June 2020

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FRSA LEGAL COUNSEL Cotney Construction Law

The Easiest Way to Get Paid is to Be Thinking About It from the Start Brian Lambert, Attorney, Cotney Construction Law Everyone is waiting for the dust to settle in the wake of the coronavirus pandemic. As our country starts to reopen, there will obviously be a few bumps as we travel down this unchartered road. Given this environment, vigilance is especially important in one area: getting paid. Getting your company paid for projects is undoubtedly the single most important thing as we move forward in this economy. How you can get paid is highly dependent on how much homework you have done on your clients and your contract terms. After working in this industry for many years, I have noticed that there always seems to be a natural “rub” between our clients’ sales and finance departments. Sales folks may have a natural talent for bringing in work, but the finance department has to figure out how to get paid once the work is done. In order to collect payment, get these folks working together, not when you are not getting paid, but right at the time you are entering into contracts. Before your sales team hands over a contract for the customer to sign, your finance department should have already reviewed it and done its due diligence on the customer, investigating any obstacles that could arise in the payment process. Certain situations, as discussed below, are areas that need close attention. Do you do business with condominium associations? Like many of our clients, if you do, then you may be dealing with a property manager. That property manager may even be the one signing the contract. But does that property manager have that type of authority? Before signing, ask to see the property manager’s power of attorney or agreement with the association to make sure it is within the property manager’s scope to enter into a contract. This same rule applies anytime you are getting a signature from someone who is not the property owner and is acting as the agent for the property owner. If the association is owned by a company, limited liability company or trust, make sure the person signing has the proper authority. Another word to the wise is to check the local property records to make sure you are dealing with the property owner, regardless of whether you are involved in residential or commercial projects. You want to make sure the contract has the correct spelling of the owner and, if the property is owned by a company, that the company name is spelled correctly. Have the person signing print their name and the capacity upon which they are signing. The next major consideration goes directly to 6


payment. Does the association or company have the funds to fully pay you for the work? Have you even asked them? At best, you could have them escrow the full contract amount. At worst, you could at least get them to provide proof that the funds are available. If you are going to perform a half million dollar re-roof, you definitely do not want to find out half way through the job that the other party does not have the funds to pay you (and even worse, never did from the time you signed the contract). Essentially, you do not want to finance a new roof, or even part of one. In that regard, always know who the real parties are with the interest in the property you are working on. It sounds simple, but from a legal standpoint, not getting it right can lead to severe consequences, including the inability to get paid. What are your payment terms? A lot of work can be done in 30 days if that is how often you plan on getting paid. Consider changing it to every 15 days or even every week if possible. There is really no reason not to bill in close step with the work when possible. For any extended period where your work is being done without payment, you are basically financing that work to the benefit of the other party. If you subcontract downstream, make sure you have “pay when paid” language in your contracts. If you are asked to provide a bond, consider using a conditional payment bond. While it may be more difficult to administer on the front end, the project owner cannot tap your bond unless it has paid you for the work in question. Regardless of whether you are performing residential or commercial work, think about getting an upfront deposit. We have seen many residential cases where the roofer does not receive his first dollar until work is complete. In this market, not only can this lead to the loss of payment for that single project, but if enough of these occur at once, it can break the back of any company. For Florida contractors taking deposits that are more than ten percent of the contract amount, be mindful that you will need to start work within 90 days. See e.g., Fla. Stat. 489.126.