PAY! Quick Primer   

FINAL PAYMENT

A 2002 survey revealed ASA's members rank "final payment" as the most serious issue impacting the success of their businesses.  The issue of retainage and final payment is often a situation where the leverage of the guy with the gold makes all the rules. 

• Knowledge of final payment particulars is important for subcontractors.

• There are two different types of payments: 1) PROGRESS PAYMENTS - periodic installments, usually on a pre-determined schedule varying by calendar and project completion.  2) FINAL PAYMENT - payment after your work has been completed and warranties have commenced.

• Retainage is pre-determined percentage withheld from each progress payment, which is released on or about the time of final payment.

• For example, when the subcontractor is 99.9 percent done with its work, the owner and general contractor only have paid 90 percent of the total cost.

• Consequently, the owner has lots of leverage at the end of the project, after substantial completion and occupancy of the project, to force the sub to negotiate claims and perform extra "punch list" work.

• In fact, the owner and GC may have paid a lot less than 90 percent of the amount due because of unapproved changes and extras, further magnifying the leverage imbalance.

• The owner claims that retainage is needed to ensure that "punch list" items are completed.  But the leverage imbalance allows the owner to pile on extra "punch list" items, sometimes called a "rolling punch list."

• The most problematic causes of delays in payment are: approving change orders, completing punch lists, dealing with a rolling punch list and obtaining closeout documents.

WHAT ARE THE SOLUTIONS?

• EDUCATION! The more you understand, the safer your business is.

• Establish a date certain for final payment, 30 days after completion of work.

• Ask for as much information as possible UP FRONT that will help you assert lien and bond rights for unpaid work.

• Document all out of contract work, approved written change orders.

• Refuse to work without written signed changed orders.

• Use ASA's Generic Subcontract Addendum, which is available in the Members-Only section of the ASA Web site.

• Another valuable service for researching final payment practices is the ASAC Business Practices Interchange located in the Members-only section on this Web site and the ASA National Business Practices Interchange found in the Members-only section of the ASA Web site, www.asaonline.com.

CONCLUSION

• When subcontractors address final payment issues they will lose less money.

• Equitable payment begins with you asking the appropriate questions and demanding the appropriate terms.

(c) 2003 American Subcontractors Association, Inc.  ASA chapters have permission to reproduce this article in all media.  All other rights are reserved.