Back charge allocation

3 months ago

It is the practice of many GC’s to back charge the same amount to multiple subs. We perform new construction cleaning of multi-family apartments. We generally are requested to re-clean an area, a building, or an apartment through a change order. For example, the change order to complete the work is $1,000 which we get paid when the work is completed. The GC then back charges the $1,000 plus a 15% administrative cost to all the subcontractors responsible for the extra cleaning. This amount could be many times the GC’s actual cost. Is this practice common and proper? It appears to me that this is fraudulent. Shouldn’t the back charge be divided among the subs responsible rather then each paying the entire cost of the back charge?

Additional info about this contractor
Project Role: Subcontractor
Project Type: Residential
Senior Legal Associate Levelset
355 reviews

Back charge practices can vary quite a bit from region to region or even company to company. So, I can’t quite speak to whether that’s the normal course of businesses in your area.

With that being said, that doesn’t sound like a very efficient back charge process. Executing a change order for additional work then issuing a corresponding back charge plus a fee doesn’t make much sense. Instead, writing a minor penalty into the contract that applies to call back work would be more logical. That way, the unnecessary back charge doesn’t take place and the money doesn’t make a pointless back-and-forth between the contractor and sub.

As for back charging multiple subs the same amount – a contractor should only be back charging legitimate costs. So, if the contractor hasn’t incurred any cost leading to the back charge, or if there’s nothing in the contract to otherwise justify the back charge, then the contractor may well be using an improper process.

Disclaimer: The information presented here is not legal advice and should not be construed as such. Rather, this content is provided for informational purposes. Do not act on this information as if it is advice. Further, this post does not create any attorney-client relationship. If you do need legal advice, seek the help of a local attorney.
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