Contract Clauses to Watch Out For in Construction Contracts

3. Payment terms (continued from page five):

If you can, try to find out what the General Contractor does when the payment from the Owner to the General Contractor is late.

I know I know, the obvious response SHOULD be that the General Contractor will contact the Owner immediately upon delinquency of payment but, would you believe that some General Contractors will not contact the Owner out of fear that the Owner will be offended?

Excuse me!!!, but if anyone should be offended, it is the General Contractor, the Subcontractors and all of the material suppliers on the project, for not having received payment when due.

Most often, the General is concerned about offending the Owner because the General hopes to do more work for the Owner. Would you want to do more work for a non-paying (or late paying) customer? I know I would not want to!

Anyhow, I got caught in this nightmare through a general contracting company we were doing work for. The president of this firm (who is also the Accounts Payable/Receivable person) refuses to contact the Owner when payment is late.

I had to contact the Owner myself. Unfortunately, the 'Owner' was the Desert Sands Unified School District in Indio, CA and the people in the office refused to provide me with any information, they chose to hide behind legalities.

So, the payment to the General Contractor is late and the school district, which is responsible for payment, won't talk to subcontractors. Well, when I have done work for somebody and/or entity, that somebody and/or entity owes me.

Since I cannot threaten to file a lien on the property (because, as a school, it is a Public Works project and liens cannot be filed on public works projects) what could my next plan of attack entail?

Making lots of noise! I called the Owner (the school district) several times daily, as did my partner, asking for information on payment. Sooner or later the Owner will get tired of my phone calls and either pay the General Contractor so that the General Contractor will pay me or call the General Contractor and tell them to call me to answer my questions.

Frankly, I don't care what they do as long as I either get paid or at least get an update that I am satisfied with.

Will the General Contractor want to do business with me again? Probably not. Do I want to do business with the General Contractor or Desert Sands Unified School District again? Definitely not!

When people owe you and won't talk to you, you need to do whatever is within your legal rights to get the information and/or payment that is due you. If you don't, you might just find out (too late) that there is a problem on the job that will cut your chances of being paid.

Guess what I found out when I started making noise about this particular project? The electrical subcontractor on the project had already filed a Stop-Notice on the project. This is SERIOUS business, and if you don't know that this is happening when it is happening (instead of long after it has happened) it is very probable that you will not collect 100% of what is owed to you.

Everyone lines up, the first in line usually being the first to file a stop notice, then second, then third, and so on and so on. By the time the line moves forward and it's your turn, there may not be any money left to pay you!

The moral of this sordid story is as follows:

If you can find out how the General handles his receivables before you put a number on your bid, you can adjust your numbers accordingly. A payment that is just one day late is worth less than it was the day it was due. Also, stay on top of the project so you don't have any surprises. (For more information on collecting payment due to you, please click here.)

Construction Contracts Continued on Page 7