As a construction lawyer and commercial litigator, I frequently get calls from clients and potential clients to discuss payment disputes they have on job sites. These disputes range from minor disagreements about the scope of work expected to major disagreements such as when to walk off the job site. Although the focus of this article addresses construction companies, it applies equally to all companies in pursuit of payment of funds. I have come up with some practical tips to increase your chances to obtain prompt payment of amounts you are owed. This article will focus on one tip but don’t forget to check back often for more of my articles and tips.
Although there is no tip to guarantee prompt payment, if you consider implementing some of my tips then it certainly will increase the likelihood of obtaining prompt payment or, at least, reduce legal fees in pursuit of those funds.
Tip #1 – Know the person or company that you are contracting with
This tip seems like common sense but it’s often not done or followed. Although the construction industry is relatively small, there are a lot of players in it. To make matters worse, often certain construction companies have a short life span and disappear just as fast as they appeared. On the other hand, there are companies that have lasted a lot longer but your company may not know details about that other company such as how it operates, how often it makes payments, how it handles change orders or extras, etc. Most importantly, your company may not know the financial stability and viability of that other company!
When the market and construction industry are hot with lots of projects on the go, your company may feel freer to choose the type of projects and companies to work with. If you don’t feel completely comfortable with a particular developer, owner, contractor or subcontractor, then you may choose to not take that particular project and another project will be close behind to fill its place.
Nowadays things are different. Many of my clients and potential clients are much less selective about the projects they take on and the level of profits they will accept. This means that there is a greater chance that my clients and potential clients will be contracting with a company that they are less familiar with. So what can they and you do?
It is always a good idea to perform some due diligence on any unfamiliar company that you encounter regardless if it’s an owner, developer, contractor, subcontractor or any other company.
This should be a part of your company’s protocol before signing any contract or making a substantial commitment of time or money on a project.
You should compare this to how some organizations hire a new employee for their companies. Many employers, before hiring a new employee, request a job application or resume, conduct an interview perhaps even more than one, check references and, in some cases, request a drug or criminal background check. This is part of the due diligence an employer undertakes to evaluate a potential employee before hiring that person.
Your company’s protocol for evaluating other companies to contract with should be no less strenuous especially if you consider that once a contract is signed, you are committing yourself to thousands, if not millions, of dollars on a project.
Knowing more about the company you are contracting with will not prevent all disputes especially those regarding payment. However, it will definitely assist you in avoiding some of those disputes. As always, I would be delighted to make myself available to you and your company in order to discuss this tip or handle your legal issue or problem.
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