Publications




Search Construction Advisor Today


  • constructionadvisortoday.com

Bookmark and Share

« Most Americans Support Federal Investment in Green Schools: Survey | Main | ‘10 Truths’ about Building Information Modeling Released »

10/13/2011

Comments

Feed You can follow this conversation by subscribing to the comment feed for this post.

If the subcontractor performs the work or provides the service, they deserve to be paid regardless of the payment status from the client to the prime. I know some states have specifically stated pay when paid is against public policy and not enforceable. Does anyone know where I can get a list of these states?

As a subcontractor, we see "condition precedent" clauses in every contract we review. Unless we have a long working history with both the client (GC) and owner, we never agree to such clauses. On the rare occasions that we act as a GC, I never include these clauses in my subcontracts. I feel it is the GC's responsibility to determine the creditworthiness of their clients, and be willing to take the risk on behalf of all their subcontractors.

The "condition precedent" clause can be voided by the subcontractor envoking there rights under the "little miller" act.

We are a sub in the Chicago area and every contract we sign has this provision. We have no recourse in event of non payment, except to file a lien, and that just ties up any money the project may have - and still not necessarily mean payment to us. Very very frustrating and scary -

As a supplier to subs and to GC's, I feel that the contract between me and my customer takes precedence; i.e, if you agree to 30 days net payment for my materials, PAY ME. The fact that you have to wait for your payment from the owner doesn't excuse you from honoring the terms of our agreement. I can't be your banker.

Good afternoon,

Our firm recently had a negative interaction with this working under a large Prime on a Stimulus project. Pay when paid or 45 days is a standard condition in their subcontract agreement. We modified the contract to remove this. The Prime did not honor the accepted change and provided various delay tactics on payment throughout. It was a nightmare.

Thus, a larger question for us became: When it is advantageous to delay fund release to subs, how could it be proved that a Prime really has not been paid?


If the subcontractor performs the work and they do not got paid because they owner/client of the project refuses to pay the GC, then they have the right to file a mechanic's lien against owner's property. Obviously this is a loss-loss situation in that both the GC and subs are not getting paid, but at least they can both file mechanic's liens to pressure the owner to pay or resolve the issue.

As a sub I have found that the pay when paid works fine until the GC hits or anticipates hittings a snag w/ the owner. Then subs are expected to float the jobs out until the GC & owner can come to an understanding. More times than not it is drawn out well over a year, and cost the subs thousands of dollars. Often forcing them to take whatever they can get just to stay afloat. Afterall the Sub's suppliers are getting paid off a net invoice. For the record subs are also not privy to the amounts and dates the gc has drawn and been paid for their work.

Down here "pay when Paid" often means "pay when we can delay no longer"

Working as the owner for a municipality, generally we do not see the contract between prime and sub. However, we have in our contract with the prime language about making prompt payment to the sub for work performed.

I have dealt with this issue once years ago when I was called into a meeting once as the PM on a project for nonpayment by the prime to the sub and the sub then came to us, the City, for payment of the work performed. In that instance, we the City told the sub that 1) our contract was with the prime and not you the sub, and 2) the prime had been paid by the City for the work in question. If I remember, the prime had passed along the retainage to the various subcontractors and did not [yet] make payment to the sub after the City released most of the retainage because the project still had some punch list items remaining to be completed by the prime/other subs.

I have seen other cases where work was done by the sub at the direction of the prime and the work was not acceptable to the City and the City refused payment to the prime until the work was corrected.

Our primary contract mechanism to ensure adherence to the contract as well as performance is withholding of payment(s) to the prime.

As a Subcontractor it is our opinion that any General Contractor that does not have the financial ability to pay subcontractors and material suppliers in a timely fashion, as the job progresses (regardless of whether or not they have received payment from the owner) has no business being in business. Arguments as to the ability to file liens, etc. are hollow in that court action within relatively short periods of time is required to perfect (enforce) those liens. As a Sub we have become accustomed to the 45 to 60 day period required for a GC to process a draw through the owner and whether we like it or not it is something we live with. Pay if paid clauses should absolutely be outlawed unless the subcontractor is in partnership with the GC. Pay when paid clauses should be modified by the law to include a "reasonable" time, after which payment is unconditionally due - regardless of owner/GC payment status.

Though you can't do this with every client, require down payments and if necessary, intermediate payments. Don't ever let the expenditures of your own company get too far ahead of the income that you already have in your pocket. The less sure you are about the financial stability of the project, the more money you want up front.
If payment doesn't arrive when it should (or it arrives but the check bounces), then stop working on the job. No money, no workee. Even if it all goes belly-up right there, you have limited the damage to your own company.

