private work: how to secure a fair contract + get paid
DESCRIPTION
There can be many differences between private and public construction projects, especially when it comes to securing a fair contract and collecting your money. Knowing these differences and approaching them correctly from the start will save money, time and headache down the road. Don Gregory presented "Private Work: How to Secure a Fair Contract + Get Paid" on May 1, 2014, and examined contract provision, contingent payments, lien rights, change orders and prompt payment acts. The briefing, held in the offices of Kegler Brown, was essential for anyone who provides labor, material or equipment to privately owned construction projects.TRANSCRIPT
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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.
