I found it interesting that residential and commercial subcontractors have the same complaints. More interesting is the fact that most contractors have come to the conclusion they have no control over the very things that bother them most. Five of the Top Complaints are:
• Slow pay
• Overdue payments
• Excessive delay in payment of retention
• Hurried or improper schedule
• Extra work order payment
Slow and overdue paymentsIt's almost funny to think that in this day and age, GCs and owners are slow payers. Using today's technology, you can send money from one side of the world to the other in minutes. I can pay bills online these days and with the click of a button, my checking account is decreased in a matter of minutes. Yet, in the construction business, money moves slowly from the owner to the GC to the subcontractor.
In my opinion, the reason why some owners and GCs don't pay timely is because they don't really care. They can say they care about you, but the proof is in the timely payment. Yes, we have heard all the excuses, and many of them make sense to owners and GCs, however, they don't make sense to subcontractors.
Oh yes, there are reasons why subcontractors are not paid promptly, but in most cases they are reasons that have nothing to do with you our your company. The cruel hard fact in my opinion is that subcontractors have zero control over payment. Subcontractors are a breed of people who do not require personal guarantees, collateral or other security to secure payment for the work they perform.
I'm not aware of any financial institutions that will lend money without some sort of collateral. Yet, in subcontracting we literally give credit to any GC or owner without any security at all. In fact, owners and GCs make it very clear that they will not give subcontractors any payment guarantees.
Why do some owners and GCs pay slowly or not at all? The reason in my opinion is because they don't have to pay promptly nor do they have to pay at all. Think about it: What will happen to an owner or GC if they don't pay a subcontractor promptly or at all? In most cases, by the time a legal battle is completed the subcontractor loses even if he or she wins.
As long as subcontractors give credit without some type of security, owners and GCs have no reason to pay promptly or at all. Let's face it, subcontractors are financing owners and GCs without security, and that is why owners and GCs are not motivated in paying their bills promptly. As I said, what are you going to do, lien the job, sue them or beg them for your money? In most cases, subcontractors do a combination of all these things to get paid.
Do you have a provision for interest on past due payments? That would be a good example of a motivational reason for an owner or GC to pay promptly. During a meeting with an architect, owner and GC, I asked if they planned to pay interest on the eight months they were past due. I thought I had dropped something because everyone was looking down at the floor. The GC replied, "There isn't a provision in the contract for interest." I then replied, "I know there isn't a provision for interest in the contract, but don't you think that after eight months you owe me interest?"
It's too bad that many owners and GCs don't really care about paying subcontractors promptly or if they pay them at all. If they really did care, contracts and laws would not be written as they are today. Unless subcontractors change contract language, and their proposals to include language that motivates owners and GCs to pay promptly in full the problem of slow pay will continue into the next century.
RetentionRetention is money owners/GCs withhold from subcontractors as a means to hold subcontractors hostage in the event something goes wrong. It's not enough that owners/GCs don't have to pay you in the first place, but add to the fact that they want your money as added security just to make sure you will do everything you promised is the pot calling the kettle black. GCs and owners don't give subcontractors collateral, or security in a form that benefits the subcontractor or motivates the owner/GC to do all that they promised.
So, why do subcontractors provide retention as security to owners and GCs? I don't know for sure, but I would guess it's because subcontractors are slowly being brainwashed into thinking they must do business the way they are told.
Am I wrong in thinking that a subcontractor should at least get interest on retention at the same rate that the owner is paying for bank financing? Let's see, a $3 million job at 10-percent retention means the subcontractors are owned about $300 at a rate of 6-percent interest. That would amount to a tidy sum of money. Not having to pay retention is a boom for the owner of the building! Yes, it's a great deal, but it's a one sided deal that only benefits the owner and GC.
There are many ways subcontractors can address retention issues. One way is to motivate the owner and GC to pay you retention as soon as possible. Subcontractors have to keep in mind they are loosing on three fronts in the retention issue: 1. interest on their money; 2. reduction in work capital; 3. the money is out of the subcontractor's control even after the job is done.
Hurried scheduleHow do you convince an owner or GC that using hot mud isn't the solution? How do you convince people who really don't know much about your trade that if they follow a proper schedule and sequence the job will get done faster than if they don't? Herein is the problem. In most cases owners and GCs don't believe that you know how to do your job. They think that because you won't start taping before the heat is on that you are uncooperative, and delaying the job. Painters who refuse to paint a little here and a little there are also labeled uncooperative as well as any other trade who has one hour worth of work ready.
However, subcontractors have to keep in mind that they may not have made any provision in their subcontract or proposal for following a proper sequence. If that is the case the subcontractors retention may come in handy when the owner or GC wants to back charge for delaying the job.
The GC should be in charge of the schedule but do you think the GC or owner really cares if a subcontractor is impacted by having to work out of sequence or hurried? Contractually, subcontractors have to perform the work any way they are ordered. In fact, the Washington State Supreme Court recently ruled that an impacted contractor must file an impact claim timely, (I mean timely). In other words, if you are impacted during the course of a job, a little here and a little there, and you don't file a timely claim in our state, you are going to be out of luck. At least that's my understanding of the ruling.
Extra work order paymentHave you ever had a GC or owner sign an extra work order and not been paid for it? Have you ever been directed to do extra work verbally and not been paid for it? This is something that happens to subcontractors all the time. A subcontractor can fill out a work order perfectly and have it signed and still not get paid for it. Why? Because subcontractors have done nothing to motivate owners and GCs to pay for extra work.
Subcontractors could at least have contracts and proposals, which state that if the owner or GC signs extra work orders that the work order will be paid. Wouldn't it be nice if subcontractors had a retention fund from the owner and GC that we could just draw off of each time we did an extra work item?
The reasons subcontractors are not paid for extra work is the same reason subcontractors don't get paid promptly or at all. There is no motivating reason for an owner or GC to pay.
Motivating reasonsYour attorney can help you incorporate motivating reasons into your contracts and proposals, but one idea I keep toying with is to include an interest clause and a stop work clause as well as a clause that protects against out of sequence schedules.
I've often wondered why owners and GCs don't do our work for us. The funniest thing I've ever done was when I offered to hire a GC to do my work. The deal fell apart the minute I said, "I will pay you when I get paid, and I will hold 10-percent retention." He laughed in my face.
Just in case you're wondering what the other five Top Ten Subcontractor Complaints were, visit www.wconline.com bulletin board.
Remember, teamwork begins with a fair contract!