How to Ensure You'll Get Paid for Residential Construction
Author: Warren Reidhead
January, 2013 Issue
Collecting money for work done on a residential project can be a nightmare at times if you approach the subject in an unprofessional manner. But there’s nothing that should stand in your way to receive payments for work that’s done pursuant to the project plans and specifications. You just need to make sure you perform the work as a professional. Make sure all agreements are in writing. Do no extra work beyond what’s called out in the plans and specifications without a written change order. Also, get a qualified third party to make periodic, critical inspections.
Let’s back up and discuss what I’ve already thrown out.
Contract and specifications that dictate how the project must be completed should be reviewed, initialed and dated to show they’re the approved documents outlining how the project is to be completed. Depending upon the size of the project, you need to agree—and include in the documents—when and how periodic payments will be made.
I recommend a third qualified party be designated as inspector for all work done. If the project has a state, country, city or other building inspector, you could use their inspection reports and acceptance of the work to be acceptable to trigger periodic payments.
Payments. Depending upon the project’s size, you as the contractor need to do your due diligence. Do you know your customer? How is the project going to be funded? The materials should be paid for upon delivery so you aren’t stuck between the owner and suppliers. Consider using an escrow account to ensure the money will be there when you need your next draw.
Change orders. Do absolutely no work that deviates from the original plans and specifications without an approved change order. Make sure the person authorizing the change in work has the authority to do so and that the extra funds will be deposited and available. Don’t let yourself be exposed to doing extra work without adding extra time to the completion date. This could hurt you if the owner decides to impose penalties because you didn’t meet the original completion date.
You need to make red lines to the original project plans that depict the extra work or provide plans in an agreed upon manner that shows any work that deviates from the original plans.
Documentation. You need to document everything that happens on your project. Make note of everybody who sets foot on the job site—and don’t let any unauthorized people on the property while your company is in charge. Make sure the proper insurance is in place before beginning construction. This will protect you and the property owner. The main thing you need to do is to make sure there are no misunderstandings throughout the completion of the project.
I’ve found that some people may become intimidated by the amount of paperwork and notifications that are sent, but you need to let everybody know you’re only doing it to ensure there are no misunderstandings. If anybody doesn’t agree to the periodic reports, they need to do so in writing so you can eliminate those misunderstandings before they become problems.
If you do the necessary paperwork you can eliminate most reasons for not being paid for work you’ve done on any project. And as long as you approach every project in a professional manner, you should be able to receive your payments with no problems.
Warren Reidhead has been in the contracting business for more than 25 years. You can visit www.minoritycontractingsuccess.com for more tips to achieve success.
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