Reasons Why the General Contractor isn’t Paying You
Whether you are a contractor, subcontractor, or material supplier, you have likely experienced not getting paid on time. Further, in 2018, it took contractors and subcontractors 83 days on average to receive payments after they submitted an invoice. However, there are many different reasons for delayed payments. Below are ten of the most common reasons why the general contractor is not paying you. Five of the reasons are the subcontractor’s fault and five of the reasons are the general contractor’s fault. Additionally, each scenario has possible solutions focused on speeding up the payment process.
In some cases, an invoice does not get paid because of an issue that a subcontractor caused or could have solved. Below is a list of the five most common things subcontractors do that delay their payments.
One of the most common mistakes subcontractors make is not promptly submitting their signed construction contract, insurance certificates, and W-9 form. There are two main issues that occur when subcontractors do not submit these documents to the general contractor on time. The first issue is that general contractors will not pay the subcontractors until they receive and verify these documents. The second issue is that if there is incorrect or outdated information on any of the documents, the general contractor will have to ask the subcontractor to update and resubmit their files. This extends payment in any scenario, but if the subcontractor submitted their documents on time, they would have enough time to fix the issues before the first pay period.
Furthermore, depending on what part of the project the subcontractor is working on, their failure to submit these documents could significantly slow the progress of the construction project. Thus, if there are any issues with the documents that you submit, make sure to meet with the general contractor immediately to try and remedy these issues.
What to Do
The most effective way to ensure that you are not missing a document or submitting documents that have mistakes on them is to create a checklist. This checklist should simply include all the documents that the general contractor sends you or asks you for. By having this checklist, you will not forget any documents and can also remind yourself to look other these files one more time before sending them in.
Late or Nonexistence Invoice
This is the mistake that subcontractors can most easily correct. Typically, general contractors have a cut-off date—usually between the 20th – 25th of the month—that they need invoices submitted by. The reason for this is that they will normally give an invoice with the total costs of the month to the property owner by the 5th – 10th of the month. Thus, if anyone fails to submit their individual invoice, it will delay their payment and could even delay the payment for everyone on the job site.
What to Do
The first thing you should do to prevent this issue from occurring is to read your construction contract to see when you need to have the invoices in by. If this information is not clearly stated within the contract, you should contact the general contractor for clarification. Further, if there are circumstances preventing you from submitting these documents on time, contract the general contractor immediately to see if they will accept your late invoice.
One final tip is to use read receipts or follow up with the general contractor if you are communicating over email. Additionally, ensure that you are sending this information to the correct email address. Similarly, if you are using traditional mail, make sure you are sending these documents to the proper address and sending them a week before the deadline.
Certain general contractors require you to provide additional documents with each payment application. These additional documents commonly include certified payroll reports, sworn statements, or conditional or unconditional lien waivers. If you forget to submit these documents with your invoice, the general contractor will have to reach back out to you before they can submit the total draw request to the owner.
What to Do
To avoid missing attachments, create a billing checklist that is unique for each construction project. You should base this list on the information on the original construction contract. If you cannot find this information, ask the general contractor to send you a list of the additional documents you need to submit with each invoice.
Billed for Unapproved Chang Orders
Most projects will utilize a change order—a document that states when there is a change to the scope of the work on a project. These orders can happen at any time during a project. However, most construction contracts state that these orders will not be paid for until they receive approval from the general contractor.
The problem with this is that change orders are submitted for a reason and the work on these orders typically needs to begin immediately. Thus, no one stops to wait for the approval, and instead, the subcontractor begins billing for the materials and manpower they use on the project.
What to Do
This is a difficult situation to work around, but the best course of action is to submit the change order pricing as soon as you can. Secondly, ask the project manager what their budget is looking like as they may be able to pay you a portion of the money you are looking for if they have some flexibility in their budget.
Another best practice to use in this scenario is to bill the change orders in a separate invoice. This way if there are any issues with your request, it will not stop or delay your normal payments.