As a previous poster pointed out, nonpayment to some subcontractors can really impact their business. I do work at the bottom of the chain for some of my clients. A contractor hires an architect, who hires me. My pay is very small compared to theirs. The contractor is building a million dollar home. I live in an apartment. When he tells me he can't pay until he has been paid, I lose all respect for him. Honestly, I am getting new clients and cannot wait to cut this client loose. Why should I have to call after 4 weeks to get a check, and be treated as if I am an inconvenience or a beggar? "In this industry, no one pays on delivery," he has told me several times. Truth is, ALL my other clients pay on delivery. One pays within a few days by wire transfer. It is very frustrating to have cash flow cramped by a non-paying contractor.
This contractor, (and most GCs) make very good money. It is a matter of priority. They are vacationing, buying expensive new things... but can't pay on time? Looks like greed to me.

http://www.mintz.com/media/pnc/3/media.2513.pdf

Here's a nice article on the matter. Says 32 states have drafted legislation for prompt payment and NY and Ca have gone so far as ruled on cases saying these provisions are against public policy regardless of freedom to contract.

Fair is fair.

The GC should be paid as work is completed/stored on behalf of the owner.

The Sub should be paid from the GC when billed net however many days agreed upon.

Period.

The GC should not be the owners "bank". And, the sub should not be the GC's "bank".

If the owner wants the work done he should pay for it in a timely fashion because it is he who will ultimately benefit from everyone else's work!

Everyone's reputation is at stake.

Beware of 'greedy' owners!!

Pay when paid is good for the construction because it keeps pressure on GC and Sub alike to perform and to be responsible for risk. The problems come in two places. Owner or GC does not keep up timely payments. This is a responsibility the GC must handle. The GC must make sure collections and payments are timely,and should inform subs when something has gone wrong. The second place the problem occurs is in the office/field disconnect. The office does paperwork. The field performs the work. Pay cut-off dates are missed, insurance forms are missing, etc. and pay is withheld. The people in the field keep right on ordering more work done while the office refuses to pay for a host of unrevealed reasons. This is where most owners and GCs fail to realize that subs are getting shafted by the pay when paid clauses. I hear often from the GC that he has not been paid, I respond,"So do your job and get paid."

The topic of this article is paid-if-paid clauses. Timeliness of payment to the subcontractors is a whole different matter and if contractors and subcontractors are not getting paid in a timely manner,as opposed to not getting paid at all,then they need to work for better customers.

Because neither general contactors or individual subcontractors are making enough of a profit margin to cover all of the loss for non-payment on a project the purpose of the paid-if-paid clause is to simply spread the risk of non-payment amongst all stakeholders which then obligates the stakeholders to be more attentive to the cash flow of the project.

We have found that once the typical Owner understands that we are tightly monitoring the cash flow of their projects they pay in a timely fashion and, if not, projects are stopped before stakeholders are put out of business.

It is imperative that General contractors get all of the necessary and proper procedures and remedies incorporatied into their contacts with Owners so that then all stakeholders can take timely advantage. If your Owner is reluctant, do not be you own worst enemy- walk away.

Nevada has a private works "prompt payment" act (found in NRS Chapter 624) which governs payments b/t owner and GC and GC and lower tiered contractors. It requires payment by the GC to the subcontractor despite "pay when paid" language, with a right to stop work and then terminate the contract and sue.

To say that Pay-if-Paid should be allowed under freedom of contract is ridiculous. The article mentioned above (at Mintz.com) suggests if you don't like the contract language, don't take the job. That's fine logic, but the job will move on down the line until someone desperate enough takes it, and inevitably gets burned. As a sub, it is just realistically impossible to learn enough about every owner's financial situation to make an informed decision whether or not they're solvent. And we shouldn't have to. That would be like not requiring doctors to follow standard health procedures, and then saying, well, if you don't want to be injected with poison, don't go to the doctor. It takes a huge investment for subcontractors to perform the work, both in their company (equipment, overhead, etc.) and on the specific job (labor, materials, etc.). To suggest that "if you don't like the contract, don't sign it" would put many subcontractors out of work, because all the contracts have that now. The subcontractors that would be left would be the ones with the least investment, and logically the least resources, talent, and training to complete the job. In other words, allowing this contract clause leads to deterioration of the industry in quality, safety, and prices, and ultimately leads to more project failures, and becomes an increasingly negative cycle of failure.

Why should a subcontractor take the risk that a lender will stop funding a project and the owner will file bankruptcy? Isn't the general contractor in a lot better position to make that assessment?

From one point of view is quite reasonable both things to be related but transferring that risk may lead to a lot of complications related with the deadlines.

If the subcontractor has completed the work as according to their contract, they should be paid even if the client has not paid the prime or otherwise.

Hello webksitudi,
I detected an easy marvelous contain of intriguing webpage placement to that belong in front of a baby above good enough internet site prosusjaick
good ksitudi!!

piarezvqvfzf It actually also is my 1st about time I've emerged of newborn web page -Zara Clothing Flowers bloom in springtime Zara Clothing beipyivmhh

sbiodgmxjjv, hold raft , raise anchor almost everywhere in anxieties people in the usa base on mom combined with father to stick associated with inside our childrens' world-wide-web activities. | Discount Custom Nfl Do not crucial in more than my door. Discount Custom Nfl №ξvcuwheigfm

The comments to this entry are closed.