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David Beer
One concerning clause that frequently appears in contracts is the ‘ pay-if-paid ’ provision . This clause essentially states that a contractor will only be paid if the party responsible for payment has itself received payment . It ' s essentially a red flag clause that raises ethical concerns . Accountability should apply when one ' s own actions result in mistakes , but it is unfair to withhold payment when the fault lies with someone else . Negotiating around this clause becomes imperative to protect one ' s rights and ensure fair treatment .
To gain more insights into the impact of delayed payments , an informal study was conducted on a USD5.7-million project with monthly payment requests from the electrical contractor . Analysing the data it became evident that a 60-day delay in payment led to significant financial gains for the general contractor . They earned an additional USD27 000 in interest while the contractor had to cover the gap with a line of credit loan , costing them approximately USD47 000 . Moreover , the contractor ' s ability to secure new work or engage in productivity-enhancing measures was compromised , resulting in a potential loss of USD57 000 in profits . This example highlights the substantial financial repercussions that can arise from payment games .
Contracts should specify a specific time for payment , and if the agreed-upon timeframe is not met , the contractor should be entitled to interest at the prevailing market rate . This negotiating strategy ensures that cash flow remains robust , supporting the financial stability of the business .
PROMPT PAYMENT LAWS : ENSURING FAIRNESS IN CONSTRUCTION In the construction industry , prompt payment laws have proven to be effective tools in promoting timely and fair payment practices . These laws establish specific timeframes within which payments must be made , with penalties imposed for non-compliance . Such legislation can positively impact cash flow and discourage deliberate withholding of payments .
As a recent adopter of such legislation , Nebraska has experienced positive outcomes , demonstrating the value of implementing similar laws in other communities . Prompt payment
The standard practice is to work for 30 days and submit an invoice , with a 30-day window for payment .
RACA Journal I October 2023 laws push stakeholders to honour their financial obligations promptly , benefiting contractors and subcontractors who rely on timely payments to maintain healthy cash flow .
One significant advantage of prompt payment laws is the reduction of extended retainage periods . These laws aim to limit the amount of retainage that can be withheld , preventing excessive deductions from contractors ' payments . Retainage should serve its intended purpose without becoming a mechanism for undue financial strain . By setting clear guidelines , prompt payment laws establish a standard for retainage that safeguards the interests of all parties involved .
While filing a lien against a property is an option , it is generally considered a last resort due to its potential strain on professional relationships . Creative negotiating techniques should be explored first to remove unfavourable clauses from contracts and establish transparent expectations regarding payment terms and amounts . Trust and ethics are paramount in the construction industry , making it crucial to collaborate with individuals and organisations that uphold high ethical standards . Aligning with reputable professionals ensures smoother operations and minimises the risk of conflicts arising from payment disputes .
Another area of concern in construction projects is front-end loading , a practice where contractors submit payment requests that exceed the actual work completed . Front end loading can be justified when it serves as a means to maintain adequate cash flow . However , caution must be exercised to avoid excessive front-end loading that may strain project finances and hinder progress . The line between reasonable front-end loading and fraudulent practices can be blurred , as illustrated by a case involving an engineer in New York . This incident highlights the importance of maintaining transparency and reasonableness in financial transactions to uphold professional integrity .
Change orders are an aspect of construction projects that often evoke negative sentiments from all parties involved . Architects , engineers , and contractors alike have reservations about change orders due to the perceived impact on project quality and the challenges associated with payment . Change orders disrupt established workflows , strain relationships , and complicate payment processes , leading to delays and frustrations . Contractors , in particular , find it challenging to receive prompt and full payment for the additional work required by change orders .
The detrimental effects of change orders can be attributed to several factors . Slow payment processes , the possibility of payment rejection , and increased scope of work are among the reasons why change orders are perceived negatively . These issues contribute to strained relationships , impede productivity , and disrupt project schedules . It is essential to address these challenges and find ways to streamline the change order process to foster a more collaborative and efficient construction environment .
Contrary to popular belief , contractors and engineers do not relish change orders . These requests are often viewed as reflections
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