By Lynn Pearcey, MBA, Copywriter, AIA Contract Documents
May 18, 2023
Construction is hard work, and there’s no getting around this fact. No matter your role in a project, by the time the structure is complete, chances are you’ve seen your fair share of sweat and dirt. A construction project is hard work from start to finish and all the stops in between. What makes that work harder is when a payment dispute rears its’ ugly head.
Adhering to payment schedules is a critical element of the construction process. First, it builds cohesion and trust on the work site. Remember, construction is hard work, and knowing that payments will come promptly promotes a better work environment. Next, payment integrity builds relationships. Relationships are the lifeline of any business, and construction is no different. One of the best ways to build the ones you’ll need to be successful is to make sure payment is submitted at the appointed time.
Lastly, payments and productivity go hand in hand. When payments lag or promises go unkept, curiosity replaces productivity. A workforce of curious contractors focusing more on compensation than producing can lead to disastrous results. Even if the project finishes on time, the effects of that situation can linger.
As you can see, payment is a critical part of a construction project. Here are a few tips to help you avoid challenging payment disputes.
Start with a Solid Contract
Before a single brick is laid, a nail driven, or concrete gets poured, there’s the contract. Contracts are guiding documents, and the misinterpretation of their language has been the root of many payment disputes. One party may interpret something this way while another party the other, while yet another, walks away with their understanding. When this happens on any project, regardless of the size or type, the odds of a payment dispute coming into the mix at some point increase.
The goal is to build a document that guides the project and ensures everyone is on the same page for every facet and expectations are clear. Contract clarity includes terms of payment. A good rule of thumb is that before the project commences. Comb through every detail, including payment terms. This type of detail may seem tedious, but it lessens the possibility of any disputes arising in the future and keeps the project flowing.
Remain Connected to the Project
Losing touch with a project happens from time to time and can lead to several challenges down the road. Most projects don’t go as planned and there are bound to be hiccups here or there. That’s just the nature of the work. If you’re not careful you’ll be looking at cost overruns, disgruntled team members, and unfortunately, payment disputes.
Daily meetings where progress, needs, and project variables are one way to avoid this situation. Financials should also be on the table as transparency in this area, or lack thereof, often leads to payment disputes.
Hiring and Retaining Capable Talent
Project management is a skill, not just another position to fill on a worksite. They’re gatekeepers, and a good one knows the pulse of a project. Hiring and creating an environment that leads to high retention rates is one way to attract quality project managers. As projects become more sophisticated, the need for these qualified professionals will only increase.
When hiring a Project Manager, consider it an investment: not only in their career but also in your business. The return on that investment is the decreased likelihood that you’ll face myriad challenges that can derail your project. A top-notch professional project manager is on the frontlines and understands their reputation; their professional brand is on the line. As such, they’ll be far more inclined to remedy instances that could cause damage, including payment disputes.
Review Your Timelines
Sometimes payments due appear out of nowhere. At least, that’s how it seems, but in reality, when this occurs, it’s a function of a timeline that’s being mishandled. Payments are part of the construction process, and good project managers and those in charge of finances know when one is coming due. As such, they make plans for resource allocation, adjustments, and other checks and balances according to sound timeline principles.
Ignoring timelines has a way of catching up to you and potentially wrecking the momentum of your project. Timeline issues destroy profit margins and can ripple into other parts of your business, including your finances, where payment disputes tend to start. To avoid these situations, ensure your timeline receives regular reviews and updates.
You can avoid payment disputes if you take the necessary steps. It starts with the contract. Make it a priority to partner with a reputable contract resource who understands what language needs to be in the document. From there, ensure all questions and concerns are answered before contract execution.
Remember, once the ink dries, it’s not over; the hard work is just beginning. That’s not the time to run from the project. You should monitor every facet from that time forward to alleviate any challenges, including payment disputes.
Make it a point to surround your project with talented professionals, including Project Managers adept at their craft. From there, create an environment that lends itself to high retention rates. A level of ownership is attached to being a Project Manager, so by all means, find a team that understands and prides itself in this reality.
Finally, monitor your timeline as they tell the story of your project. Keep accurate records and communicate with the appropriate parties in a timely fashion. Doing these things will ensure everyone is on the same page and increase the odds of a successful effort. Payment disputes happen from time to time. But with the proper protocols and a proactive approach to business, you can alleviate them and position your organization for ongoing success.
AIA Payment Application, G702-1992 and G703®–1992, Continuation Sheet provide convenient and complete forms on which the contractor can apply for payment and the architect can certify that payment is due.
AIA Contract Documents has provided this article for general informational purposes only. The information provided is not legal opinion or legal advice and does not create an attorney-client relationship of any kind. This article is also not intended to provide guidance as to how project parties should interpret their specific contracts or resolve contract disputes, as those decisions will need to be made in consultation with legal counsel, insurance counsel, and other professionals, and based upon a multitude of factors.