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Final paymentGood to the last drop
"He who
pays the piper
can call the tune."John Ray, English Proverbs
This proverb from three centuries ago, in a whimsical way, makes a simple point: He who has the gold makes the rules.
In the construction industry, you as the subcontractor are on the far end of the payment chain, always obligated to play by others' rules. So before you play, make sure the rules won't bankrupt you.
Virtually every subcontractor has at one time or another given up its claim to payment for some of the work it performed in order to receive the retainage or final payment on a contract. When cash flow is tight, accepting the check for "final payment," and thus possibly waiving your right to make further claims, can seem like the only option. Yet while there may not be a foolproof way to assure full and final payment, there are ways that you can increase your chances.
When possible, establish in the subcontract a date certain for final payment. ASA's generic Addendum to Subcontract includes terms setting a firm due date for final payment, including applicable retainage, 30 days after completion of your work. Download the addendum from the members-only section at www.asaonline.com.
Watch for danger
To properly conduct your contract review, it is important to know that the law, retainage and unapproved change orders give owners and higher-tier contractors a great deal of leverage to compromise your position at the end of a project. Be aware that if you receive a payment that is labeled "final payment," under the law, you are agreeing that it is final payment (including any outstanding claims) when you accept it.
Make sure that your subcontract explicitly says that you do not waive the right to make claims for retainage, change orders or other outstanding items that are subject to dispute. Many model contract documents do not sufficiently protect your rights, so carefully review the terms, including terms incorporated by reference. Give yourself the ability to pursue such claims beyond substantial completion, owner occupancy and final completion.
While you may not be in the enviable position of having the law give you leverage "by default," the law does provide you with some means to collect final payment — as long as you haven't waived your rights and are willing to make an effort up front. Before you start work, ask for as much information as possible that will help you assert lien and bond rights for unpaid work.
Another key to receiving full, final payment is to document your out-of-scope work with approved, written change orders. Unapproved change orders may seem like they are in the "course of business," but don't count on being paid for them!
Refuse to work without written, signed change orders if you intend to be compensated for the work. Period. In addition, you may run into many punch-list problems where out-of-scope work is added after the fact. Make sure to photograph and otherwise document your work when it is complete to demonstrate that any extra work is really repair to damage or wear and tear.
These are just a few ways that you can improve the experience of receiving final payment. ASA's Payment Advocacy Year Web page at www.asaonline.com/pay.htm contains many more ideas and final payment resources. Remember the golden rule, and make sure that she who has the gold makes rules you can live with!
This article is provided in conjunction with ASA's Payment Advocacy Year.
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