I have a pretty big job underway and I’m concerned about my GC’s financial status. I’m pretty sure he’s close on money because of the rising cost of materials and some other reasons I’d rather not go into here. I’m becoming concerned that he might not have paid some of his subs and that this could create a situation with liens and the like. I don’t want to insult the guy, but I do want to make sure I’m covered. What do you think is the right way to approach this? Is it reasonable to ask for proof that the subs have been paid for the work they’ve done to this point?
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One relaxed way would be to stopby nowand then with coffee and doughnuts for everyone, and drop feelers like, "Everything going OK? Any problems I can help with from my end? I want everyone to be happy here, not just myself."
Said with genuine smiles of course. and make it possible for them to approach you privately after.
There's another more formal way.
"My bank wants some lein releases signed with the next draw, so here they are. This will give you time to collect signatures from your subcontractors and free up the money."
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I like the idea, but most of the subs have completed the major part of their work and are no longer on the job. Also, there's no bank involved and the GC knows that. I like your non adversarial approach though, any other ideas?
Well, with a worried and apologetic look on your keister, ya goes up and says "My (accountant | attorney | wife | girlfriend | youngest son) wants Lien Releases from all the subs and suppliers that have been paid."
You've got the right to those and the legal need to CYA.
If you can't get them in a reasonable time, like 48 hours, run, don't saunter, to an attorney and CYA Big time.
Of course, you have to ask yourself how much you are willing to spend over and above what you agreed to just to prevent hard feelings. If protecting the hired hands (your GC's) feelings are worth $10,000 or more, then I would let him slide.
SamT
Then be straight up with the guy. Ask him for lien waivers so's you can sleep better at night. Even if the subs are gone, he can get in touch with them and ask them to sign the waivers. Or you could call them and ask. If you are truly concerned, then tell him in advance that you will withhold the next payment until you get saigned waivers. Just don't wait until to tell him on the day the check is due.
Whenever you are asked if you can do a job, tell'em "Certainly, I can!" Then get busy and find out how to do it. T. Roosevelt
The craftsman formerly known as elCid
I found a lien release form. It indicates that the work is complete and payment received in full. In my case, the roughins are done, but final fixture installation isn't done yet. Should a sub be expected to sign a document that says he's done when the final work still remains?
I would spend the $50-100 for a quick interview with an attorney. Often they will give you information on something like this for free.
At least do an google search and specify YOUR STATE.
There are lots of variation about how and when lien can or can not be file and how lien releases are handled.
Amen!
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Quickstep,
It is perfectly acceptable to ask for lein waivers. If the GC has a problem, it may be because he has something to hide. The waiver that I use, has an option for partial payment, with a description of work completed, and amount paid. Most title and abstract companies have these, and many banks also. If you are interested, and can't locate one, I will fax you a copy. Let me know.
Brudoggie
Well, since you prize the non-adversarial method, you could lie to him and tellhimyou aregoing tothe bank or that your lawyer is demanding it, butI favor what Edsaid, and call the subs straightout to check on it,then tell him straight up that you will withold the paymentsuntilhe provides the lein releases from subs. The bank has the powerand right to demand such.Are you any less righteous than they are? You have a right and authority to protect what is yours. Do so in good faith and conscience.
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>> You have a right and authority to protect what is yours.
And if the GC gets sullen about it, it's better to know that sooner than later, as well.
In all the years I've been in and around construction I have never met a guy who wasn't getting paid not bitching about it..........
just ask the plumber or another mechanical guy........seems they get stiffed the most. He will tell you the whole story without much prodding, especially if he thinks you can help him out. There are fast carpenters who care..... there are slow carpenters who care more.....there are half fast carpenters who could care less......
Well, what you do is get signed waivers from the subs before you start.
Your desire to be friendly with the contractor is admirable but it's going to put you in line for a serious beating. You need to be direct with him and get clear information about who has been paid and how much; then you need to crosscheck with the subs. The longer you let it slide in hopes of an amicable outcome the more trouble you risk. There are ways to be direct and also friendly, but few of us can pull it off because we're so tense when we have to 'confront' someone about something like money. You need lien releases signed by the principal of each company that's worked or supplied materials. Your instincts about your contractor's situation are probably right and you need to move on it now.
