March 1, 2008

Contractors — Increasing Your Chances of Getting Paid in These Tough Times


Spring 2008

If you are involved in the residential building industry, you know times are tough. While many argue, and I agree, that the slowdown in the residential building market is only a temporary rough patch, survival requires advance thinking on how to best position yourself to get paid for your work. This applies to everyone, whether you are a general contractor, subcontractor, materials supplier, or professional services provider.

Foremost is putting everything in writing before you begin your project. Make sure you have a signed, written contract in place to protect your interests. Provide the owners of the property you are working on with advance written notice of your right to lien the property if you are not paid. Many contractors will, regrettably, realize the hard way that conducting business by a handshake has no place in today's volatile market.

Written contracts have become industry-standard and define the parties' expectations, rights, and obligations on projects. They include terms that determine how and when you will be paid, regardless of whether you are dealing directly with the owner, or with another contractor. Rest assured, the contract need not be littered with hard to understand legalese or overly complicated, hypertechnical jargon. In its most basic form, the written document needs to memorialize the parties' agreement relating to the work performed and the payment expected.

Most construction attorneys would suggest that a few specific clauses or terms also be included in the contract, such as clauses that define the scope of the work to be performed, the dollar amount of the contract and payment terms, and the parties' rights, obligations, and remedies in case of a dispute. Your contract should spell out in detail when and how you will be paid and include terms that allow you to recover your attorney fees if you are forced to file a lawsuit against the nonpaying party. You may also wish to consider adding a mandatory mediation clause that requires the nonpaying party to engage in formal settlement discussions and a binding arbitration clause that will allow you to pursue your legal claim for payment in a quicker, less-formal environment than a trial court. Drafted properly, the written contract will fulfill its purpose of protecting the parties and will help avoid misunderstandings that result in nonpayment and litigation.

Liens offer a powerful method of securing payment because they ultimately provide you with the right to foreclose on the project property and to collect what is owed from the sale of that property. Lien rights are governed by statute, and depending on your status on the project (general contractor, subcontractor, supplier of professional, laborer, etc.), whom you have dealt with, and the type of construction project, you may be required to provide the owner with advance written notice of your right to lien the property. But even in those limited situations where you are not required to provide advance notice, it is highly advisable to do so in order to set the proper tone. Following completion of work, it is critical that you record your lien and file suit in a timely manner so that you will not lose your lien rights. In Washington, you have 90 days from the date on which you last worked to record the lien and eight months to file a foreclosure lawsuit.

Plan ahead. Protect your hard work with a written agreement. And finally, set the proper tone by providing advance warning that you have the right to lien the property if you are not paid.

For more information on this topic, please contact or call (888) 598-7070.


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