I hate to be the one to break the news, but your mother lied to you about the Payment Fairy. Payment in full, and on time, does not show up under your pillow one fine morning.
Rather, payment in full and on time—as you have probably discovered by now—is something you have to earn, and often more than once.
In fact, a common experience is that GC payment is something you have to fight for.
The question is: Does this mean lawyering up?
A Last Resort
Not necessarily. As a matter of fact, if you find yourself scrambling for your attorney’s number, you may have missed a few turns back there.
As Charles Antone, consultant with R.J. Kenney Associates, Inc. in Massachusetts, points out: “In my experience, you call your lawyer when everything else has failed, and after determining that involving a lawyer meets a cost-benefit analysis that includes verifying that the general contractor does indeed have the funds to pay you.
“Lawyering up means that you now find yourself in a fight that will destroy your GC relationship—for things are likely to go nuclear. Once over, it will take at least five years before you work with that general contractor again, and much longer before you reestablish a relationship.”
A consultant at the Subcontractor Resource Center of America in Washington (http://srcaonline.com), Peter Battisti has a similar take. He says, “There are only two reasons why you would want to call a lawyer: either you have not done a good job documenting your cost—which is now in dispute (in a fight) and you’re calling the lawyer for assistance, or you have good job cost documentation but are still not being paid, and now you need to file a lien on the job.”
Kevin G. Biddle, president of Mader Construction Co., Inc. in New York, counts himself lucky in that he’s “only had to involve our lawyer on a handful of projects over the years. Usually, we solve payment problems by staying on top of them before they hit the lawyer stage. We have found this to work much better for all concerned.”
Barry Fries, CEO at B. R. Fries & Associates, LLC in New York, gives us the general contractor’s view on the payment issue: “I have been in business for 34 years, and in that time I have only involved our lawyer in payment collection twice, and both times we went to arbitration.”
“Litigation drags on—for years. Discoveries go on forever, and all this time you keep your attorney well paid,” Fries continues. “And not only that, from what I hear, in the end most parties settle before they arrive in court anyway. The truth is that attorneys always win. If it comes to litigation, it is the owner, the general contractor or the sub that loses out.
“Also, once you begin filing liens, you’re in a dog fight that you want to avoid at all costs. Fights destroy relationships. They’re not worth it.”
Or as Greg Smith, operations manager at Mowery-Thomas, Inc. in California, puts it, “This is a last resort. Also, involving lawyers will delay payment even further, while you now also have attorney bills to contend with.”
So, if lawyering up is the last resort, how do you avoid it?
The Human Connection
“Assuming that the invoice was in fact sent, and assuming that it was in fact received by the right person, the only way to collect an overdue account is through human contact,” Antone says. “What works is the human connection. Form letters or impersonal emails won’t do it. You have to call or arrive in the GC’s office. Whites of their eyes, that’s what it takes.
“And if you are dealing with someone who’s ethical and reasonable, and if you have a case—in other words, you’re not presenting dubious change orders in an attempt to squeeze some extra money out of the project—you should be able to connect. And once you connect, you should be able to collect.”
“Unless, of course, the person you are dealing with is a sociopath,” Antone continues. “He’ll dream up any reason to avoid paying—including lies. In this case, however, nothing the guy says will make much sense, it will not be reasonable—and by reasonable, I mean understandable. If you explained the situation to a complete stranger, he would understand it. If it’s unreasonable, he won’t.
“If what you’re hearing does not make sense, then it’s time to file your lien. Actually, if you’re dealing with a GC, I have found that asking for the number of their bonding company often does the trick.”
Now, what if the response you hear does make sense? What is the most common reason given for not seeing the money yet?
Why No Payment?
“Contractually,” says Battisti, “the GC is not obligated to pay you until he sees payment from the owner, and it could well be that the owner, in turn, is waiting for funding from the bank.”
As a GC, Fries does run in to delayed owner payments. “It’s usually that the bank has not disbursed the money yet, and of course the owner won’t pay you if he has not been issued the funds by the bank,” he says.
“I must add here,” Fries continues, “that the arm-wrestling is always over change orders. I’ve never had a problem with the contract work, only over the change orders. It’s when you present too many change orders that the owner starts turning belligerent and begins to feel that you’re nitpicking him to death. He assumes that, being the low bidder, you are now trying to make up for lost profit.”
Steve Angell, senior estimator at Dimeo Construction Company in Rhode Island, agrees: “The reason we are not paid on time usually boils down to an issue between the GC and the owner. In this case, the GC does not pay you unless he’s paid by the owner. It’s in the contract. Since we should not be affected by GC-owner problems, now and then we try to get those [pay-if-paid and pay-when-paid] clauses deleted from the contract, but as a rule the GC insists that the clauses stay in. If you don’t like it, he’ll find someone else who can live with it—so you decide to like it.”
Battisti concurs: “Most GCs will not pay if not paid by the owner.”
However, Rob Little, vice president at Little Construction, Inc. in Indiana, is a little weary with this reason, “The GCs like to say they have not been paid by the owners as the reason for their delay. Most of the time, I feel this is not—or should not be—a valid excuse. In my opinion, the GC is responsible for paying the sub as long as the work is completed and verified as correct, rather than always waiting for the owner to release the funds and then waiting even more before releasing funds to the sub.”
