in Law Hall of Fame,” Scott has been on the Silicon Bayou 100 list every year since 2014, is a winner of Idea Village & Jim Coulter’s IDEAPitch, is the ACG’s reigning Emerging Growth Company, and a Junior Achievement Rising Star. References: https://www.levelset.com/blog/types-of-construction-projects/