Non-adversarial is great, but you shouldn't have to walk on eggshells.
Put yourself in his shoes. If his ducks are in a row, the worst that can happen is he might have to make a few phone calls to get the forms signed. I think any contractor should be aware of the risks of not getting paid and protecting yourself, so if you want to do the same how could he fault you?
If you meet considerable resistance, your fears might be confirmed.
Jon Blakemore
My bank requires waivers with every bank draw. Do as piffin suggested have the GC get waivers, Make sure you get the suppliers a waiver too for the current paid invoices.
I applaud your idea. I've been through an interesting hell, and here's what I'd suggest:
I would have a chat directly with a few of the subs; make sure you’re talking to the right person, too (if it’s a one man firm, no problem, but if the sub is a bigger deal, go have an informal chat with the right guy in the office). Lay it out: it’s your house, you’re responsible, and you’re concerned to make sure they get paid properly. Make sure they feel like they can be open with you; depending on your area, probably some of the subs let the GC go out a while on payment, so unless the subs are vigilant, the problem may not surface for a while.
I learned a lot about liens when our gc went bankrupt.
It is reasonable to ask for lien waivers, though it can be a pain in the *ss for the gc to round them up. If you are right about the gc's financial plight, this can be the straw that breaks his back. He may be paying off his past expenses on past jobs with your check. If this is the case your project will come to a halt and you may be stuck with paying twice for work already done. Better now than later. Let's hope that this is not the case.
if your having bad thoughts about things ...
I'd say trust your gut and protect yourself.
A company I used to sub for started the slow down hill slide ...
ended up filing for bankrupcy and leaving several customers hanging.
Their money had gone to pay the previous jobs debts ...
still lotsa debts outstanding ... lotsa people not getting paid what they're owed.
I was lucky .. I kept a tight grip on the finances from my end ...
started writting contracts with more and more up front to start ...
as I saw the end coming.
Hearing from most of the last round of customers ....
all had a "bad feeling" .. that the company wasn't going to last very long ...
Most just hoped their jobs would be finished before it all imploded.
Some were lucky .... a handful weren't.
Half finished jobs with no money left and unpaid subs isn't a place you want to be.
Jeff
Buck Construction Pittsburgh,PA
Artistry in Carpentry
This exchange surprises me. Most of the seasoned Posters are siding with/ looking out for the HO without evening considering the position of the contractor. Just a few (well, more than a few) points:
1. Any GC who submits a Release of Lien prior to work being completed AND paid for is an idiot.
2. Any Client who goes behind the GC's back and speaks to the Subs undermines the GC's authority. Going the "coffee and donuts" route only addresses the workers, who rarely think they are getting paid enough and on time. Hardly a barometer of the financial status of the project. The Client will instead instill in the Sub workers and office personnel, that the GC is unstable and will only lead to a self-fulfilling prophecy - the workers will stop trusting the GC's judgment on the site and the office folks may demand payment sooner than in previous relations. Especially if they think getting paid by the Client directly is an option.
3. The "backdoor route" will demonstrate an adversarial relationship. Not the thing to wish for with someone you want to continue doing business with or are "in bed" with. Construction projects shift and change over time. You will want and depend on cooperation from your GC. The GC always has the right to charge whatever he wants/ can for Change Orders and to decline to even consider the Change Order. Granted, that is a worst case scenario but it exists. The last thing you want is a GC who ONLY does what is in the Agreement. So much of your relationship is made of the intangibles - from fielding odd hour phone calls, to offering design, cost or timing opinions, to accommodating the Clients in unrelated situations (My wife's sister is coming in on the 4th. Would it be possible to paint that room first?).
4. If the Poster wants a Release of Lien, he/she should ask for them in a professional manner. The GC should be expected to submit these ONLY AFTER the LAST payment for each particular sub has cleared.
5. If you want a Release of Lien based on a particular phase of work and trade, that could be possible as long as the release stated its parameter. However, this would mean that the customary (at least in my world) 10% withholding of every payment would have to be surrendered. This then gives you less leverage at the end of the project.
6. The Law has created the vehicle of a Lien as a recourse for contractors to insure receipt of payment from unscrupulous clients. Only a fool would surrender this avenue of recourse prior to ALL payments/ trade being complete. It is rare, in my world, that the work any trade is 100% complete until shortly prior to final payment.
