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Collection Troubles?

A rich guy wants to build a building. He contacts a general building contractor to build it. The GC calls a lot of specialty contractors to do the work. They all work together and build the building. (What goes on in between is a completely different story.)

The building’s construction is complete. The inspections have been passed.

The building is opened to the public.

And most of those specialty contractors still have not been paid for their work.

It’s no joke. In fact, it happens all the time in the construction industry, and it’s been going on for a long, long time. What can you do? You probably can’t afford to put Tony Soprano on your payroll, so how do you get paid? Based on the interviews we conducted with AWCI member wall and ceiling contractors, it seems that letting the one who owes you money know that you’re not going to go away is a good start, and persistence is a good way to finish it.

Good Cop

Tony Soprano said, in the first season of the HBO show, “There’s an old Italian saying: you *bleep* up once, you lose two teeth.” In the fictional world of television, “getting paid” seems easy if you’re a member of organized crime. But in the real world, it helps to start by going by the book and being a good guy. At J&B Acoustical in Mansfield, Ohio, Controller Gerald Oates stays on top of things by doing the billings on time and making sure to include all the proper forms. Mike Weber, president of Island Acoustics LLC in Bohemia, N.Y., also starts with the “good cop” approach and stays in touch with the GC with progress payments.Lee Zaretzky, president of Ronsco, Inc. in New York, N.Y., takes it straight to the top. He says you’ve got to “establish and maintain a relationship with the customer and their accounting department and, whenever possible, with the owner. While bidding the job, we always ask the payment terms and reconfirm before finalizing/closing the job, which allows us to go back to the person we had that conversation with, to help get us paid as close to those terms as possible. Persistence— in a non-annoying way—is key.”

You’ve got to keep yourself covered as well. “Always log the date, time and take notes of the conversation, and always try to get a commitment as to how much and when we can expect it, so you know when to follow up and follow up,” Zaretzky says. On the opposite coast, at Bayside Interiors, Inc. in Fremont, Calif., CFO Jon Braden takes a similar stance: “We try to take a proactive stance on collections. We call each GC after mailing out the monthly progress billings. We ask three basic questions:

1) Have you received the invoice?

2) Have you received all the proper lien releases?

3) Are there any discrepancies or questions on our

A sense of humor helps a little, too.

“You can beg,” says Jim Keller, president of Grayhawk, LLC in Louisville, Ky., “but that never helps. Just make sure their payables department knows you track things, and that the project manager will hear from you if it goes over 45 days.”

Bad Cop

Everyone who enters these construction agreements goes in with the best of intentions. But in the end, friends and partners on a job can become bitter enemies when the money doesn’t trickle down properly. After all attempts at being nice and business-like are fruitless, if you’re still not getting paid, you’ve got to “lien” on them. Hard.

At Island Acoustics, Weber says they’ll first reduce the manpower. When that doesn’t work, the lien letter goes out. “We demand payment or the project will be liened prior to losing lien rights at eight months,” he says. The next step is to lien the project.

Grayhawk would lien the job, too. Keller says, “Never let your lien rights expire.” At J&B, they make it a policy to file a job lien if payment is not made within 60 days. But Oates says that sometimes exceptions are granted with legitimate explanations.

Filing the lien is also used as a defensive tool by Bayside Interiors, but only in the most extreme circumstances. Prior to filing the lien, Braden will take several stabs at communications. “When payment becomes extremely late, we push the phone calls up the chain of command on both sides,” he says.

“When our A/R – collections person feels she is no longer productive or successful in collecting (she typically deals with the A/P person on the GC side), she brings it to my attention. I step it up to the controller or CFO. At times I get the GC’s project manager involved as well. If I do not succeed, I get our owners involved; they may have the correct contact or relationship to collect the money.”

It is Zaretzky who gets a little more creative.

In addition to filing a lien if you realize that you are getting nowhere and want to drop a bomb, he says, “We contact D&B and ask them to update our client’s credit history with payment information. [We provide] the amount owed, high credit, past due, how long and how much,” he says.

“It’s incredible the response we get to this. A lien is more the owner of the project’s problem; credit of the GC can have major repercussions such as their bonding and banking relationships.”

Still, even that might not work with some. After doing absolutely everything you can, go for the icing on the cake: “If it is all going bad, contact the media,” Zaretzky advises.

Excuses Exposed

So how can you expose the enemy,this person who hired you? What tricks does he use to keep you at bay? Can he convince you that you don’t really need the money right now, that you can wait? And what if he really is in the same situation you are? He may not have been paid either! Do you care? Apparently not. We’re talking about your money here, and all you’re trying to do is make payroll this Friday. All the contractors we interviewed hear the old “the owner hasn’t paid me, so I can’t pay you” excuse, and they’re not buying it. Our contractors shared with us the excuses they hear in addition to the old standard:

•They have not received the proper lien releases.

