How Subcontractors Can Grow Business by Minimizing Risk

Closing out a construction project is the best of times and the worst of times. On one hand, it’s time to celebrate – the job is complete, payment should be coming soon, and a new project is likely right on the horizon. On the other hand, project closeout requires administrative work that nobody enjoys. It’s easy to lose steam at the end of the job and do whatever it takes to get onto the next site, but project closeout is not to be taken lightly.

The 3 Main Components of a Project Closeout

There are really 3 separate components to closing out a job:

  1. Finishing the Physical Work
  2. Rounding up necessary the Paperwork (Administrative Work)
  3. Rounding out the Financials (Getting Paid!)

It’s easy to finish the physical work and want to wash your hands of a job, but getting the paperwork right is crucial. Like on the list above, it’s often the only thing standing between a contractor and their payday once the work is complete.

Pro Tips for Successful Project Closeout

Every project is different, and every owner, developer, or project manager will have their own requirements for project closeout. Still, there are some general principles that will apply to every project. By keeping these ideas in mind, it will be easier to achieve closeout and get that final payment!

Pro Tip #1: Start the Closeout Conversation Early

How early? Day 1!

No, seriously. Anticipating project closeout should start at the very beginning of the job. Retainage amounts cut into the project’s profit margin (and sometimes even exceed it) and mess with cash flow. Until a job is closed out, those funds won’t be released. That means understanding what a successful project closeout will require should be a high priority at the time of contracting and preparing for the job.

If at all possible, obtain or create a job closeout checklist (we’ve also heard it called a Certificate of Occupancy checklist) early on and keep an eye on it throughout the project. It will become easy to identify areas that might create problems later when it’s time for closeout.

Pro Tip #2: Document Everything, and Keep that Documentation Organized

You’ve heard it before: everything on the job needs to be documented. Daily reports go a long way toward keeping track of project progress – and the more detailed those are, the better off most parties will be when it’s time for closeout. When change orders are requested (and they often will be), get them in writing! If there are delays or cost overruns, make a note of them. Seriously – any detail that might eventually affect payment or could cause a dispute should be documented. This includes records of payment and lien waivers, too.

But where’s the value in documenting everything if those documents aren’t readily accessible? Piling all of this documentation into a shoebox and tucking it away until the end of the job won’t solve any problems. Of course, that’s hyperbole – most contractors and subs have some filing system to help control the chaos of project documentation. But it’s time to take things digital. Scan and upload all of these documents and make them easily accessible.

Pro Tip #3: Prepare for Closeout Before Work Is Finished

Ideally, everyone will keep the closeout process in the back of their mind throughout the life of a project. But let’s be honest – that probably won’t happen. Still, it’s a really good idea to start thinking about project closeout a fair amount of time prior to wrapping up work. That way, the work, administrative BS, and financials can all be handled in short order.

For those contractors and subcontractors who have subs and suppliers, project closeout means there’s more to worry about during project closeout. In all likelihood, all lower-tiered parties will need to close out the job before their customer can do the same.

Finally, a big part of preparing for project closeout is anticipating what problems may be faced during the process. Is there a specific issue that caused a delay or a cost overrun? Was there a questionable change order that’s been nagging at you? Play devil’s advocate! Put yourself in your customer’s shoes and try to come up with reasons why you might not close out the project smoothly. Then, it’ll be easier to prepare for those problems if and when they do come to fruition.

Pro Tip #4: Submit the Necessary Paperwork

Generally, every owner, project manager, and contractor will have their own closeout process. From project to project, the documentation needed for a successful project closeout could vary. Still, here are some documents that will likely be needed in order to close out the job:

These are just a handful of the documents that may be needed, and the list could certainly grow with a detail-oriented customer. Depending on the customer, some of these project closeout documents might need to be hard copies or originals, while others can be submitted via email or other electronic means. Note that, even where a hard copy or original is required, it’s a good idea to send a digital copy, too. That way, if they say they didn’t receive it or request another copy, the customer already has one on file.

Going along with the theme of the last section, where a contractor knows they’ll need lien waivers, completed punch lists, pay apps, or any other documentation from subs or suppliers – let them know early! Chasing after missing documentation and paperwork is one of many reasons payment gets slowed down, so getting a jump on it means the payment process can be sped up.

Pro Tip #5: Keep an Eye on the Time

Even after the paperwork is submitted, anticipate that there will be delays. It’s an unfortunate truth, but a truth nonetheless: construction payment comes slowly. Payment is commonly slowed down for reasons outside of the control of the party awaiting payment. Sometimes, it’s even out of their customer’s control. However, don’t let these excuses drag on the project forever.

There are plenty of tools available to recover construction payment. Many of these tools — such as filing a mechanics lien or submitting a payment bond claim — are the last resort, and on an ideal project, payments will be made without much issue. However, beware of companies who use stalling as a tactic and attempt to wait out their contractors, subs, and other vendors. For one, the more time that passes before payment is made, the weaker the unpaid party will become. For another, the claims available to combat nonpayment or slow payment (which we’ll discuss int he next section) are time-sensitive. So, waiting too late could result in a loss of firepower when recovering payment.

Pro Tip #6: When It Comes to Getting Paid, Don’t be Afraid to Turn Up the Heat

This won’t be necessary for every job – or even a majority of them. But sometimes, payments will move at an unreasonably slow pace. When it becomes obvious that payment is being stalled, make a call and send a few emails. Figure out what the holdup is. If questions aren’t being answered, or if those answers aren’t satisfying, turn up the heat. Escalating a payment issue isn’t right for every job, but if payment isn’t coming, it might be time to inform other parties on the job that slow payment and nonpayment aren’t an option.

The best way to avoid nonpayment or slow payment is to leverage tools like mechanics lien laws, bond claim laws, and prompt payment or retainage laws. Often, merely informing a customer that these tools will be used if payment doesn’t come will be enough to compel payment. Other times, more official threats – like a Notice of Intent to Lien – might become necessary. If push comes to shove, a claimant may have to make an actual lien claim, bond claim, or retainage claim. But these claims – particularly lien or bond claims – have strict deadlines. So as mentioned in the last section, keep an eye on the time.

Summary
Article Name
Project Closeout: Best Practices for Closing Out and Getting Paid
Description
Project closeout can be both stressful and rewarding - and it's often the most important part of the job. Here's a look at common issues and best practices.
Author
Publisher Name
levelset
Publisher Logo