January PAY!
FINAL PAYMENT
Payment: Good to the Last Drop!
"He who pays the piper can call the
tune." - John Ray, English Proverbs
This proverb from three centuries ago, in a
whimsical way, makes a simple point: He who has the gold makes the
rules. In the construction industry, you as the subcontractor are on
the far end of the payment chain, always obligated to play by others'
rules. So before you play, make sure the rules won't
bankrupt you!
Virtually every subcontractor has at one
time or another given up its claim to payment for some of the work it
performed in order to receive the retainage or final payment on a
contract. When cash flow is tight, accepting the check for
"final payment" and thus possibly waiving your right to make
further claims, can seem like the only option. Yet while there may
not be a foolproof way to assure full and final payment, there are ways
that you can increase your chances.
When possible, establish a date certain for
final payment in the subcontract. ASA's generic Addendum to
Subcontract includes terms setting a firm due date for final payment,
including applicable retainage - 30 days after completion of your
work. Download the addendum from the members-only section at the www.asaonline.com.
To properly conduct your contract review,
it is important to know that the law, retainage and unapproved change
orders give owners and higher-tier contractors a great deal of leverage to
compromise your position at the end of a project. Be aware that if
you receive a payment that is labeled "final payment," under the
law, you are agreeing that it is final payment (including any
outstanding claims) when you accept it. Make sure that your
subcontract explicitly says that you do not waive the right to make claims
for retainage, change orders or other outstanding items that are subject
to dispute. Many model contract documents do not sufficiently
protect your rights, so carefully review the terms, including terms
incorporated by reference. Give yourself the ability to pursue such
claims beyond substantial completion, owner occupancy and final
completion.
While you may not be in the enviable
position of having the law give you leverage "by default", the
law does provide you with some means to collect final payment - as long as
you haven't waived your rights and are willing to make an effort
up-front. Before you start work, ask for as much information
as possible that will help you assert lien and bond rights for unpaid
work.
Another key to receiving full, final
payment is to document your out-of-scope work with approved, written
change orders. Unapproved change orders may seem like they are in
the "course of business," but don't count on being paid for
them! Refuse to work without written, signed change orders if you
intend to be compensated for the work. Period. In addition,
you may run into many punch list problems where out-of-scope work in added
after-the-fact. Make sure to photograph and otherwise document your
work when it is complete to demonstrate that any extra work is really
repair to damage or wear-and-tear.
These are just a few ways that you can
improve the experience of receiving final payment. ASA's Payment
Advocacy Year (PAY!) Web page at www.asaonline.com/pay.htm
contains many more ideas and final payment resources. Remember the
golden rule, and make sure that she who has the gold makes rules you can
live with!
Click here for: PAY!
QUICK PRIMER - Final Payment
(c) 2003 American Subcontractors
Inc. ASA chapters have permission to
reproduce this article in all media. All other rights are
reserved.
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