• “It just missed our check run,” or billings missed the deadline.

• Client had us rebilled, kicked it back,blah, blah, blah … .

• Billings not filled out on proper forms.

• The accounting department or PM is on vacation/out sick.

• They have to wait for a principal to come in and sign [the check].

• They require a letter from the union stating all benefits are paid and up-to-date.

• The contract has not been returned.

• They don’t invoice until the end of the job.

• Other subs are putting the job behind schedule.

• They require original waiver documents. (Fax copy is not acceptable.)

• Checks get cut from the accounting department, which is out of state.

• “We decided to group two months of requisitions together.”

“I haven’t been paid yet” is the number one excuse reason given for delaying payment to the subcontractor, and when he hears it, Keller is ready with a response: “So you say ‘Fine. I will be the nasty guy and call them for our money.’

All of a sudden, the check is in the mail.”


Up to Their Old Tricks?

Since he is (was?) oh-so-quotable, let’s have another one from Tony Soprano: “A wrong decision is better than indecision.” Based on what Tony and our interview subjects have said so far, doing something is apparently better than doing nothing at all. And now it seems like you’ve done everything you possibly can before it has to get really ugly.

You’ve made multiple phone calls to a multitude of people (and you heard
all the excuses), you’ve contacted D&B and you’ve alerted the media … so now what do you do?

The persistence that Zaretzky mentioned earlier comes into play again
here, but this time it is Braden’s response to the GC’s excuses. “Of course GCs stallas long as possible in paying their subs,” he says. “We handle [excuses] with persistence. Keep on calling!”

Zaretzky continues with the persistence as well: “GCs try to blame the client. We always offer to help and be the bad guys by suggesting they tell their client that we need to get paid or we will have no choice but to protect our interests with a mechanic’s lien, notify D&B about their
late payments, initiate legal, ‘collect via any and all remedies available’ … this usually calls their bluff.”

There Ought to Be a Law

“They do not have any legal reasons for delaying payment,” Braden says.
“They typically are playing the cashflow game. Almost all of the contracts we sign have some form of wording that stipulates the subs do not get paid until the GC receives funding from the owner. This ‘paid when paid’ wording has been deemed unenforceable in many court
cases. Those who structure the contract wording are now using a different form of wording such as ‘the subcontractor will receive payments from funds received by the owner’ or many variations on this. It really all says the same thing: You will get paid then the GC gets paid.’

“On public work you can contact the owner directly to verify when the GC
was paid. Some even publish it via the Internet. Private work is a little more difficult. Many contracts specifically state the sub cannot contact the owner directly.”

He’s right. According to A Guide to Passing a Prompt Payment Law in Your State, a 2002 publication from the American Subcontractors Association,
“the subcontractor might be accused of intentional interference with contractual relations, and be subject to a lawsuit, based on that call to the owner.”

But the ASA publication also notes that”a subcontractor ought to be able to call the owner to verify that payment has been sent.” It suggests that “a necessary part of any prompt pay legislation is the right of the subcontractor to require notification, directly from the owner, when
payments are issued, within a certain number of days after those payments are issued. The subcontractor has to know the date that owner payment was issued, in order to measure when subcontractor
payment is due.”

Words of Wisdom

So you see, you don’t exactly have to break someone’s kneecaps to get paid for a job well done. You can just make a pest of yourself until the alleged nonpayer is miserable and worn down.

Whatever works, right?

In the meantime, here are some tips:

“First, negotiate payment terms for fast-track jobs,” Weber says. “Also, ‘bimonthly requisitions’ does not necessarily mean ‘bimonthly payment.’

Confirm intent during negotiations. Finally, negotiate retainage reduction.”

“Stay on top of the job from beginning to end!” advises Oates. “The job is not complete until you are paid.

Stay in contact with the GC for information on late payments.”

“Be selective about whom you work for,” Braden says. “Taking jobs with a GC who is known for slow payment is not a wise choice. Secondly, stay on top of it. Persistence has been quite a valuable tool for us.”

Persistance. There’s that word again. But it still may not be enough. When you think you’ve tried everything you can and it has failed, Keller says it’s time to “lien” on them:

“Be tough on lien right expiration dates. If they know you will lien, that is your only real tool.”

About the Author

Laura M. Porinchak is editor of this magazine, director of communications for the Association of the Wall and Ceiling Industry, and obviously still missing The Sopranos.

For More Information

The American Subcontractors Association has many publications to assist and educate subcontractors. Contact ASA by visiting them online at or calling (703) 684.3450.

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