“Lately,” observes Rita Gosselin, president of G & R Construction, Inc. in Connecticut, “it appears the GC’s non-payment revolves around their own profit margin.”
Brenda Reicks, president of JARCO Builders Ltd. in Iowa, sees it as, “Either they are not being paid or they just want to hold on to the money.”
And according to Smith, “The most common reason the GC gives is lack of payment by the owner or funding entity. Another common excuse is that they’ve lost our paperwork.”
Who Do You Call?
OK, so the payment—for whatever reason—is now late, and you need to make some human contact. Who do you call? And, as a wheel, how squeaky should you be?
“Speak to someone you know is ethical, someone you can work out a timeline with,” Antone says. “Then, once you’ve established a payment timeline, you need to follow up religiously to make sure the timeline is adhered to and that partial payments arrive as agreed.
“I was always extremely aggressive on collection,” Antone continues. “I made sure I was on top of it at all times.”
Suggests Smith, “We start with the project manager, then work our way up the ladder until we find someone who’ll give us the right answers—which, of course, is ‘We have a check ready for you to pick up.’ And I’d be very squeaky. It is not our role to be the banker for the project and to fund a no-interest loan.”
Biddle says he will “start out with the PM in charge of the job. If that does not work I will call the president and explain the situation.”
Gosselin suggests, “Try calling the owner of the GC’s company. If they are not willing to speak with us, then we seek out the owner of the property. And, as far as squeaky goes, without being disrespectful, we contact them daily via phone calls, texts, faxes, emails, etc. The subcontractor who squeaks the most the soonest stands the best chance of being paid—before the GC runs out of money. Getting to the top of the totem pole is a must.”
Reicks suggests, “I call the GC, then again, and again and again.”
Fries, as a GC, usually has someone he negotiates with. “This is normally the owner’s agent. Now, if that person signals that something or other (a change order or situation) is way over his or her pay grade, then you have to start climbing the corporate ladder. However, when that happens, you start losing the personal contact and things become more businesslike, much more formal. This is something you want to avoid since the whole business is relationship-based. Relationships are very important, it’s all based on cooperation.
“We usually work with the PM or the project executive,” says Angell,” and I always go directly to him and have him spearhead any collection effort. If he tells me he cannot, I go directly to the owner. If no satisfaction there, I’ll file a lien on the project. Usually, though, I’ve been able to resolve things person-to-person, communicating my position until it is understood. You have to see both sides. Yes, you could go to court, but nothing is guaranteed.
“As for squeaking, I call every day. Every day. You have to stay on top of things. And if I didn’t call, my accountant would. We’d call the day it was promised, if not received. If no luck, we’d ask them who we would have to talk to get an answer. Over the years, I’ve noticed that if you are not aggressive about it, you won’t get it. You have to stay on top it.
“Sometimes,” suggests Mike Heering, president of F.L. Crane & Sons, Inc. in Mississippi, “if the GC says he has not been paid, you can call the architect to see if the owner has in fact not paid anyone on this project. Then you might find out that the owner indeed has paid, and now you’re faced with the delicate task of tactfully pointing this out the GC.”
Battisti suggests that “if you have not been paid by the time you should have been, call the GC. If the GC says he or she has not been paid by the owner, then tell the GC you want to call the owner yourself to see when to expect payment. Of course, GCs prefer that you don’t call the owner, but I suggest that you do. You need to stay on top of things.
“I call the owner about 90 percent of the time, and what I usually find is that the owner’s bank is late in funding. If the owner cannot tell me when funding is due, I will call the bank directly—and the bank, which does not want to see a lien filed on the project, is usually quite forthcoming with the information.”
“I am squeaky in a nice way,” Battisti continues. “My aim is simply to establish the facts, unemotionally, clinically. If the GC says payment will arrive in a week, I’ll wait that week. If payment now does not arrive as promised, I’ll call the owner. Now, if the owner tells me that he has, in fact, already paid the GC, you have to ask yourself if you want to work with a GC who is dishonest with you. A GC who lies is a huge red flag. Proceed with care.”
Tools That May Help
If you end up in a situation where you’re at the last resort—lawyers, a mechanic’s lien or a payment bond, there might be one more thing you can try before you hit this last exit, especially where change orders are involved.
“It is a sad testimony to our times that construction attorneys have never been busier than they are today,” says Battisti. “And they are mainly busy trying to collect moneys owed on change orders. The key to fast change order payment is good job-costing and back-up documentation. And in order to estimate and job-cost the change order correctly, the sub must include the impact this change order work will have on existing contract work.
“As a rule, the subs will underestimate change orders: returning to an area they’ve already worked means they’ll run into other trades, and a job that should take a week will now take two.”
He goes on to explain, “I suggest a sub, in correctly costing a job, use the acronym SSSM: Supervision–Schedule–Sequence–Manpower. Will the change order impact supervision, the schedule, the sequence of the job and manpower needed? The sub then needs to document exact costs. Once he can supply verifiable documentation, any dispute usually dies down and owner and GC will agree to pay.”
Los Angeles–based Ulf Wolf is the senior writer at Words & Images.
