If you’ve ever been involved in a construction payment dispute, you know first-hand how difficult, time-consuming, and expensive it can be to extract what your company is owed from a general contractor or owner who doesn’t seem to want to pay. It’s especially frustrating when the owner or GC is claiming that you’re not entitled to get paid for work that’s been completed and that they’ve already accepted. Fortunately, there are some strategies you can employ to increase your chances of getting paid without having to resort to litigation.
Preparation Is Key
You’ll have a far greater chance of negotiating your way to payment if you’re realistic about what you’re owed, and if you’re able to prove that you’re entitled to it. This may sound obvious, but many lawsuits begin when one of the parties isn’t being realistic about what they’re owed (or what they’re required to pay).
Preparation includes having a system in place to make sure the work you do complies with the project plans and specifications; understanding the mechanic’s lien laws for the state your project is in, whether that be California, New York, or any state in between, and how to make those laws work to your advantage. Knowing when to make a claim, what events are claimable, and how to make a claim for payment is key.
Have Support for Your Claim
Deviations from the architect’s plans and specifications along the way are common. No construction project follows the plans exactly, and changes have to be made for any number of reasons. Sometimes it’s an unforeseen site condition, other times specified materials aren’t available. Maybe the plans contain mistakes and things just don’t fit together the way they’re supposed to. In all of these cases, it’s the owner’s responsibility to provide you with plans and specifications that will result in a properly constructed project, and you’re entitled to rely on those approved plans and specifications when you make your bid and contract to do the work.
That’s why it’s vital to document material changes along the way and do everything you can to make sure the GC signs off on those changes. This will go a long way to helping you support your payment claim down the road. It will also help you counter any argument that your work wasn’t done to spec.
Have a Good Relationship With the GC and the Owner
One of the most basic ways you can help your claim is to maintain a good relationship with the general contractor and owner. If you’ve been upfront and reasonable with them about issues that came up during the project, they’re more likely to work with you when it comes to approving payment. Sometimes this includes overlooking the formalities of the contract in order to get the job done, though it’s also important to make sure you don’t compromise your ability to get paid if you do so.
Avoid Contract Traps
Having a good contract can make a huge difference when it comes to getting paid. Some contracts with a GC will include a “pay if paid” clause. In these cases, if the GC isn’t paid, the GC isn’t required to pay you. This can seriously hamper your ability to get payment from the GC; you’re essentially taking on all of the risk if the owner doesn’t pay the GC for your work. Not all states allow “pay if paid” clauses, but if the state you’re working in does, you need to beware of that kind of contract provision.
A fairer payment clause is a “pay when paid” clause. This requires the GC to pay you according to an agreed schedule, typically at one or more stages as you work on your part of the project. With a “pay when paid” clause, you can look to the GC for payment whether or not the owner has paid the GC.
Another contract provision that can make your relationship with an owner and GC difficult is a liquidated damage clause in an amount that is significantly higher than it needs to be. This situation gives the GC more of an incentive to sue you if you pressure the GC for overdue payments. It’s generally better to have no liquidated damages clause or, if you must, one that is set at a reasonable level that reflects the work you’re performing.
Contracts that include a requirement that the owner have a payment bond in place can also significantly help you get paid. And while there may be a tendency for the owner to rely on the payment bond in lieu of actually paying you directly, this kind of tactic is generally bad business for owners who develop multiple projects and will need payment bonds in the future.
Know the Mechanics Lien and Construction Lien Laws for Your Location and Project
A filed mechanics lien puts you in the position of a secured creditor and can provide a powerful incentive for an owner to pay you (or the GC) if payment is overdue. It can also be a tremendous help if the owner happens to file for bankruptcy protection during the course of the project.
But not every state’s laws regarding mechanics liens are the same, and even within a state, those laws may differ depending on whether the project is a public or private one. It’s also important to know at what point you’re entitled to file a mechanic’s lien, how much the lien should be for, who should serve notice of the lien, and when that notice should be served.
Emalfarb Law Can Help Get You Paid
As one of the premier construction lien attorneys, Emalfarb Law has decades of experience helping thousands of contractor clients collect what they’re owed for construction work they’ve performed. Our network of experienced mechanics lien lawyers across the country means we can help you in every state in the US, just as we’ve helped our clients collect more than $9 billion in claims. We can help you at every stage of the collection process and will work with you and your management team to develop in-house systems so you stay on top of your receivables, and quickly and effectively collect on delinquent accounts.
For more information about how Emalfarb Law can help you, send us an email to set up a confidential consultation. You can also jump-start things by using our confidential online system to send us detailed information about your claim so that we have much of the detail we need to help evaluate your case.