Payment Problems in Commercial Work
I bid on schools, city and state public buildings. The problem is whenever I'm the low bidder for a public job, they take between 4-6 months to pay for your "Pay Applications." Schools are the worst. You have a deadline to complete the project, before school opens up. Then sit back and wait 4-6 months for your check. We just finished a small fire station, and after 4 months, we finally received payment, minus 10% for retainer.
We completed a city library project, with no upfront money. This project was complete and all warranties were sent to the GC. After many phone calls and excuses, 4 1/2 months went by. Received a letter from the bonding company - check with your attorney for Statute of Limitations. Texas Statute of Limitations is 90 days. Our company plus seven other subcontractors lost approximately $200,000 together. We lost $18,000 dollars. GC filed bankruptcy. The library project refused to pay anyone. Does this just happen in Texas?
I am in my third year in business full time and just within the last year have enough money in the bank to carry me through, when I wait for money. I try to only bid to contractors that I know pay quickly. Most times it is 60 days to get some money.
From contributor T:
Sounds like a job for your local news affiliate. It is amazing how quickly things get resolved when an entity's public image is put in the spotlight. They don't want people to know of the things they try to get away with. Many local news stations will jump at a scandal like yours. If the word gets out that city projects go unpaid, then no one will want to take any project the city has to offer. I've used it a couple times myself for various reasons. Works like a charm.
From contributor N:
Most public projects are bonded. Go after the bond. Always lien before after the notice of completion document time runs out. Do you progress bill or wait until you complete the work? You should bill every month.
From contributor A:
Commercial jobs have a long history of late payment, no payment, and plenty of litigation. They are also known for corruption, including bribes and backdoor deals. Instead of bribing upfront, tell them you will hold 10% of the bribe until you get your final payment. I can't imagine getting no deposit upfront.
From contributor J:
Your situation is not unique to Dallas. It happens over here in Longview too! Just because a GC blesses you with a bid invite or bid award doesn't mean that you should forego sound business practices. I have found that a lot of misunderstanding is eliminated by doing two things.
First, pull the credit report and references on the GC. Spending $100 upfront can save you thousands on the backend. If the credit report doesn't give you the information you require, call the county courthouse where the GC is domiciled and see what liens and judgments are in place. Talk to some of the other trades that work with the GC to see what their experience has been. All of this can be accomplished without much effort on your part and behind the scenes so as not to affect any potential relationship with the GC.
Second, don't just throw out a bid without also putting your terms in place. Talk with the PM or the GC and pointedly ask him (her), when should I expect to get paid? Don't accept a blow off answer and don't be intimidated, even if the GC drives a fancy new truck or SUV and talks about how his company can open new doors for you.
With all that information in hand, price your bid accordingly. Make it clear that you won't chase your money too. At the end of the day, walk away if you can't get real clarity and comfort.
I know this sounds pretty basic and straightforward and I know that some will suggest that you won't ever get any jobs if you aren't willing to be flexible and accept the GC's terms. To those people, I say Hogwash! Take off your cabinetmaker's apron and put on your business hat and behave like a businessman when dealing with the GC.
Oh and lest I forget, and this has worked exceptionally well with me - I always send my first invoice like any other company and with the standard 2 net 10 terms. Once an open invoice hits 31 days, my office manager calls to remind and follows up with a second invoice, along with a copy of the filed lien notice.
That almost always gets their attention and I typically get a phone call within a few minutes of the GC getting that notice and they usually want to vent. That's okay. I let them vent and then in a calm and persistent tone, I remind them that a lien can be lifted as quickly as it can be filed. I also remind them that I'm not a bank and that they agreed to my terms when they accepted my bid.
What happens next usually determines whether we stop work or pick up a check. But this is where it gets better. Those GCs who are intent on beating me out of money never call back, and to those guys, I say good riddance. The others either pay or make arrangements to pay and they always call back. Just don't be anyone's patsy and it will get better.
From contributor S:
When we used to do jobs through a general contractor, I always insisted on dealing direct with the customer. I used the excuse that there were so many choices and decisions to be made by the customer that it would take a load off of him if I got them first hand from the customer. I would not have to bother him every time I needed an answer - I would deal direct. When it came time to get paid I would send a little his way, but I always collected from the customer who by that time you have developed a relationship with. The argument can be made that you would never get enough work without a GC in your pocket, but it never was an issue here. I now would never do work through a GC - it is inefficient and a lot of extra work for you, the cabinetmaker.
From contributor L:
As for getting upfront money on any commercial job of size, lots of luck. I agree about providing your terms, but that doesn't mean they will honor them. We will only work for a few GCs. Several of the largest in the area have such bad reputations that there's no way I'd work for them. Always get your payment request in on time; many of them won't make any payment if you are a day late. Bill for everything that is on site, whether installed or not. I will put a lien on even though they are totally ineffective on a government job. Most government jobs and larger commercial jobs are bonded; go after the bonding company (usually in court).
From contributor J:
I've sent more than my fair share of text messages to a GC who wouldn't return my call. Usually mentioned something about if I don't get resolution by two, I'll be on the phone with the bonding company.