7. For me, submittal of Release of Lien normally occurs when final payment has cleared. We have streamlined it by a) I, the GC, gets a Release of Lien from all the Subs and SHOW them to the Client; b) The Client then pays me (We now do a wire transaction, bank to bank. It usually takes minutes.); and c) Once I confirm payment has cleared I hand-over the Releases. I used to mail the Release of Lien in up to five biz days after the final payment was received, but not before I confirmed the check had cleared.
8. No one considered or even inquired if the reason for concern was raised because the Client (original Poster) accepted the "low-ball" bid and now wants to learn ways to hold the GC to his price while getting all the not specified and so not priced/ not budgeted items for free. Now don't get me wrong. The GC submitted HIS Agreement Price and therefore should be held to it. However, I have found that most "low-ball" prices are a result of inexperience. It is a result of when the tradesperson does not understand what OTHER work must be done even though it is not stated in the drawings or Arch's specs. That's when a CO is due. Many inexperienced GC's won't submit a CO early on because they don't want to admit an error and think they can make it up somewhere else down the line - their second and actually most fatal error. That earlier "freebie" comes back to roost when the final stages and the project is coming to an end.
9. I am not accusing, only wondering if this might be the case. Most of what I read from the Poster is that he/she wants to remain on good terms with those that did the work but wants to burden the guy who is orchestrating/ coordinating the work and controlling the money distribution. This way if the Poster must "do battle" he/she only has to battle an individual rather than a team of Trades. If he/she was so concerned "because of the rising cost of materials and other reasons", why doesn't the Poster offer to cover the cost of the increases?
I don't want to sound negative or imply the Poster is suspect. I just read and interpreted the original post differently and was frankly disappointed by the one-sidedness of the responses that were offered. All positions should be addressed.
F.
Edited 2/27/2004 8:37:22 AM ET by Frankie
Edited 2/27/2004 8:40:52 AM ET by Frankie
Edited 2/27/2004 8:54:50 AM ET by Frankie
Spelling errors corrected. Talk about a tough crowd!
Edited 2/27/2004 12:30:37 PM ET by Frankie
Liens, not leins.
OOOPS! Should have used spellcheck.
F.
I thought you meant loins, and I'm wondering what kind of job site you're thinking of, a loin release......
I'm sure one could work out some sort of loin release to get the subs paid.
There are two different types of releases here. One type is simply an acknowledgement from the sub that he has been paid. The other is a statement from the sub that, if he doesn't get paid, he won't come after the HO.
It's this latter form that is needed in this (and many) cases. It requires that the sub either 1) gets paid up front, 2) can recover his money from a bond the GC holds, or 3) trusts the GC. Or maybe 4) is hungry enough to take the risk.
It's obviously going to be pretty hard to get a sub to sign this kind of release after a job has started.
A simple statement from the GC to the Client stating, in terms of %, to what degree each of various Subs have been paid could be periodically submitted. Anything more than that undermines the relationship dynamic.
The Client signed the Agreement too and he/ she should abide by and trust it. If the Client no longer trusts the GC, he/ she should avail themselves of the conflict- resolution or termination portion of the Agreement.
Renovations and new construction are expensive, intrusive and tax the best of us. Parties with varying interpretations of results under the same roof creates a complex relationship. If one party does not respect or trust the other, they have no business being together.
As an aside:
Look, I am not siding with anyone. I am offering an alternative opinion to the "go behind the GC's back, protect yourself from this unstable GC, get a lawyer" responses. I am appalled at the proportion these responses. We all would be remiss if we didn't bring these alternatives up, but what gets me is no one paid attention to the "rising costs" statement nor asked how this situation became apparent or even looked at it from the GC's perspective in order to explain what is involved in the world of being a GC. instead it's a crash course in "How to undermine the GC's authority before he steals the money."
As Q stated in the original post, there is a concern for rising costs, implying that Q might be underpaying or the GC under bid and Q knows it. Now there's an issue to address.
If it was a case of the GC stealing or misappropriating, I don't believe Quickstep would stop by Breaktime prior to visiting with a lawyer.
I checked the Profile of Quickstep. He/ she has been a member of Breaktime since 3/20/2002 and has posted 156 times. That's how many postED, not how many posts read! Surely he/ she has a basic understanding of what due diligence should have been exercised prior to signing a GC and what the pitfalls of these relationships are.
