- Not being paid as agreed.
- Filing a timely lien.
- Doing extra work without customers written approval.
- Being back-charged.
- Requiring your suppliers to be insured.
- Improper sequence of work.
Not being paidPicture a mother eagle circling above her nest with a fresh fish in her claws. The baby birds all at once stick their heads straight up and start chirping while the mother comes in for a landing. The baby birds keep chirping up a storm until they have some food in their mouths. The food must be in their mouths and their bellies full for them to shut up.
Payment to a subcontractor is no different than the baby birds getting fed. The difference is that subcontractors are afraid to chirp. We look patiently into empty mailboxes each day waiting to get paid. We allow slow pay and we don't do as much as we would like because we're afraid to ruffle the customer's feathers.
LiensDo you have any idea why most states have lien laws? Maybe it's because the states realize that if subcontractors are not paid they in turn can't pay their taxes or for that matter stay in business. Filing a lien on a job is simply telling the owner of the property that you are owed money and your using your right to use the owner's property as collateral in the form of a lien.
General contractors will often say, "Do what you have to do but it won't get you paid any faster." It may not get you paid faster but the law says that you better file a lien if you want to protect your company. A lien forces someone to do something at some point.
Extra workIf you want to get yourself in a pickle start doing extra work without customer approval. You can keep track of the work on a piece of drywall and submit the bill after all the extra work is done or you can get approval from your customer before you start. Why would you do extra work without first knowing you will be paid? Ah, that's a tough question.
Subcontractors are always doing extra work without knowing for sure if they will be paid. However, there are certain guidelines you can follow to better ensure payment.
- Never start work without written authorization.
- Always track the hours and material used on a daily basis.
- Have customer sign for hours and material on daily basis.
- Submit a quote for the added work and wait for written approval/acceptance.
- If you are forced to perform quoted work without written approval of price, perform the work as if you were doing it "time and material" and get verification of hours worked initialed by GC. If GC refuses to verify hours worked, tell GC you cannot continue unless someone verifies the hours and materials.
- Make sure you cover all costs in any change.
Subcontractors think that change order work is profitable for some reason. I'm not sure it is. The reason I'm not sure is due to the impact a lot of changes have on the base contract work. Subcontractors must be sure they are charging enough to cover these impacts.
Back chargesHave you ever gotten back charged by your customer? Has it ever been a surprise? General contractors often back charge subcontractors without notifying them in advance. Oftentimes, the GC does not give the subcontractor the opportunity to correct the problem. Most of the time back charges are a surprise and subcontractors seem to roll over and accept them.
The most effective way of fending off surprise back charges is to modify the subcontract agreement to read, "Contractor will notify subcontractor in writing within five days of the event giving rise to a back charge against subcontractor."
Supplier insuranceAre you absolutely sure your suppliers have insurance? Since suppliers deliver material to subcontractor's job sites on behalf of the subcontractor, the subcontractor indirectly takes on the risk of any accident the supplier may have while working for the subcontractor.
How can you be sure your suppliers have insurance? The best way to know is to have your suppliers provide you with a certificate of insurance naming your company as additionally insured. If you order a load of drywall and in transit to the job site the truck is involved in a serious accident on a public street, could your company be involved in a lawsuit? After all, you ordered the board and the supplier was on its way to your job. I'm sure this situation is a stretch but I do believe that if your supplier is involved in an accident on your job site you will most likely be involved in a legal action.
Having your supplier provide you with a certificate of insurance allows you piece of mind knowing they have insurance and that you are named under their insurance policy. It's good business.
Sequence of workThe sequence in which our work is performed is critical to profitability. For example, subcontractors in the residential market must hang drywall behind furnaces. The problem in most cases is that the furnace is installed before the drywall is hung, making it very difficult for drywall installation. If you base your proposal on either stopping by the job to throw up a couple sheets before the furnace is installed or dropping off a couple sheets for the GC to install, you will be doing the work in proper sequence.
There are other situations such as garage door openers, shower stalls, tubs, water heaters and windows, which require planning so as to impact our productivity. Inadequate heat during cold weather can cause havoc to a subcontractor's productivity. You know these things but do you make it a point to educate the GC?
The one area where commercial drywall contractors get killed is when the mechanical, electrical and plumbing trades install their work prior to the drywall contractor installing their work. This is always a problem at the top of walls.
The MEP trades install all of their materials and then the drywall subcontractor has to frame and cut drywall around pipes and ductwork. On a hospital job, you might find yourself installing pieces of drywall no bigger than the palm of your hand. You either estimate the job working around the ductwork or you don't. If you don't, you should reference the fact in your proposal.
I want to share a great phrase that you can include in your proposals regarding the top of wall work. "Drywall to be topped down and fire-taped prior to installation of MEP." In other words, the drywall goes first and then the MEP work.
This whole issue of sequencing the work properly is critical to profitability. General contractors who don't care about sequence don't care about you and your company's profitability.
Non-negotiableThe point is to determine what is non-negotiable. Are you willing to let your lien rights expire for some GCs and not others? Is it acceptable for some GCs to pay on time and others late? Are you willing to take on the risk of doing added work without written notice? Are you willing to risk that your supplier is un-insured or under insured? Are you willing to accept surprise back charges? Do you want general contractors to follow a proper sequence?
What issues or points are non-negotiable to you? It's possible none of what I've written are non-negotiable points for you, but I do believe you have issues you will not negotiate. It's important to think about these things before the situation arises. In most cases, if the issue is non-negotiable the decision becomes simple. Fickle leads to pickle!
Remember: Teamwork begins with a fair contract.
If you read this article, please circle number 176.