Project is Overbilled
If your contractor is not paying your invoice, make sure that you are not overbilling. Overbilling refers to contractors who submit an invoice for more of the contract than is complete. For example, you may only be done 25 percent of your work, yet you submit a bill equal to 50 percent of the work. While certain general contractors may be okay with this practice, others will refuse to pay for any work the subcontractor has yet to complete—this is especially true if it is the subcontractor’s first time working with a general contractor.
What to Do
If you are having cash flow issues and receiving upfront payment will help you, speak to the general contractor before sending the invoice. They still may reject the invoice, but you will have a better chance at success if you talk to them instead of simply springing an overbilled invoice on them. Further, the property owner or lender will be scrutinizing the general contractor’s invoice so there may not be anything that they can do as far as paying you upfront.
General Contractor Issues
Payment delays are not always caused by the actions, or inactions, of the subcontractor. In certain cases, the general contractor is not paying the subcontractor because of an issue on their side. Below is a list of the five most common general contractor issues that prevent subcontractors from receiving payment.
Waiting for Documents from Subcontractors
In most construction projects, the general contractor is working with multiple subcontractors. Further, the general contractor will need to include each individual subcontractor’s invoice in their own pay application to the owner of the property. In addition to invoices, the general contractor may need to receive sworn statements and lien waivers from the subcontractor.
This can lead to issues, as certain property owners or lending institutions refuse to begin processing payments until the general contractor submits all required documentation. Thus, the general contractor will have to wait for every subcontractor to submit their documents—allowing one delinquent subcontractor to derail an entire pay period.
What to Do
Other members of a project cannot force the one problematic subcontractor to submit their materials. Thus, this is one of the few scenarios where subcontractors have little control over speeding up the payment process.
Project Owner Pays Late
As stated above, certain property owners or lenders take over 80 days to process a payment. This number only increases if there is a dispute or misinformation on any one of the documents. Further, when working with large institutions or entities that do not typically utilize construction companies, the wait time can be even longer.
What to Do
The only way to avoid this payment issue is to vet the clients that you will work for. Avoiding jobs that will cause issues is easier said than done. However, you should look into the property owner to see if there are any causes for concern.
If the property owner is slowing down your payments, look at your state’s specific prompt payment laws.
Even if a property owner has planned the construction project for a few months, it takes time to receive funding. If the construction of the project began before the loan closes, you could be waiting two months before receiving payment.
What to Do
This is another scenario where subcontractors do not have much control. However, you should still ask the general contractor when the financing should be complete before you start working. This course of action at least allows you to plan your cash flow out until you receive the first payment. To ensure that you receive the proper information, ask the general contractor for the project’s financial documents
Issues with General Contractor Cash Flow
General contractors can have cash flow issues themselves—though they rarely project this to the subcontractors on the job. The main reason for this is that contractors sometimes have to fund the start of projects themselves. Though this only occurs if the property owner has not yet secured the loan. This will obviously hurt the general contractor’s financial viability and could be why you have not been paid yet.
What to Do
The key to avoiding this issue is to vet the general contractor before you decide to work on a project. You should be able to easily find this information on the general contractor’s payment profile. If the contractor has several payment disputes at one time, this could show that they are experiencing cash flow issues.
Covid-19 has been a new issue that everyone within the construction industry has had to deal with. Thus, if the general contractor is working from home, this could limit their ability to hand out checks quickly.
What to Do
You can help the general contractor by allowing them to pay your invoice in a few different ways. These alternative payment forms include credit cards or automated clearing house transfers. By giving the general contractor different ways to pay you, your payments will be likely to come on time.
While it can be frustrating to not receive payment on time, sometimes late payments are inevitable or simply a product of human error. However, if the general contractor, property owner, or lender is delaying payments purposefully, you may need to utilize a mechanics lien. With over 20 years of experience, Antonoplos & Associates construction attorneys can help construction company owners, contractors, subcontractors, material suppliers, architects, and designers with a wide range of services before, during, and after a construction project in DC, Maryland, and Virginia
Contact Our DC Law Office for More Information
Finally, for more on reasons why the general contractor isn’t paying you, contact us at 202-803-5676. You can also directly schedule a consultation with one of our skilled attorneys. Additionally, for general information regarding construction law, check out our blog.