Scott Wolfe | Construction Law Musings | October 18, 2019
Getting paid in construction is slow, hard, and stressful, according to a survey conducted by Levelset & TSheets by Quickbooks that polled over 500 construction professionals. Half of the contractors surveyed complained that they did not get paid on time, which caused serious cash flow issues that negatively impacted their customer relationships and frequently forced them to dip into personal savings and lines of credit to keep their business afloat. View the 2019 Construction Payment Report here.
Unfortunately, since the construction industry’s slow payment problems are well-documented, this sad reality isn’t too surprising. The findings, though, do demonstrate a massive cash crunch for the 1.5 million+ contractors in the United States, and underscores the importance of having legal help and counsel from a construction lawyer before, during, and after jobs.
Payment struggles are the status quo for contractors
Dealing with payment struggles is not something that afflicts only some contractors. The Levelset & TSheets survey demonstrates that cash and payment struggles affect nearly every contractor, and managing these payment challenges is a day-to-day reality for them.
Here are some eye-opening stats from the report:
- Contractors don’t get paid on time: About half of contractors in the United States reported that they frequently do not get paid on time;
- Contractors have to fight for payments: Nearly every contractor (98%) had to threaten a lien recently to get paid, and more than half (58%) had to file a mechanics lien to get paid.
- Contractor’s don’t get paid in full: Almost 40% of contractors frequently do not get paid in full on every job, complaining that back charges, deductions, and other withholdings frequently get tacked on after the job is finished;
- Payment & Contract Terms are problematic: Contractors also report that their contractual terms are problematic for payment. They struggle with retainage requirements, they are forced to take discounts and rarely earn interest for non-payment, and they have to wait
Handling payment challenges requires legal help & experience
It’s interesting that contractors are experiencing payment challenges that really could benefit from legal help & experience. According to the report, contractors are stressed about issues that could be better addressed by the parties before the job begins, and before payment problems escalate out of control. And specifically, they could be addressed with some legal assistance.
First, before the job begins, contractors can set themselves up with more attractive payment rights. Of course, it’s always the case that the owner and/or general contractor has a good bit of leverage in contract negotiations, but it is our experience that there is always room for some positive changes to the construction contract.
These changes can mitigate the effects of pay when paid or pay if paid provisions and improve payment timing, or position your company to have less retainage withheld or to shorten the time of withholdings.
Before the job begins, legal counsel can also help you better understand what you can expect on the job. Knowing what to expect can be extremely helpful to manage cash flow expectations. Counsel can help you understand the likely payment scenarios you will encounter on a job, and even help you read through the payment behaviors of the general contractors on the job to prepare your company to work with the other parties.
Second, after the job is underway, but before payment problems are out of control, legal counsel can help you get the right attention to your claims. This will help contractors get paid without having to resort to threatening a mechanics lien, or worse, to file a mechanics lien.