Contractors struggle to get paid and to manage their business’ cash needs. This according to a new report published by Levelset & TSheets by Quickbooks that surveyed over 500 construction professionals about construction payment challenges, and found, among other stats, that half of contractors do not get paid on time, 98% had to at least threaten a lien to get paid, and 35% even dip into personal savings & lines of credit to make ends meet. View the 2019 Construction Payment Report here.
While not entirely surprising, given the complex construction payment challenges and the well-known problems getting paid…for construction attorneys like us at Smiley Law Firm, it does beg the question: Can construction lawyers help?
Contractors are waiting too long for payment and making too many compromises
It’s clear that getting paid in construction takes a long, long time. A PWC cash flow survey published each year shows that it takes an average of 83 days to get paid in construction. That’s the longest timeframe of any other industry on the planet, and it’s actually getting worse. The PWC report issued the year before was 11 days faster, and the neck-breaking pace of 72 average days.
This slow payment conclusion is supported in the Levelset & TSheets Construction Payment Report, too:
- Half of the surveyed contractors reported they do not get paid on time
- 80% of contractors deal with retainage getting withheld
- Nearly 70% have to wait more than 30 days to get their retainage
- 98% of contractors have at least threatened a lien to get paid
But what is more alarming is how many compromises contractors must make in the payment process:
- At least 42% of contractors are paying their own contractors & suppliers before they get paid;
- 61% never charge any interest on late payments, and 55% offer flexible payment options;
- More than half (55%) feel left in the dark about payment information on a job;
- Although liens are frequently threatened, contractors fail to pull the trigger because they don’t want to lose a customer (41%), it’s too complicated (14%), or it’s too expensive (12%)
Construction lawyers can help contractors make less compromises & get paid faster
One take-away from this report is that contractors are making a lot of compromises in the payment process. The question is whether they need to? Construction lawyers can help contractors feel more confident about their positions and enable them to make less compromises on a job, such as:
- Negotiating better terms in the construction contract: The biggest area of improvement for contractors is to improve their payment terms and their contractual terms…or at the very least, to better understand them. Contractors commonly sign big construction contracts without negotiating and without fully understanding their commitments, and these contracts are very complicated, long, and stuffed with leverage.
- Evaluating the GC on the job: Who is the GC on the job? Does the GC pay slowly? Do they have lots of problems? Do they treat their subcontractors fairly? Are you going to be loaded with back charges at the end of the job? All of these are important questions, and a construction attorney can help you evaluate the GC. The construction attorney is likely involved in the community, sees a lot of construction cases, and knows the GC’s reputation. Also, you can study the GC’s reputation on Levelset to see the experience of other subs when working with the GC.
- Helping with remedies when things get slow: Finally, when payment is going slow, a construction attorney can help you become the squeaky wheel. This may be the filing of a mechanics lien, but really, that could be your last resort. An attorney can help you with your situation.
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.