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THE PROBLEM -
TOO LITTLE WORK FOR TOO MANY CONTRACTORS CREATES DESPERATE CONDITIONS RIPE FOR:
1. Bid Shopping
2. Killer Contract Clauses
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THE CONTRACT IS THE BIBLE
that establishes RISK –
and RISK must be managed and pricedappropriately.
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PRIVATE WORK V. PUBLIC WORK
Private Work – Can Present or Negotiate a Fair Contract
Public Work – Bid Must Be Responsive and Cannot Change Contract
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WOULD A CONTRACTOR PRICE RISK THE SAME IF -
+ No differing site condition clause?
+ No extensions for weather delays?
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WOULD A SUBCONTRACTOR OR SUPPLIER PRICE RISK THE SAME IF -
+ No lien rights?
+ No bond rights?
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CONDITION YOUR BID
1. Suppliers – Control Risk by Purchase Order
2. Subcontractors – Condition Your Bid.
“This bid is conditioned upon the use of the ConsensusDOCS 750 or other subcontract form acceptable to Subcontractor.”
3. Contractors – Provide contract in advance and say “bid this.”
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CONTRACTORS HAVE A FRIEND IN:
Fairness in Construction Contracting Act –
R.C. § 4113.62
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WHAT TYPE OF CONTRACT PROVISIONS ARE UNENFORCEABLE?
+ No Damage for Delay Clauses
+ Waiver of Bond Rights
+ Subject to Foreign State Law
+ Forced to Arbitrate or Litigate Out of State
+ Final Payment as Waiver If Prior Notice
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FAIRNESS IN CONSTRUCTION CONTRACTING ACT PROVIDES:
Nothing in a contract or change order can waive responsibility for the –
“Owner’s acts or failure to act”
(and Contractor’s acts or failure to act if you are a sub)
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PAYMENT
THE LIFEBLOOD OF ANY SUBCONTRACTOR
WHO PAYS LABOR EVERY FRIDAY AND SUPPLIERS IN 30 DAYS.
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YET SUBS ARE ASKED TO TAKECREDIT RISKS
NOT ACCEPTED BY GCs AND SUPPLIERS.
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AND IF SUBS ARE NOT PAID
THERE IS OFTEN THE PRACTICAL EFFECT OF NOT PAYING SUPPLIERS!
So Suppliers Should Care About “Pay-if-Paid” too.
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TWO TYPES OF CONTINGENT PAYMENT
1. Pay-when-Paid
2. Pay-if-Paid
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PAY-IF-PAID
Shifts 1. Credit Risk of Owner
Non-Payment
2. Risk of Contractor (or other Sub)
Non-Performance
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PAY-WHEN-PAID
+ In most states, an implied duty to pay in a REASONABLE PERIOD OF TIME.
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THE KINDER-GENTLER PAYMENT TERM
+ Pay-When-Paid+ Paid within a reasonable period of time.+ General Contractor still obligated to pay even if Owner doesn’t make payment.
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WHAT WORDS SHOULD BE AVOIDED?
+ IF
+ CONDITION PRECEDENT
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HOW TO SPOT A PAY-IF-PAID CLAUSE?
Condition Precedent
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TO BE ENFORCEABLE A PAY-IF-PAID CLAUSE MUST
BE:+ Clear and unambiguous
−If not, construed against the drafter+Will render the term Pay-When-Paid
+ Why is that important?−It must be drafted correctly −If not, “benefit of the doubt” will go to the subcontractor
+Construed as the more favorable Pay-When-Paid
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WATCH OUT FOR PAY-IF-PAID IN CLAUSES GOVERNING:
1. Change Orders
2. Claims or Requests or Equitable Adjustment
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WHAT ABOUT LIEN OR BOND CLAIMS?
Generally cannot recover on payment bond or foreclosure lien (“no money yet due”).
Unless your state statute provides otherwise.
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SOME STATES PERMIT “PAY-IF-PAID” BUT STILL ALLOW LIEN RIGHTS TO BE
PRESERVED
+ Indiana
+ Ohio
+ Missouri
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TRANSTAR ELECTRIC
There is a case now pending in the Ohio Supreme Court that will determine if Pay-if-Paid remains enforceable in Ohio.
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LIEN RIGHTS ONPRIVATE COMMERCIAL
PROJECT
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STEP ONE: REQUEST A NOTICE OF
COMMENCEMENT−Provides information about an improvement−Filed with the county recorder where the improvement is located
+Not so for Public Projects−The recording of the Notice of Commencement triggers the obligation to provide a Notice of Furnishing
−Owner should record
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REQUEST FOR NOTICE OF COMMENCEMENT
Private Commercial Project
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NOTICE OF COMMENCEMENTPrivate Commercial Project
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WHO DO YOU REQUEST IT FROM?Private Commercial Project
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STEP TWO: SERVE A NOTICE OF FURNISHING
− Puts the Owner and Original Contractor on notice
− Send by Return Receipt (certified mail)
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NOTICE OF FURNISHINGPrivate Commercial Project
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WHO DO YOU SEND IT TO?
1. The Designee listed on the Notice of Commencement+ If no Designee, send it to the Owner as listed on
the Notice of Commencement
2. The Original Contractor
Send By Certified Mail
Obtain Return Receipt
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WHEN DO YOU DO ALL OF THIS?
+ Simple Answer+Right When You Start Work /Furnish Material
+ 21-Day Window
+ “Better late than never”
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21-DAY WINDOW
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PHASE 2 – PERFECT YOUR LIEN RIGHTS
+Rumors +You Have Payments Overdue
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MECHANIC’S LIEN AFFIDAVIT
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TIMING MATTERSPrivate Commercial Project
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OHIO PROMPT PAYMENT ACT
Provides that when the Contractor Receives Money from Owner
CONTRACTOR MUST PAY SUB OR SUPPLIER WITHIN TEN (10) CALENDAR DAYS.
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APPLIES TO SUBS TOO
AND SUB MUST PAY ITS SUB-SUBS AND SUPPLIERS WITHIN TEN (10) CALENDAR DAYS.
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WHAT IF PAYMENT NOT MADE TIMELY?
OFFENDING PARTY MUST PAY18% interest and attorney’s fees!
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CHANGE ORDERS
Why wait?
Big wait = Big Disappointment
NOTICE, NOTICE, NOTICE
“Early and Often”
In Writing
Price estimates before the work is done.
Signed time tickets help, but are not everything.
[Beware of “hidden” all encompassing release language in pay request, change orders and lien waivers.]
Benefits:+ Avoids legal pitfalls of late notice.+ Minimizes excuse that “if only we had known sooner …”+ Allows a problem to be solved before it grows.
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“WHY I CAN’T WAIT FOR A CHANGE ORDER”
Or
If I insisted on a change order for everything,nothing would get built.
ONCE WORK PERFORMED WITHOUT A WRITTEN CHANGE ORDER OR DIRECTIVE –
You are at risk and lose your leverage.
Use the contract language (must be in writing prior) against the customer … “will hold up the work!”
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COLLECTION STRATEGIES
To Wait is Wishful Thinking.
Solutions:
1. Collection letters.
2. Mechanic’ liens
3. Payment bond claims
Benefits:+Focus collection activities on the sources of the payment problem.
+Utilize your true leverage.
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IT’S ‘THE PRINCIPLE OF THE THING’
aka
PRINCIPLE COSTS!
MAKE A BUSINESS DECISION:
Attorneys fees are generally not recoverable so
compromise earlier rather than later. (95% of cases ultimately settle).
“A sign of a fair settlement is one in which both sides are equally displeased.”
You have got to give if you want to get.
