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Construction contractors face many risks and challenges during the life of a project. Chief among these is the risk of non-payment, or significantly delayed payment, for work legitimately performed. Experience tells the prudent contractor that certain processes can increase the likelihood of protecting and preserving payment rights. Payment issues and concerns typically arise during three construction phases.

Pre-Performance Phase
Before ever signing the contract or performing any work on the project, the contractor can and should take certain measures to protect and preserve its payment rights. Key considerations for the prudent contractor include: knowing the party with whom it is contracting; familiarizing itself with the project site and locale (or jurisdiction); thoroughly reviewing and understanding bid or proposal documents; recognizing insurance and tax requirements; and acknowledging payment security rights and obligations (liens and/or bonds).

From a cash flow and budgeting standpoint, this is when the contractor must fully understand payment timing (typically monthly progress payments), payment submittal requirements, who is responsible for payment submittal review and who pays the contractor.

Performance Phase
Performance of the actual construction work is when the contractor is incurring costs, typically over an extended time. So, the contractor must take steps to ensure prompt progress payments for all work performed and avoid becoming a financing arm of the party paying for the contractor’s work.

Key considerations here include: knowing when pay applications are due; working closely with the other contracting party or its representative to ensure that accurate performance milestones are captured on the pay applications; giving prompt notice of any changes, extra work or delays; understanding when work can be stopped, if at all, for non-payment; and recognizing contractual procedures for resolving payment disputes.

During this phase, the operative advice is: Know the contract and communicate promptly with the other contracting party on all issues affecting payment.

Post-Performance Payment Enforcement Phase

Upon project completion, the contractor may need to take steps to enforce payment rights and/or perfect and maintain its right to secure the amounts due. Key considerations here include: compiling important project documentation; confirming important events with key project personnel; isolating or segregating costs arising from disputed work or delay claims; timely filing notifications with respect to lien and/or bond rights; and obtaining helpful information from cooperative third parties.

Contemporaneous supporting documentation is important for the prudent contractor to better ensure that it will be paid for all work it legitimately performed if a post-completion payment dispute arises.

The contractor’s payment rights can be affected during all phases of a construction project. Thoroughly understanding these risks and issues before starting work, during project performance and immediately after completion should help prevent payment (or non-payment) issues and concerns. Armed with this information, the contractor can better ensure that its bottom line will remain healthy.

G. Scott Walters is counsel of Smith, Currie & Hancock LLP, Atlanta, and chapter attorney for Associated Builders and Contractors of Georgia. For more information, email gswalters@smithcurrie.com.

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