 |
 |
 |
 |
 |
 |
 |
Funding awarenessBeware of weak links in project financing
Being familiar with the owner's financing of a construction project is a good idea on any job, but especially when the proposed contract includes a contingent-payment clause.
When the contract has a "pay-if-paid" clause, or even a "pay-when-paid" clause, the risk of nonpayment, delayed or partial payment is high. If there is a contingent-payment clause and the owner's financing is questionable, trouble down the road is not hard to predict.
As a general rule, the more quality project financing information you can obtain the better. For example, guidelines published by the Associated General Contractors of America say that the actual loan agreements for construction and permanent financing are "preferable over a simple commitment letter because the loan documents will include all of the lender conditions and requirements."
Luckily, the subcontractor that wants to investigate project financing has some excellent tools at its disposal. You may wish to use ASA's generic Addendum to Subcontract, which includes a provision that you may use as a model for your own contract modifications or addenda:
"Subcontractor shall be provided, upon written request, with the legal description of the property, the name, address and representative of the Owner, and evidence of adequate owner project financing. The Contractor shall promptly notify Subcontractor of material changes in the Owner's identity or financial arrangements.
Subcontractor shall not be obligated to commence or continue Subcontract Work unless adequate assurance of payment is received."
It's your right
If the customer questions your requirement of project financing disclosure, you may point out that many industry documents, including documents from ASA, the American Institute of Architects, the AGC of America, the Construction Management Association of America and the Design-Build Institute of America, contain project financing disclosure terms.
Most of these documents allow the contractor not to commence work unless the project financing information is provided. Some even allow contractors to stop work already in progress if the financing information is not provided in a timely manner. Since you will not have a contract with the owner, the only assurance of obtaining the financing information is through the subcontract.
On publicly funded projects, it is a good idea to check the records of public agencies to ensure that full appropriations have been secured. If the funding has not been appropriated, you may wish to modify your contract to deal with the possibility that the funds do not come through.
In addition to contractual recourse, commercial services like Dun & Bradstreet (www.dunbradstreet.com), public services such as the business center at your local library and nonprofit services such as ASA's members-only National Business Practices Interchange (www.asaonline.com/members), may be helpful to you in the quest for quality project financing information.
ASA offers the Addendum to Subcontract and The General Contractor Factor book in the members-only section of the ASA Web site. ASA's Payment Advocacy Year Web page also contains project-financing resources.
This article is provided in conjunction with ASA's Payment Advocacy Year.
| Story Index | Members List | 2003-04 Schedule |
| Special Sections Main | DailyReporter.com |© 2003 Daily Reporter Publishing Co., All Rights Reserved.