Sunday, March 25, 2012

How to Get Paid

It seems as though clients' disputes come in waves.  The latest pattern that has emerged is contractors are finding that they are having trouble getting paid.  As usual, the best way to deal with this problem is by preventing it entirely.  The two tools in your arsenal are your contract, and written change orders.

Prior to starting any job, a contractor or construction company should negotiate a clear-cut payment schedule that makes payment conditioned upon milestones. The work should never get ahead of the payment and vice-versa.  Payments should be broken down into numerous, frequent payments.  That way if either side is having money trouble, it will be discovered before huge receivables accrue.

The contract should also have a clause that the contractor is entitled to stop work if payment is not made within a certain time period.  That way the contractor will not be accused of breaching the contract or abandoning the job if he refuses to work due to nonpayment.

Contractors should not allocate all of their profit to the last payment.  They should also also not cut their margins so close in order to be able to win a bid that any failure to get payment in full results in a loss on the job.

Finally, as always, all change orders must be in writing and reflect the change in price and any extension in the date of substantial completion.  Oral change orders are frequently not honored, and memories conveniently fade.  At minimum, confirm all change orders through email.

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