Don't think for a moment that the GC is waiting 90-120 days for a draw from the bank/customer. Most GCs get their money every time and on time, unless they have squandered a draw and haven't met the terms of their contract.
From contributor O:
I like the idea of calling local news, or any other consumer advocacy group, in Houston. We had a guy named Marvin Zindler who in his early days was always busting up companies that deceived their customers or didn't uphold the moral values Texans expect. You may remember hearing about the chicken ranch? Zindler brought that place down. I think calling may just help resolve your problem.
From contributor U:
We go through some of the same grief in payments. I suggest the following four things that are helping us tremendously:
1- Call your insurance agent and get a rider on the job and name the loss payee as the client and send them the certificate.
2- Become a material only supplier on some of these jobs. Get rid of some of the retainage issues.
3- Grow yourself out of this. Increase sales and work to a level that it doesn't hurt as bad. But don't get complacent.
4- Make sure the office manager is staying on the billings. Make it your job and someone else's that bills are going out. Send them return receipt. Proof that you sent a bill.
A letter to the bonding company and the school board from your attorney should be next. I agree with calling the local paper and explaining your side with documentation and how your shop met the deadline. Three bankruptcies from clients, and three deadbeat builders screwed my life up, but the key has been to place the proper documentation in the mail and let the paperwork run its course.
From contributor L:
How is it that so many GCs have come to be considered unethical at best? It isn't just cabinetmakers - I grew up in the construction business and worked as an estimator for earthwork and concrete. The same problems existed in most all the trades and that was a long time ago.
From contributor S:
Being a general contractor is not an easy task, and no, I am not one. You are basically a babysitter to everyone involved in the job. You are the go between, with the customer and all the trades, supplies, inspectors, neighbors, etc. All it takes is for one trade to not do their part, and it delays countless people. My brother-in-law was the general on a sorority house we worked on long ago, and everything was going along just right. The first trade to finish and send in his invoice also put a lien on the second he finished. The owner of the sorority house was a lawyer and did not take kindly to having the lien registered. The tradesman who did this said he liens every job to make sure he gets paid. He doesn't even wait to see if they pay on time or not. The lawyer refused to pay unless he removed the lien, and he refused to take the lien off unless they pay. We had a stalemate which screwed up all the other trades, the students waiting to move in, etc. My brother-in-law paid the guy from his own pocket, since he hadn't received the next draw yet. Then we were able to continue with the job. My brother-in-law told him that he would never hire him ever again and would never recommend him to anyone. There are probably an equal amount of tradesmen who are unethical as well.
From contributor X:
As policy, we filed liens on every job, too. Your brother-in-law and the lawyer were jerks, and their actions were wrong. Their actions are exactly the kind of things that give this business a bad reputation. A sub is not a banker. In most, if not all, commercial jobs, the financing is in place before the construction starts. If it isn't and the GC doesn't have the money, then the GC is unethical in starting the work without it.
From contributor L:
"The lawyer refused to pay unless he removed the lien, and he refused to take the lien off unless they pay." Having a lien on the property does not remove the responsibility to pay! The lawyer was the one holding up the job!
From contributor N:
Filing an improper lien can be slander of title; filing on the day of delivery is not good business - there was no opportunity to pay and if he did that on a high rise, they would counter sue him and bond around the lien putting the money in escrow. If the items are freestanding and not installed, then have the customer sign a UCC filing before delivery and then file it and clear it when paid.
From contributor X:
"...putting the money in escrow."
The money they weren't going to pay until the lien was filed properly? It's funny the money would appear in escrow when it seems it's often not available to pay the subs.
Yes, that's a good point. Lien laws vary from state to state. In some states you have to file an intent to lien. The courts could rule the lien was frivolous if it ever went that far.
The point is that GCs are notorious to deal with, especially about paying the subs. If the subs actually take the time to read the contract they signed, they would discover they basically have no recourse against the GC except as provided by law.
From contributor S:
Yes, the lawyer was holding up the job, but she didn't like having legal action registered against the property for no reason. If the sub had gone to the GC and said I have been stung so many times, I would like to be paid now please, or I will put a lien on... The GC and the lawyer would then have the opportunity to pay him out, tell him to stick it in his ear or make other plans. Why anyone would turn a simple job into a confrontation by putting a lien is beyond me. In all the years I did work for GCs, I was paid late twice, but I got every dime I was owed.
Working in this industry is complicated enough and yes, there are a lot of GCs who don't pay full amounts or pay quite late. If you look at the overall system, it doesn't work. Just look at one part of the system, buying materials. You take on a job that takes you two months to complete. You have to pay for materials in 30 days, and you won't get paid until 30 days after you invoice. That means you have to finance the GC, the GC is financing the client, and before that, your supplier is carrying you. Large companies don't give money up front usually because they want the job installed before handing out money. Unless you have money sitting around to cover you, which a lot of people don't, you have to shift money around and hope it works out.
