Tips for contractors

ASA helps members avoid payment pitfalls

The American Subcontractors Association has compiled the following tips to help subcontractors with some common roadblocks to receiving payment and collections.

Assuring prompt payment

• Understand your payment rights before beginning work. That includes milestones for payment, the right to suspend work plus any rights to demobilization and remobilization costs, the change-order process and the dispute-resolution process.
  
  
• Make sure your documentation is clear with regard to the terms of payment.
  
  
• Ask to promptly receive information about owner payments to general contractors.
  
  
• Check into the business practices of the owner, construction manager or general contractor.
  
  
• Have an understanding of your legal rights, including applicable state and federal laws relating to public or private work.
  
  
• Keep a detailed record of all payment requests and responses.
  
  
• Treat payment and collections as a vital part of your business.
  
  
• Show your commitment to being paid through firm and consistent action.

Reducing retainage

• Especially on bonded projects, ask to eliminate retainage entirely and provide a warranty instead.
  
  
• Ensure that any proposed retainage is consistent with your respective state law.
  
  
• Do not accept a level of retainage that is higher than is being retained from the general contractor by the owner.
  
  
• Determine if retainage will be handled differently at different stages of the project.
  
  
• Have a clear understanding of when funds will be released.
  
  
• Obtain written guarantees that funds owed to you will be segregated from other project funds.
  
  
• Ask for a provision for release of funds for work successfully completed.
  
  
• Insist on being paid interest on retainage.

Handling contingent payments

The state of Wisconsin bans pay-if-paid clauses. This provision was sponsored by ASA of Greater Milwaukee and enacted in 1992.

• Question any form of contingent payment, whether it's pay-if-paid or pay-when-paid.
  
  
• Condition your bid with language addressing your concerns about contingent payments.
  
  
• Know and assert your contractual and legal rights against contingent payments.
  
  
• If you sign a contingent-payment contract, be prepared to accept the potential risks and appropriately adjust your price.

Knowing your lien and bond rights

• Ask for a copy of the bond that will be covering your work when such request is applicable.
  
  
• Check the financial viability of the company issuing the bond.
  
  
• Have a clear understanding of the procedures to file claims.
  
  
• Refuse to be directed to use a particular surety.
  
  
• Verify the lien laws in the state where you are working.
  
  
• Do not arbitrarily sign away your lien rights.

Related resources are available at the Contractors' Knowledge Depot, including the Mastering Subcontracts CD-ROM and the Lien & Bond Claims in the 50 States CD-ROM. To order, log on to the Depot.

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