This alone does not make Quickstep immune to poor judgments, but it should have provided a foundation for understanding what is involved an any type of construction project.
Conceder something might be missing from the scenario.
F.
Spelling checked here too.
Edited 2/27/2004 12:34:16 PM ET by Frankie
"As Q stated in the original post, there is a concern for rising costs, implying that Q might be underpaying or the GC under bid and Q knows it. Now there's an issue to address. "
That might be a valid discussion - but where is the indication that the HO is responsible to the contractor for cost increases based on say, plywood and osb doubling?
IF it was a fixed price contract, why would this enter in. Would you expect a HO to ante up to you if you accepted a fixed sum contract to build?
Not trying to fight - just chasing down the rabbit trails you point out here. I'm just an old beagle
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No fights. Just spirited discussion,
A Contract is a Contract. Both parties argeed. The deal is done. Why is Q coming here and stating that particular point unless he/she has some "other" reason to believe there is no room in the budget to accomodate cost overruns? Hmmm.
No one asked about this but rather offered ideas which would result in an end run around the GC or at least create an advisarial relationship.
Worst case scenerio. The job was under bid. I assure you, if the GC is honest, he/ she is having greater troubles than the HO. Now the HO could fight, get a Lawyer and chase money that isn't there or just get vengance, but none of this would address the short term situation of Q's home. Maybe, I repeat maybe, it is better to have a frank conversation with the GC and figure what is on the cost horizon and come up with a solution that is mutually beneficial.
I am not saying that this is or even should be SOP. Rather, it is about keeping a bad situation from becoming worse.
Again I state something is missing. Why does Q think that the rising cost of (some) materials is going to affect the GC to such and extent that the GC won't pay his subs?
Just thinking on-line.
F.
Lots of information, but most of it having to do with the leins is only worth the electrons needed to send them.
http://www.lienlawonline.com/lienlaw.asp
Rule No. 2: Lien law protections and procedures vary greatly from state to state.
Do not assume that familiarity with your state’s lien laws will equip our company to protect its rights under the lien laws of another jurisdiction. Lien laws – perhaps more than any other statutory scheme affecting the construction industry – vary tremendously from state to state.
From notices of commencement in Michigan, to stop payment notices in Mississippi, to statutory bonds in Louisiana which free a project from lien claims, the differences in lien laws from state to state are great, oftentimes subtle, and frequently, not easily anticipated.
In Indiana, Kansas, Maryland, and Colorado, “no lien†contracts are valid for certain construction projects and for certain participants in those projects; however, they are outlawed in many other states, including Michigan, Delaware, New York, and Massachusetts.
It is unsafe for subcontractors or suppliers working in multiple states to assume that they are always among the parties protected by a state’s lien laws. For example, subcontractors to subcontractors frequently enjoy lien law privileges, but not in Kansas. And, in Pennsylvania, among the project participants supplying labor or material, only contractors who have a direct contract with the owner and subcontractors who have a direct contract with the prime contractor have lien rights.
Owners, prime contractors, and construction managers often have carefully crafted lien and claim waivers they insist upon using on all projects.
However, in certain states (such as Georgia), lien waivers are valid only if they substantially track statutorily prescribed lien waiver forms. These examples give you some appreciation for the very different approaches taken by states in devising lien law rights and procedures. The lesson to be learned?
Then go look at the forms for CA, there are 4 different lien wavers and many other forms.
http://secure.uslegalforms.com/cgi-bin/forms/query.pl?S-C-CA-B-construction~liens|legalengine
Then look at LA
A total of only 3 forms, one of which is lien waver.
http://secure.uslegalforms.com/cgi-bin/forms/query.pl?S-C-LA-B-construction~liens|legalengine
And you relize that you are dealing in different universes.
Frankie,
Good points all and I had thought of several of them but decided to respond in the same open honest tenor of the originator of this thread. yes, there are a lot of other possibilities and I also wonder what is alluded to in the statement that other things lead him to believe the contractor is mismanaging. but I wanted to respond to the specific request without surmising too much. overly speculating on all possible scenarios doesn't produce much. I try to limit that to when I see indications in the poster's writing that something else is amiss.
