Contractors realize that time is money. Many issues can bog a project down and shave profits — weather delays, labor strikes and worker shortages, cost overruns, delays, plan changes and nonpayments.
But perhaps the biggest cash bleed is contract disputes. Almost nothing short of a stop-work order can bring a project to its knees the way a contract dispute can. But the good news is that the vast majority of these disputes can be avoided by drafting comprehensive contracts that have detailed plans for nearly every possible contingency.
Each construction agreement should contain provisions dealing with due dates, pay dates and amounts, but most should go much farther than that.
General contractors (GC) as well as subcontractors are likely familiar with “pay-if-paid/pay-when-paid” contingencies. Under the terms, GCs withhold payment to subs until the GCs are paid from the owner. When subcontractors sign an agreement like this, they make it much more challenging to get paid should there be problems between the owner and the GC.
Some states acknowledge the inherent unfairness of those type of contracts, and their courts will only enforce them if the language is very narrowly tailored to specifically fit state statutes. Contracts that can be too-broadly interpreted can get tossed out of court as unenforceable.
Your mediation/arbitration should play a major role in the drafting and review of construction contracts to avoid these type of contractual SNAFUs. He or she can insert any mandatory language or provisions to make sure that your and your company’s interests are fully protected should the courts become involved in a dispute.