As projects that were halted during the COVID-19 pandemic start to come back to life or commence, questions will arise regarding payment. The price you negotiate for the cost of construction in the contract is probably not going to be the final construction cost. Unexpected things happen, as we all know, which may cause prices to change. Here are some areas I advise my clients to consider to make problems less likely to occur.
Do Drawings & Specifications
Avoid commencing a project knowing there are still issues to sort out. The client or building owner is in a much stronger negotiation position before the demolition and work commences because the contractor and his subcontractors want the work. Once demolition has occurred, the contractor has the upper hand in payment negotiations because the area has been made ready for the work, and there is no going back until it is done.
Records Must Be Impeccable
There must be invoices regularly sent and received. They should not be sent in batches so that no one can recall what was done and when. If there are change orders, they must be written up and signed. Unsigned change orders are an in invitation to problems.
Submit Applications on Time
Owners should require the contractors to submit their payment request on time. This is so that clients, their managers and architects can remember what was done and dispute it if necessary. That is more difficult to do when invoices are sent in batches covering several months.
Create a Chronology of Events
It is amazing how quickly things change and how what you thought you remembered you said or did you can no longer recall and everyone on the project has changed.
Trust in E-mail
E-mail can help to fill in the holes in chronology and document promises that were made or events which occurred.
Bring in Forensic Accountants
When clients are confused about whether or not to pay invoices, especially on bigger projects, they tend to bring in accountants to review everything. That is usually a step before litigation is commenced. You should have your own good records to back you up.
Don’t Pay Weekly
When contractors have not managed their money well and are unable to pay their subcontractors, they often revert to asking the client to pay them a weekly amount so that they can give their men some salary. That is a major red flag. The contract provisions should not be changed.
The Client Pays Once
If the client has paid the contractor and receives calls from subcontractors saying they have not been paid, he does not need to jump in and pay again. However, something will need to be written up and signed if the client hires the subcontractor directly to complete work or perform new work.
Don’t Take Insurance for Granted
The contractors’ contract with the client must include a requirement that there be insurance, and a certificate of insurance should be produced listing the additional insureds and coverage amounts.
Beware Mechanic’s Liens
Contractors have eight months on commercial and on most residential projects from the last date of work and four months on single family homes to file. Often, they file out of fear of being paid, so they do not miss the required filing date. Sometimes owners try to claim they will pay them “soon” as a way to get them to miss the filing date on the lien. Of course, contractors can still sue for breach of contract.
C. Jaye Berger
Law Offices C. Jaye Berger
110 E. 59th Street, 22nd Floor
New York, New York 10022
lawofficescjb@aol.com
212-753-2080