As for the liens, I have often as a sub, been asked to sigh waivers when being presented with a check and have seen checks stampoed with a stateement that endorsement of the checks constitutes waiver of lien etc. It is far from uncommon for subs to each individualy waive off as they are paid and then the GC does his release when all is said and done.
Could be different in differing states, I suppose.
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frankie.. good post...good points..
keeping the lines of comunication and mutual respect is important..
one thing, when you said
<<<<However, I have found that most "low-ball" prices are a result of inexperience. It is a result of when the tradesperson does not understand what OTHER work must be done even though it is not stated in the drawings or Arch's specs. That's when a CO is due. Many inexperienced GC's won't submit a CO early on because they don't want to admit an error and think they can make it up somewhere else down the line - their second and actually most fatal error. That earlier "freebie" comes back to roost when the final stages and the project is coming to an end. >>>
this is one of the main reasons i will not do a "competitive bid"... i don't think they "misunderstand " at all... i think most conciously go about bidding to the letter of the specs and plans and look for loopholes so they can Chnage Order the job into a profit situation... this is as opposed to bringing these items to the table with the original Proposal.. IE: the bidder has larceny in their heart and intendes to get something from the job he / she may not be entitled to.. occasionaly they wind up bidding a job where the homeowner or the architect has an even more larcenous soul than they do ... and the bidder takes a screwing
low-ballers are low-lifes..... now this is in the residential arena... in the commercial and public bidding arena, it is definitely part of the game and the way the game is played..
Change Orders are for Scope of Work changes.. or undisclosed conditions..
they are not to protect the ignorant from knowing how to execute a contract.. ie...the merchantability of the product has to come into the equation... e.g.you can't substitute an interior door for an exterior entrance door... even though the door may not be spec'd
i hate Lien Releases... but on jobs they were required... we always did Partial Release of Lien.. and of course... anything pertaining to Liens has to comply with the individuals state laws pertaining to Liens... which are quite different from state to state
Mike Smith Rhode Island : Design / Build / Repair / Restore
Good points.
I did not address the potential misuse of CO's and I proceeded under the assumption that the GC is honest. GC's have a reputation for being crooks and though every profession has bad apples, I don't think the construction industry has cornered the market. The crews I work with are straight shooters and it is rare that I am involved with this type of "low-life." In this spirit I will not base my perspective on larcenous behavior - until directed by Q otherwise. There's more than enough of that in the other posts.
The times that someone has under bid my jobs has been an issue of naivite, not greed. X costs Y. I know from experience and from the average of the other bids I was presented. If I was charged Y minus 50% problems WILL occur and I must determine if the extra time required is worth the wait/ trouble or if I should pony up - time, money, manpower, etc - to keep things moving. Obviously Q is savy to prices and the market fluctuation. I am sure Q is also savy to what other GC's would/ have charged for the same scope of work. On that level Q has some bit of info that the GC does not. He/ she should have anticipated this, and obviously has.
On a similar note, I have come across more larcenous clients than subs or GC's. We all have these kind of stories. This post is not the area to swap them. Let's stay focused.
F.
Are you the owner or another sub?
Regards,
Boris
"Sir, I may be drunk, but you're crazy, and I'll be sober tomorrow" -- WC Fields, "Its a Gift" 1934
When I had a new roof put on, the roofing contractor (who actually subbed out the actual roof) provided me with a lien waiver at final payment time. None of his subs or suppliers signed it (since he said they were employees, which I'm not totally sure of,) and that the supplies came out of "inventory."
Anyway, I think it reasonable to ask for lien waivers, even if it does state that partial payment in specified amounts has been paid, and details work yet to be done and any payment amount remaining. This is extremely fair to both parties, and if the GC balks, then something is going on and you do have to CYA as early as possible. It's just like asking someone to sign a contract or change order: it protects both parties and anybody who balks is probably hiding something.
The last note I have is to make sure the lien waiver is notarized, so it affords an extra level pf protection, in the case the GC or his company disappears. which has been known to happen.Pete Duffy, Handyman
File a Preliminary Notice against property owner and/or lessee. If your'e not paid then you are clear to file mechanic's lien.
Boris
"Sir, I may be drunk, but you're crazy, and I'll be sober tomorrow" -- WC Fields, "Its a Gift" 1934