CAN YOU STILL GET PAID ON PUBLIC PROJECTS?
Sometimes you just can’t tell
Yes, the economy is tough, but even worse, as a Subcontractor or Supplier; the way you do business on public construction projects has just changed. Now, in addition to everything else, you have to ask yourself:
Who did I bid to (who did they bid to?) Is the prime contractor exempt from having to post a Payment Bond to guaranty that I will be paid for my work?
Do I qualify my bids and negotiate my contracts to protect my right to be paid for my work?
Do I get a copy of the Notice of Commencement (it will tell you if there is a payment bond)?
Do I serve my Notices of Furnishing properly? Timely?
Do I file my Mechanic’s Liens when I should?
Do I serve my Bond Claims when I should?
Your rights to be paid on a public project used to be a protected by a 2-prong safety net, your Mechanic’s Lien and your Bond Claim. Due to some special interests in the Ohio Legislature, that has just changed. While the House, the Senate and the Governor were arguing over whether we would try to balance our State budget with slot machines Senator Shirley Smith, Democrat from Cleveland, slipped in an amendment to the Budget Bill that has little, if anything to do with the Budget.
The amendment exempts certain minority and EDGE contractors from having to post bonds: Bid Bonds; Payment Bonds; and Performance Bonds on State and local public projects. The exempted contractors are contractors that do not have the financial wherewithal to obtain a bond. They have the right to bid on and win up to four contracts of increasing amounts, starting at a maximum of $25,000 and increasing up to $300,000 without any bonding, contingent upon the successful completion of the prior contact and the participation in or completion of a “Qualified Contractor Assistance Program.” If, after the completion of the fourth exempted contract they are still unbondable, they have the right to repeat the four contract process. The worst part is that you may be bidding on the project before you know whether your right to be paid will be protected by a bond.
This exemption eliminates one of your payment safety nets AND changes that way you do business. If your unqualified bid is used on a project with an exempted contractor, you can be required to work on the project without the assurance that you will be paid.
While the retainage withheld by the State or local government against the exempted contractors has been increased, purportedly for your protection, the two problem realities are that increased retainage hurts the contractor’s cash flow and decreases their ability to pay you, the more insidious problem is that IT IS THE GOVERNMENT, NOT YOU, that has the first right to the retained funds if the contractor defaults. It is in this situation that the payment bond is supposed to be there to protect you. If the contractor is an exempted contractor, you just lost that protection.
12 Things That You Need To Do, STARTING TODAY To Protect Your Company:
1. Only deal with contractors that have a good reputation. Darlene East, President of Holes, Incorporated and President of American Subcontractors Association NATIONAL, advises to Research each contractor’s and owner’s business and credit history through services like D&B. In Ohio, you can review and exchange information on project owners, contactors, subcontractors and suppliers at ConstructionCreditNewsBlog for free.
2. Qualify your bid by restricting your bid to only being used on bonded jobs
3. Qualify your bid to include all of the terms important to assure that you will be paid into your contract (American Subcontractors Association has good-Free to Members-Bid Forms and Subcontract Addenda written by its Attorneys’ Council, to protect your rights)
4. Negotiate your contracts to include the restrictions of your bid or walk away from a bad contract. Let your competitor lose money on a bad deal (you can do that if you properly qualified your bid);
5. Eliminate Pay-if-Paid clauses;
6. Eliminate No Lien clauses;
7. Confirm your Right to Stop Work if you are not being paid;
8. Confirm your Right to obtain Financial Assurances that you will be paid;
9. Avoid Change Order Clauses that require that the Government and the Contractor agree to the Change Order and Make the Payment before you have the right to be paid;
10. Obtain the Notice of Commencement and Serve your Notice of Furnishing before you start work (or at least within 21 days of your first day of work);
11. Because your lien rights are limited to the money that the government still owes the contractor, if there is no bond, consider filing your lien as soon as you are complete.
12. If you are scheduled to work in phases, don’t measure your lien time by the promise that you will be called back to work on the next phase. If the contractor defaults, there is no performance bond to back it up to permit it to finish the job, you may never be called back to finish, your lien rights will have expired and there is no bond to back YOU up.
The economy is tough, but don’t make it tougher on yourself by taking bad jobs. Not getting a bad job is better than being sorry that you did. Protect your company, use all of the tools that are available to you and look for legal seminars offered by the Builders Exchange and American Subcontractors Association of Ohio to use them all to your advantage.
Labels: Budget Bill, Minority Contractors, Payment Bonds
