Don't Delay: Make Plans to Ensure Prompt Payment
by Leonard Toenjes

Q: I have long griped about the time it takes to get paid, especially for public works projects. Some public agencies seem to enjoy sitting on money I am owed, and it can take weeks or longer to get paid. As a result, I am starting to get choosy on which projects I bid on. What are some attributes I should look for in a reliable owner?

A. As anyone with any real experience in our industry knows, the construction industry in general can be an unfriendly place when it comes to payment practices.

Everyone in the payment chain, including owners, contractors and subcontractors, hold payments and/or retainage amounts for their own reasons. Due to the nature of the type of up-front capital requirements, timely payments can make or break a company.

Many times, the primary rationale for withholding some or all payment is to ensure proper completion of the work, and proper payment of suppliers of materials and equipment.

When looking for reliability in an owner, personal contact with other contractors, subcontractors and industry suppliers is invaluable. Especially for public agencies, awards of contracts are public information. McGraw-Hill Dodge is also an excellent source of information related to contract awards for private projects.

A phone call or social contact with companies who have been awarded projects for an owner in the past and who have successfully completed these projects is an excellent source of anecdotal information. Ask about the payment practices of the owner who they worked for in the past.

Cultivating these relations with others in the industry can provide some assurance to you that those above you in the payment chain are reputable. In most instances, others in the industry are willing to share stories about those who are injurious also. Association contacts can also be helpful in tapping into this information source.

As with almost any contracting issue, it almost goes without saying, but be sure to completely read and understand the contract. I see it all too often that contractors, subcontractors and suppliers could improve their payment strategy by simply taking the time to fully read the payment terms prior to signing a contract.

If you don't understand it fully, ask. If you don't agree with the terms, either mark it up or don't sign it.

Retainage Legislation

I also would highly recommend becoming familiar with any prompt pay or retainage legislation in your state.

Many states have prompt pay legislation that is applicable to public work, private work or both. This legislation commonly proscribes the payment requirements at various stages of completion of the project throughout the owner/contractor/subcontractor/supplier chain.

Retainage legislation is becoming more prevalent in allowing subcontractors to post a bond or other assets in lieu of having retainage withheld on a project.

This can assist in receiving retainage payments in a timely manner. A local construction attorney should be able to provide you information related to local and/or state statues in these payment areas.

Cash flow and payments are critical to success in the construction industry more so than in almost any other industry. Keep you eye on these things and it should help.


Do you have questions on construction human resources or safety?
E-mail them to Leonard Toenjes at ltoenjes@agcstl.org or
craig_barner@mcgraw-hill.com.

If Len picks your question, he will answer it in a future issue of Midwest Construction.)

Due to the nature of the type of up-front capital requirements, timely payments can make or break a company.