In the construction industry, it is assumed that general contractors get paid first and then the money trickles down to subcontractors and suppliers. But improving communications, in addition to other construction law measures, can speed up payment.
Survey reveals payments
General contractors are twice as likely to get paid on time than subcontractors and suppliers on construction projects, according to Levelset’s survey of 600 contractors across the country in 2020.
Subcontractors are also less likely to take action to pursue faster payment. Thirty-six percent of general contractors charge interest to their customers for late payment. But only 22 percent of subcontractors consider charging a penalty on general contractors for overdue payments.
The mechanics lien is one of the most powerful means to seek payment. Only 45 percent of subcontractors, however, said that they always protect their right to file a lien.
But contractors in the survey also brought up a business-like, rather than a confrontational approach, to payment. According to the survey respondents, three actions taken well before payment deadlines can help contractors.
Setting clear expectations with their customers was cited by 48 percent of contractors. Forty-seven percent relied on good communications with customers. A good invoicing process was used by forty-five percent of these contractors.
Enacting these measures by improving communication and visibility can expedite payments. Contractors should use a process that involves sending preliminary notices to customers, sharing complete documentation with applications for payment, sending invoice reminders and having timely exchange of lien waivers.
Levelset’s analysis of its survey showed that subcontractors hesitate taking actions for late payment because they fear alienating their customers. This process, however, helps overcome this by communicating payment expectations and consequences at the beginning of the construction project.
An attorney can help pursue late payments. They can represent a contractor’s interests at mediation, negotiations, and other legal proceedings and draft contracts that protect their interests.