One of a variety of routinely utilized contract types that are within the toolkit for construction industry professionals is a “cost-plus” contract. Generally, under a cost-plus contract, the contractor is reimbursed for the actual cost of the work performed plus the contractor is paid a fee. One of benefits of a cost-plus contract for a contractor, in its most basic form, is that the risk of cost overruns is borne by the owner. However, the uncertainty of the total amount that will ultimately be paid for the work by the owner under a cost-plus contract creates a wrinkle under the Pennsylvania Mechanics’ Lien Law for contractors that, if not properly addressed when filing the lien, can result in the contractor’s lien rights being extinguished.
This was the situation addressed by the Superior Court of Pennsylvania in the unpublished decision of PW Campbell Contracting Co. v. Yetter[1] issued on April 14, 2025. In summary, the Superior Court decided that a “cost-plus” contract does not establish an “agreed sum” under the Mechanics’ Lien Law. Accordingly, for a contractor to perfect a lien when work is performed under a cost-plus contract, the statement of mechanics’ lien claim must include a detailed statement of the kind and character of the labor and material furnished and the prices charged for such labor and material. In short, the claim should describe the work in detail and have the invoices for the work attached, otherwise, it will not be enforceable.
To understand the basis of this decision, one must recognize, as both the trial court and the Superior Court did, that the Pennsylvania Mechanics’ Lien Law establishes different requirements to perfect a lien based on whether the person or entity performing the work is a “contractor” or a “subcontractor.” One of the differences between the requirements for a “contractor” versus a “subcontractor” is the contents of the statement of mechanics’ lien claim. Presuming all other statutory requirements are met, a contractor’s statement of mechanics’ lien claim if “under a contract or contracts for an agreed sum” is sufficiently stated if it identifies the contract and includes a general statement of the kind and character of the work.[2] In all other circumstances, however, the statement of mechanic’s lien claim must include “a detailed statement of the kind and character of the labor or materials furnished, or both, and the prices charged for each thereof.”[3]
In P.W. Campbell, P.W. Campbell Contracting Company (PWCC) entered into design-build contract with a homeowner for the design and construction of a porch, pool house, and other improvements to the home. Although the title of the contract classified it as a “lump sum” agreement, a lump sum amount was only established for the design portion of the work. The contract stated that the construction costs were to be paid at “the cost of the work, plus 25%.” Disputes arose between PWCC and the homeowner, which led to PWCC filing a mechanic’s lien for the unpaid amounts it claimed were due for the construction work performed. PWCC attached the design-build contract it entered into with the homeowner to its statement of mechanics’ lien but it did not attach invoices or any other documentation supporting the calculation of the amounts PWCC claimed were due and owed. PWCC’s position was that invoices or other documentation was not required, because it was a “contractor” performing work under a contract for an “agreed sum.” PWCC argued that the statement of mechanics’ lien claim substantially complied with the Mechanics’ Lien Law because the contract established the “agreed-upon framework pursuant to which PWCC charged the [homeowner].”
There was no dispute that PWCC was a “contractor” under Mechanics’ Lien Law, as it contracted directly with the homeowners for design and construction. However, both the trial court and the Superior Court decided that the “cost-plus” payment arrangement set forth in PWCC’s contract with the homeowner did not constitute an “agreed sum” under the Mechanics’ Lien Law. Accordingly, PWCC was required to provide a detailed statement of the kind and character of the work with the prices charged therefore in its statement of mechanics’ lien claim. Having failed to do so, PWCC’s mechanics’ lien was found invalid for a failure to comply with Mechanics’ Lien Law.
As it has repeatedly done in its decisions on the Mechanics’ Lien Law over the last several years, the Superior Court quoted the Pennsylvania Supreme Court’s decision in Terra Firma Builders, LLC v. King[4], stating “a contractor seeking the benefit of the lien must judiciously adhere to the requirements of the Mechanics’ Lien law it order to secure a valid and enforceable lien.” The Superior Court once again reminds the construction industry that the Mechanics’ Lien Law is filled with traps for unwary and any one of those traps can lead to a mechanics’ lien for amounts that may be undisputedly due and owed being extinguished.
If you have questions about this article or need guidance in relation to the Pennsylvania Mechanics’ Lien Law, please contact J.T. Gallagher at jtg@hpsslaw.com or call the firm’s Lehigh Valley, Pennsylvania office at 610-484-4459.
[1] PW Campbell Contracting Co. v. Yetter, No. 910 WDA 2024, 2025 WL 1099644 (Pa. Super. Ct. Apr. 14, 2025).
[2] 49 P.S. § 1503(5) (emphasis added).
[3] 49 P.S. § 1503(6) (emphasis added).
[4] 249 A.3d 976, 983 (PA. 2021).