How smart contractors avoid back charges and get paid
Back charges can be a scary part of the construction business. They’re often abused or misused and subcontractors can find themselves with their backs against the wall out of nowhere....
Back Charges
Back charges are amounts held back or charged back to a contractor on a construction project. In a typical scenario, payment due to a contractor is reduced because of an allegation that the contractor did not perform the work correctly or completely. For example, a contractor may agree to perform work for $100,000. During or after work, the general contractor or owner may contend that $20,000 of the work is incorrect or incomplete. In that case, the contractor’s payment is reduced from $100,000 to $80,000 (=$100k – $20k).
It’s common for “back charges” to be the source of disputes, delays, and problems on construction jobs. It’s also common for general contractors and owners to use “back charges” as leverage against subcontractors to force them to perform work that is out of scope, or to make other change orders or change directives in the work. Even when back charges are claimed and there is a dispute, contractors and subcontractors have the right to assert a claim (i.e. a mechanics lien) for the full value of the work that they contend to be due.
Most Recent Posts on Back Charges
Read more
Scope Creep | How to Keep the Scope of Work Under Control
Excessive scope creep will hurt profit margins and give rise to payment disputes, so keeping the scope of work under control should be a priority.
Disruption Claims | Getting Paid for Lost Productivity
When project changes cause a loss of productivity, disruption claims can restore the bottom line. Don't confuse them with delay claims, though.
Terminating a Subcontractor | What are the Risks, Costs and Procedures?
Terminating a subcontractor for inadequate performance is a difficult decision. The process can be long, expensive and risky from a legal perspective. There are several potential consequences to consider when...
Wrongful Termination | When is Termination Considered Wrongful?
Terminating a contract can be an expensive and time-consuming process, but matters can become even worse when there's a wrongful termination.
The Right to Cure | Resolving Disputes Without Claims or Legal Action
The right to cure helps contractors, subs, and owners avoid defect claims and terminations, and granting the opportunity to cure is smart, regardless of any rights or requirements.
Termination for Cause | When Can Construction Contracts Be Terminated for Cause?
It might be tempting to fire a contractor or sub who's underperforming, but termination can be a tricky topic - particularly termination for cause.
Consequential Damages Can Create Extensive Liability for Construction Businesses
Left unchecked, consequential damages could create extensive liability for construction businesses. Construction contracts should limit or at least clarify them, when possible.
Construction Delay Claims: Types, Claims, and Defenses
Construction delays are one of the most common disputes that arise on projects. However, the process of establishing and proving a delay claim can get complicated quickly. That’s why having...
3 Ways to Deal with a Non-Performing Subcontractor | Subcontract Management
It only takes one nonperforming subcontractor to derail an entire job. Let's look at how to avoid those subs, and how to deal with them when problems arise.