From contributor R:
Boohoo for the lawyer - what goes around comes around. GCs screw up more subs' time schedules by sitting on their lazy butts and not getting things done. How frigging hard can it be to tell a sub what another sub needs done before they can start? Then they badmouth the subs when the projects are behind schedule. Lien every job you can. If they don't pay, foreclose.
From contributor V:
"You take on a job that takes you 2 months to complete. You have to pay for materials in 30 days, and you won't get paid until 30 days after you invoice."
No you don't. You get draws/progress payments.
From the original questioner:
According to Texas state laws, no mechanic lien allowed on any state, city and public buildings and schools. These same public buildings are required by law to carry a percentage of minority owned business. Yet these same public buildings will delay your payment as long as possible. Majority of time you will get paid. I have been waiting up to 6 months on one public school. 10% retainer will take 8 to10 months. Richardson Public Library knew the GC was having financial problems, which is why they delayed payments for 4 1/2 months. Then they send you a letter to check on Texas 90 days Statute of Limitations to file with the bonding company. They didn't want to pay any subcontractors that finished the work. Save approximately $150 to $200,000 from subcontractors. They wanted everything free. Our $18,000 donation, with no plaque. We are now in trouble with the IRS. The GC was doing 2 large city projects. Filed for bankruptcy. 90 days is too short of a period to file with the bonding company. A minimum of 60-90 days before you received your first draw on any public building.
From contributor J:
You need to look at it or have your attorney look at from the perspective of unjust enrichment. Then you will see that you can lien.
From contributor E:
I have worked for a general contractor for 27 years and we pay all of our subcontractors on time. Our company is known for being fair in all aspects of the business in particular payment. If you bill on time, typically by the 25th of the month, you will get your payment the following month, per the terms of the contract. And, it is not unusual for us to pay before we receive our payment from the owner. We do all types of work - education, healthcare, retirement, industrial and government. 70 - 80% of our work comes from repeat owners and negotiated projects, which speaks for our reputation.
From contributor G:
Since the cabinetry goes in later in the work schedule, you might telephone some of the subs who have already completed their work and ask if they have been paid according to the contract documents. If not, ask the GC why these other people are having trouble getting paid.
Also check to see if any other subs have filed lien on the job.
To delay payment, GCs will often use the excuse that they didn't receive your invoice. Always follow up a mailed invoice with a phone call. Ask if they received your invoice and when you can expect payment.
GCs are notorious for taking advantage of little guys, and there is always a fresh supply of little guys available to them. You can also spread some of the risk (generally free of charge) by utilizing a joint-check agreement with your material supplier. This was discussed in detail several months back on this forum.
From contributor U:
If you bill for materials when you get your contract (stored under lock and key and the client named as a loss payee in an insurance certificate), then you have time to receive material money. When you are done with the cases, get them on site, bill immediately. If you cannot get them on site because of storage constraints, get them billed anyway, complete casework-stored, insured and locked up.
From contributor Z:
Welcome to the commercial world. First of all, I was a project manager for very large companies for a lot of years and got professional training in lien law and contracts. You do not have to sign the GC's contract and to be truthful about it, you really should not sign it as it is sent to you. Every GC contract is Hurray for them and Poo on you. That's the way the lawyers get paid to write them. Always read the entire contract. Then take a red pen and cross out the parts you don't like or can't live with. Initial every change. Send them the revised contract. If you have sent them an estimate/proposal that contained your terms and/or conditions, then include that letter as an exhibit and state that it supersedes all terms of the contract. If the GC will not negotiate the differences, then you probably don't want to do business with them.
In order to get money flowing early on, you should submit a "schedule of values" that has the first line item as "mobilization," which means you are assigning men and equipment to the project. The next item should be "Shop Drawings." You will have to assign dollar amounts on these items and you can bill for them as soon as you get the contract signed.
File a notice to owner as soon as you have a signed contract. Get your billing in on time and do it correctly. The PM will not wait for you nor will he correct your mistakes. If you build the cabinets and the project is not ready for the install, you can put the boxes in a bonded warehouse and get paid for "stored materials".
Another word of advice - always get a printed copy of the project schedule and look at your start date and durations. Make sure that you are on the site the day that you are scheduled to be there even if the project is not ready. If the project is not ready, then write the PM a letter telling him you are being delayed.
There are bad GC's out there. I have worked for a few of them and they all have bad reputations with subcontractors. Talk to people in other trades before you sign a contract.
Most GC's are too busy to babysit you. If you can't look out for yourself and keep up the pace, then they will just run over you. It is not personal - it is just way the business is done. It is rough business and you can get hurt very quickly.
From contributor W:
Another reason GC's like to hold your money for so long is that they put the funds in the bank and draw interest on it. Therefore, while they sucker you into thinking they don't have the money right now; they are actually making up part or half of the subs' draw by keeping that money in the bank and drawing interest for as long as they can... No, it's not right or ethical, but that is the way it happens sometimes. You should definitely read and understand the contracts that you are signing. That is what lawyers are here for. I would hope that you have one in your own business. If not, obtain one and also use him on all aspects of your business.
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