Payment disputes are a common source of conflict between parties in construction projects. For instance, between the contractor and the project owner or the contractor and a subcontractor.
Different factors can contribute to payment disputes in the construction industry, including:
1. Scope creep
When a contractor signs the initial agreement, they are aware of the scope of work. They understand the amount of materials required, the tasks, the labor needed and the time it will take to complete it.
When the project is expanded beyond what was agreed, the contractor will need more materials, labor and time. Thus, they need to be compensated accordingly. But this is not always the case. If the additional tasks are not documented formally or a new budget is not created, uncertainties about who should be responsible for the additional expenses can arise.
2. Quality of work
If a project is not done according to the agreed-upon standards, a project owner may decide to withhold a portion of the contractor’s payment until the work is satisfactory. This can lead to conflicts, especially if the contractor believes their work is satisfactory.
It’s also not uncommon for a contractor to withhold payment when a subcontractor fails to meet quality standards.
3. Unclear payment schedules
Construction contracts should be clear about payment schedules. A contractor or subcontractor should know when and how to expect payment. Vague or unclear payment schedules can lead to disputes.
For example, a contract that states, “Payment will be made as the project progresses” or “Payments will be made based on completion of work” can be risky. An agreement should be specific, such as “10% deposit at contract signing, “25% after rough framing is completed,” and so forth.
Payment disputes can lead to project delays, financial strain and damage to relationships. Obtaining more information can help those involved in construction projects work smoothly.