Getting paid — Part 1

Being a contractor, or a subcontractor, is not for the faint of heart in the best of times. With market conditions as they are today, nerves of steel are a prerequisite. The age old problem of timely payment has been drawn into even sharper focus as projects become scarcer and funding niggardly. General contractors are being squeezed by the architects, the architects are being squeezed by the owners, and the owners are being squeezed by the banks to get the most for their money in the fastest time possible. It is interesting to note that the banks, with billions of our tax dollars, don't seem to be squeezed at all, but that's another column.

A subcontractor bids a job. He gets the job. He signs a contract (one which he presumably has read thoroughly) agreeing to the terms and conditions as set forth therein. He mans the job. He puts material on the job. He provides accurate phase completion invoicing and submits it as required by said contract. He doesn’t get his check as per said contract.

This situation is commonplace in the industry, and has been as far back as I can recall (almost a half century and counting). Why it is so has as many answers as there are facets of human interaction. They range from poor planning on the part of the GC to outright greed to a practice euphemistically called "sub-busting" wherein a GC deliberately tries to put subcontractors out of business by withholding legitimately owed payment.

Doing the dance
Assuming that there is no legitimate reason for withholding payment, the sub and the GC begin what I like to call "the dance." The dance is not accompanied by music (except perhaps the whining, crying and tooth gnashing of the parties involved) but it has very definite steps. Knowing the dance steps is critical to every subcontractor in business today.

The first step in this dance is one which should have taken place before the first billing cycle: the pre-lien. If the sub hasn't submitted a pre-lien document to the GC, the owner and the lender, he's already behind in the dance. Without lien rights the sub is truly at the mercy of the other dance partners.

The next steps involve relationships with the GC and his relationship with the owner/lender. If the sub has a history with the GC, he can simply ask where his money is and expect an honest answer. If the GC blames the owner/lender, the sub can offer to act as the "tip of the spear" in prodding the money loose by using lien rights as a lever. If this is a new relationship, the sub must do his homework before engaging the various parties in discourse.

The sub must ascertain the source of the funding: who controls said funding, when the funds are being disbursed and to whom. If the project is municipal (government) in nature, there are specific rules in most states that dictate when funds must be disbursed after billing. Knowing the rules (dance steps) in these cases is a critical lever in negotiating payment.

Some other dance steps involve contracts. "Pay-when-paid" and "pay-if-paid" contract clauses are illegal in most states, but that doesn’t stop them from appearing in most contracts. Proper due diligence will have the sub excluding these clauses when signing such documents.

The bottom line
Knowing when to draw the line in the "getting paid dance" is a matter of personal choice, but it is a choice that every successful subcontractor must make if he expects to be in business for a long time. Once again, relationships need to be considered as well as the sub's tolerance for interrupted cash flow, but at some point he needs to say enough.

Once that line has been reached, the sub's only criterion is getting paid for work performed and he must be ruthless in pursuing the debt. Tactics might include beginning the lien foreclosure process, placing a stop order on the project, contacting the owner/lender and the most precipitous move: pulling off the project until the issue is resolved.

All such actions carry risk to the sub as well as to the GC, so knowing the dance and doing the homework are critical to the sub's chance of success. The last, and most undesirable, action that the sub can take is filing a lawsuit. Avoid that at all costs. The only people who benefit from a legal dance are the lawyers. Drawing that sword is a sure way to waste large amounts of time and to lose not only the money in question, but attorney’s fees as well. File suit as an absolute last resort.

Lastly, some subs are squeamish about demanding their due. They are afraid of offending the GC at the cost of losing any other work with that contractor. Don’t be. Do you really want to work for someone who holds you in such low regard that they would withhold legitimately earned payment? You can work for anyone for nothing. That's not why you are in business. If you do not stand up for yourself, who will?

The Brooklyn, N.Y.-born author is a retired third generation master plumber. He founded Sunflower Plumbing & Heating in Shirley, N.Y., in 1975 and A Professional Commercial Plumbing Inc. in Phoenix in 1980. He holds residential, commercial, industrial and solar plumbing licenses and is certified in welding, clean rooms, polypropylene gas fusion and medical gas piping. He can be reached at [email protected].