It’s an accepted fact that a construction project will have some unforeseen, built-in hiccups. Jobs rarely go off without a hitch. Factors related to inclement weather, supply shortages, or inspection issues can really pull back on the reins. However, another one of the biggest issues affecting progress is poor planning. The truth is that poor jobsite planning affects everyone on the job – including their ability to get paid on time. Once a job hits a stumbling block, there’s a ripple effect of delays throughout the site. Those project delays create payment holdups from the top of the chain to the bottom. The longer the chain, the longer the backup. Here are some tips for reducing the impact when poor construction planning is threatening to delay your payments.
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Poor construction planning is a common problem
In Levelset’s 2020 National Construction Payment Report, respondents revealed that two hours of their average workday is spent waiting for someone to finish their job before they can start work. This delay can be caused by another contractor, an inspector, or by waiting for a supplier to back their truck onto the site.
Scheduling is a big problem. In fact, over 50% of contractors state the main reason for jobsite and payment delays is poor subcontractor scheduling. The unfortunate part is that these jobsite delays are usually avoidable with better planning.
Other industries don’t require quite the collaboration that a construction project does. The average job site has a lot of moving parts and ideal planning follows a natural progression of contractors (framers, then plumbing and electrical rough-in, then drywall, as an example). It’s easy to see how one small misstep can cause a large backup and delay payments for everyone on the job.
Adhering to a schedule is essential to efficiency. In the report, two out of five contractors complain their progress is negatively impacted by job site coordination. A well-planned and defined schedule can speed up the process, maximizing efficiency.
By the end of the week, the average contractor is giving away more than one day’s worth of progress and labor. That doesn’t even account for the time that could’ve been spent on another job. This inefficiency also drastically increases the amount of time it takes to get paid.
Poor planning leads to costly change orders
When a project sets forth, there should be a fluid plan in place to guide it towards completion. After all, problems will come up or an owner may change their mind. This is both understandable and acceptable to a degree. Progress requires some flexibility.
Change orders are a natural and necessary part of a project and they often result in a better finished product. Too many change orders can spell disaster for subcontractors, however. Excessive change orders can halt the progress on a site.
While the contractor completing the change order might be getting paid, the subs waiting in line to get their work done are not. Also, the completing contractor might have had to rearrange their schedule on another job to be on site and complete the change order. Change orders can cause both the contractor in line and the contractor completing the job to push the supplier onto the back burner as well.
It is worth noting that contractors are entitled to be paid for their work even if a change order means they have to undo it (as long as it was the contracted work). Change orders due to poor planning or indecision aren’t your fault. You shouldn’t be left holding the bag.
As mentioned, the path to completion does require some fluidity, but indecision and confusion are enemies to progress. Ideally, changes to the plan will be kept reasonable and weighed against the possible effects they’ll have on everyone on the job. Unfortunately, this is not always the case.
What to do when poor planning affects payment
Common sense would say that the longer it takes to complete a job, the longer it will take to get paid. When you actually consider the consequences, the results can be far more devastating for a contractor trying to establish their reputation.
Wasted time leads to a longer time on that job. The longer the contractor has to be on the job, the greater the chances that they’ll come in over budget and past the contracted completion date. The construction industry is a small world in some respects, and a tarnished reputation will spread quickly. These issues that were no fault of their own can keep them from landing good jobs in the future.
Project delays also undermine a contractor’s cashflow. If you’re unable to send in the payment application with the amount you were anticipating, it can affect your cashflow for an entire month. If poor planning continues to be a problem, each progress payment after that will be less than expected.
This can also mean less payment for completed work. In the Levelset report, almost two thirds of contractors state that being late and over budget leads to lower payment – regardless of the reason why. That means a subcontractor won’t be able to pay their subs or suppliers. This can lead to someone filing a mechanics lien.
Reduce planning problems with preliminary notice
Even the best laid plans can go sideways on a construction project without clear communication between the GC and their subs.
If the schedule changes, the word needs to spread quickly down the chain of subcontractors and suppliers. The GC can notify their own direct subcontractors, but they often have no way of communicating with the sub-subs or suppliers. Often times, they don’t even know who they are.
Sending preliminary notices on every job does wonders for communication on a jobsite. Especially when you require all of your subs and suppliers to do the same. If the GC has contact information for all of the people on the job, they can quickly notify them of schedule changes, and make sure that everyone gets paid on time.
Because you don’t know beforehand whether planning will be a problem, you should be sending preliminary notices on all of your jobs. Preliminary notices are an effective way to introduce yourself to the property owner, lender, and even the GC if they don’t know you’re on the job.
It’s safe to say that you’re far more likely to be paid on time if the GC and property owner know you exist. Preliminary notices also protect your right to file a mechanics lien in many states.
Be proactive with lien waivers
When it’s clear that poor planning is affecting payments on a construction job, the owner and GC are going to be extra cautious. They will be looking to take every step they can to avoid a mechanics lien claim.
There’s a simple way for subcontractors to get out ahead of this, ease the GC’s mind, and get paid faster all at the same time. Providing a conditional lien waiver with every pay application sends a strong signal to the GC and property owner that you understand the bind they’re in, and are eager to do something about it.
Sending a lien waiver helps speed up payment because the property owner knows that, as soon as they pay your invoice, the lien waiver is effective.
Protect (and use) your mechanics lien rights
If a project delay slows progress payments on the job, you may be waiting to be paid for work that’s long been completed. There are some steps that you can take to avoid letting this scenario affect your pockets.
When your payment is delayed, sending a notice of intent to lien (NOI), followed by filing a mechanics lien, is often the fastest way to get paid for work you’ve completed. Sending a notice of intent to lien is an effective step when a payment is outstanding. Depending on your state, sending a notice of intent may be a requirement before you can file a lien.
If your NOI doesn’t do the trick, a mechanics lien will get the money ball rolling. This is because mechanics liens have several consequences on a job site. They can affect the owners’ ability to get secure bonds and funding, while also inhibiting their ability to transfer the title during a sale. Those handcuffs force owners to take a mechanics lien seriously. If their deadlines were suffering from poor planning before, a mechanics lien will throw a wrench into their schedule that they definitely want to avoid.
If the owner doesn’t handle the lien directly, they’ll likely bear down on the GC to get the problem straightened out – and get you paid.
Focus on what you have control over: Your own actions
Develop and stick to a strict credit policy that adheres to certain deadlines so you’ll know when to send these notices. Determine what seems reasonable in terms of time and then send out the appropriate notice. A well-oiled credit system will reduce guesswork and missed opportunities to speed up the payment process.
Project delays are common on almost all construction projects, but they do make payments slower. Delays due to poor planning are usually out of your control. Do you best to control the things that you can by sending preliminary notices on all jobs, sending NOIs when issues develop, and filing mechanics liens when necessary. You can’t fix a mistake caused by someone else, but you can mitigate the damage it can have on your bottom line.