Subcontracts Part 2

March 20, 2003

Two of the major areas of dispute in a contractor-subcontractor relationship are promptness of payment and payment procedures.

Billing and payment disputes could be avoided if an agreement was reached between you and the subcontractor such that a schedule of values could be provided to you similar to the one you will be providing to the general contractor for the monthly billings. This schedule of values need not be elaborate, but should help you decide if the subcontractor is billing the proper amount in a particular month.

Ask the subcontractor to call you on or before the 15th day of each month to inform you of the amount the subcontractor is intending to bill for the project, since you will be required to incorporate this amount in your monthly billing which will most often be due on the 20th of the month.

You are expected to know the progress of your subcontractors, and you may already know the amount you will bill on your subcontractor’s behalf. More than likely, the amount the subcontractor requests will be higher than you had expected.

Be fair with the subcontractor as you expect the general contractor to be fair with you. Do not arbitrarily cut the subcontractor’s billing amount. As long as you know the general contractor will probably agree with the billing amount for the subcontractor, you are finished with your negotiations.

If, however, you believe that the general contractor will cut the amount submitted within your schedule of values for the subcontractor’s work, you must re-negotiate the billing amount with the subcontractor. If you do not, you risk either creating a negative relationship with your subcontractor if you do not pay the agreed-upon amount, or in paying the subcontractor, financing that portion of the project for the owner that month. Remember, though, the subcontractor is in the same boat you are regarding cash flow. Help the subcontractor in this respect and you will find that the subcontractor will help you on other aspects of the project.

Be prepared to tell the subcontractor that you disagree with the billed amount if it is inflated, and state how much you believe the subcontractor’s monthly progress is worth. In most instances, an agreement on the amount to be billed can be reached.

If a billing amount dispute arises, try to resolve the problem without any delay. Invite the subcontractor’s project manager to meet with you and your field foreman at the jobsite for a walk-through. Use the already-developed schedule of values and ask the subcontractor to substantiate the amount billed.

Disagreements may arise due to a request for payments on stored material. Remember, the subcontractor’s contractual obligations are directly tied to your contractual obligations to the general contractor. If you are entitled to be reimbursed for stored material, so is the subcontractor.

Generally, an agreement can be reached during the walk-through. Should negotiations fail, discuss the issue with your direct supervisor so that you do not have difficulties in receiving your payment from the general contractor as a result of your inability to obtain lien releases from the subcontractor with whom you have the disputes.

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