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Can I change the verbage on my new contracts in regards to payment policies?

Can I require payment up front for materials on my contract jobs? How do I protect myself in this environment where our economy is plummeting and I am still getting work? I am a Subcontractor and standard procedure is "we get paid after the G.C. gets paid" but we are supposed to buy all of the materials and furnish labor before we can invoice. What if the Bank pulls the funding for the project?

2 replies

May 14, 2020

As a subcontractor you have a lot of leeway regarding what goes into your subcontract from a legal perspective, the greatest limitation being what the GC will agree to. For home improvement contracts the GC cannot legally require a deposit of more than $1,000, so it is unlikely that the GC would agree to pay you more upfront. For other projects the GC will have more flexibility. But they are still limited with respect to what the owner will agree to. The best way to protect yourself is to have a contract with clear enforceable provisions and to follow all procedures necessary to protect your lien, stop payment notice, and/or payment bond rights. This means sending preliminary notice to the owner, GC, and lender and timely excising payment rights when payment becomes overdue. Recent case law limits pay-when-paid clauses and renders them invalid altogether if the prevent payment within a reasonable amount of time. I am available to assist if you would like legal help reviewing contract and procedures. T schedule a consultation sen me an email at ryan@huntortmann.com.

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May 14, 2020

I agree with Peter, a contract with clear enforceable provision, including a scope of values (SOV). This is usually the breakdown of the scope on the project with assigned billing values. This is where you want to make sure you have a line item in the SOV for "mobilization" or "initial payment" that is agreed upon, giving you the subcontractor an opportunity to bill for some of the upfront material and labor before you start your project. I am also available to help as a number of our programs help solve cash flow issues. If you would like to discuss more or I can help please email me at: sburgener@fkconstructionfunding.com

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