What should you do when a General Contractor refuses to pay? This is an all too frequent situation we hear about from our subcontracting clients. The consensus is clear: Everything would be a whole lot easier if the general contractor would just pay on time. Does it ever feel like they’re almost trying to make your job even harder than it is?
Remember, You’re On the Same Side.
I’m going to level with you. Most subcontractors with this mindset are leaving out an essential fact: The general contractor was hired to get the job done, and they hired you to perform work needed to get that job done. Remember, the Owners must make payment to the GC’s before they can pay you! Rarely are they sitting on your money and just choosing not to pay you.
In short: You’re in it together.
Think about that. The work gets done right, and you both get paid. The General Contractors don’t want to stand in your way, because that wouldn’t do either side any good. The GC wants to pay you the money for your work, even though it might not feel that way.
Are there bad GCs out there? Yes, but they are very, very rare. It’s unlikely a General Contractor refuses to pay you out of sheer spite. For the most part, the General Contractor wants you to perform the work, complete the project, and be ready for the next one. Your performance is the GCs #1 concern.
The General Contractor wants to invoice the project; you want to invoice the project. The GC believes in your ability to do the work — that’s why they awarded you the job. Everybody wants this project to be successful. You share a goal.
So, rather than complaining about it, wishing this wasn’t the case, or fighting with a GC, face the problem head-on.
Solve the Business Problem.
So let’s take a step back. You’re still in a situation where you are owed money that you need.
You’re in the middle of a dispute, a change order, or a similar issue, and the general contractor is holding your payment back. Think about it from their perspective in order to find a solution.
If you remove the anger and financial fear from the situation, you will find a cleaner route to solving this problem. Remember that no matter the solution, you’ll need to follow through on your end of the deal, staying focused on the details and deadlines that you and the general contractor agreed upon in your schedule of values and contract.
Be clear, be honest, and focus on the solution, rather than trying to place blame. This isn’t a matter of Good vs Evil, or Right vs Wrong. The vast majority of general contractors aren’t going to just refuse to pay their subcontractors.
Going forward, are you creating this stress for yourself? Is there a better way? Yes, there is.
Solve for the Future by Planning Ahead.
Subcontractor disputes with general contractors often arise as a result of a misunderstanding or misalignment between two things: Change Orders and / or the Schedule of Values.
Change Orders
Did you do a bunch of work on a change order? Change orders get paid when they’re documented, signed by both parties and approved by the owner. You must understand when you do any work outside of your scope without a signed change order, you are at risk. That’s okay if you’re trying to build a relationship and show value. But do your due diligence. At a minimum, put it in an email to the following effect: “I was asked to perform X, which is outside of the current scope. If you agree, I’ll send a change order and get started right away.”
If they ask you to do work and there is a disagreement as to whether it’s in the current Schedule of Values, then you need to get a change order immediately or come to an agreement with the GC before you start the work or realize you are at risk of not being paid for it. It may be an uncomfortable conversation, where you feel like you’re pushing back on a project manager that you want a good relationship with. But it doesn’t need to be that way. Approach your general contractor or project manager with the mindset that you’re in it together. You both want to be paid, and you need the proper paperwork documentation in place just like they do, in order to avoid issues down the road. After all, disagreements, later on, won’t do either of you any good.
Schedule of Values
Your Schedule of Values needs to align with your job costs. You need to be able to invoice at least as much as your costs are every month. For example, if you have $100,000 in job costs in the first month, you need to know if you are going to complete and bill $100,000 worth of work? If you don’t account for these details and have the ability to stick to your Schedule of Values, you will likely find yourself coming up short.
Unfortunately 99% of the time, subcontractors find their relationship with their general contractor turns sour due to financial strain and stress. Proper planning, communication and having the right resources will be your safety valve in those situations. Completing a Project Cash Flow projection for each job during the bidding process can help you to stick with your Schedule of Values and foster a positive relationship with the general contractor.
Click here to download a free project cash flow sheet
Click here for the Cash Flow instructions
When a Contractor Refuses to Pay, Remember Your Shared Goal.
So, what happens when the general contractor refuses to pay? Breathe. Just because you have accrued costs, doesn’t mean you’re entitled to your first payment yet. You know the General Contractor needs time to complete their pay application process before the owner issues payment to them and they can issue your payment. Making sure your invoices and paperwork are done properly and on time will help, and responding quickly to any questions from the general contractor will help to secure faster payment.
But in the meantime, do you have other jobs that will cover your immediate expenses? Can you negotiate with a vendor to secure better payment terms? Do you need a line of credit or other capital to make sure you have the financial cushion you need to complete this project without fighting the GC? Having access to the cash you need through a line of credit or other appropriate funding solution can allow you, the subcontractor, to focus on doing great work, building great relationships and having less stress overall.
Click here to learn more about project or contract financing for subcontractors.
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Recommended Reading
https://mobilizationfunding.com/2017/11/08/time-get-funding-construction-project/