Masonry Magazine February 2001 Page. 44
A certain amount of sneaky legal creativity sometimes is needed to deny contractors what is owed to them. William J. Olmos III, general manager of Salinas Reinforcing, Inc., Livermore, Calif., says that buried in the contract for work on a new overpass was a six-month gestational period for the surrounding shrubbery. The bridge was opened and put into use, but not in the season when shrubs bloom in California. Months went by as a landscape contractor waited to plant, and months more passed waiting for the shrubs to bloom. "In retrospect, it seems like a great tool to screw the contractors that performed the 99.99% of the useful portion of the construction project, making all wait for pay because of cosmetic fluff," says Olmos.
Cavalier attitudes toward payment sometimes are barely disguised by the flimsy excuses put forward - and the financial staffs at contractors hear plenty of it. Paper shuffling is often attributed a mystical power. Webster Gravel and Asphalt, Minden, La., has been waiting to collect retainage for a job finished back in October. "I have been told that the paperwork has been misplaced," says Elizabeth White, the company's bookkeeper. "Tell me that's not a crock." Sometimes owners tell subcontractors everybody's payment has to wait because one sub failed to send in invoices or file lien releases on time. "We've had our payments held up because another sub didn't get its requisition in on time, so the owner didn't get the requisition in on time, therefore the owner won't release the current month's payments," says Susan P. Griffee, an accountant in the Washington, D.C., area who has also worked as a utility contractor.
Pay abuses sometimes are justified by the presumption that subs are front-loading their invoices during a project. Chris Doyle, vice president of Tyler Mechanical Contracting Inc., Ijamsville, Md., says that impression is wrong. He has to prepare a schedule of values that will stand up to scrutiny by an owner or prime contractor and he has to use the schedule as an internal control tool during a project. Get the schedule of values approved by the prime contractor at the beginning of the project, he says. "Ours are fair and accurate and have to be because they are for our own use, too," says Doyle. "It has to reflect an honest conception of the job."
The real wildcard in the payment game - and an odious form of risk shifting - are the change orders that represent a large portion of the value of many projects. Subs are compelled by their contracts to do the work, but after clearing that hurdle many of the rules of civilized business behavior go out the window. Months pass as construction managers and general contractors haggle with owners or team up to criticize subs. And a prime contractor may propose a closeout payment at a fraction of the value of the work. Subcontractors' paperwork is often scrutinized for flaws and general contractors and construction managers may concoct back-charges without documentation, subs say. The process is a rotten one. "The tendency is to drag out decisions on change order pay until the end and then try to resolve it," says Chip Swab, president of Ennis Electric Co., Manassas, Va. But by then many of the original players have moved on and memories fade.
Complexity often leads to trouble. That is partly what made the change orders and project closeout difficult for the steel erection subcontractor on the Hayden Planetarium at the American Museum of Natural History in New York City. The planetarium had an unusual spherical structure and several levels of pay review in a construction manager, a museum and a private funding source. A.J. McNulty & Co. Inc, New York City, held contracts for the structural steel and the curtainwall and both contracts expanded significantly with change orders during work in 1998. The owner and prime contractor retained 10% throughout the job and reduced the retainage somewhat as work was completed. McNulty finished its work in early 1999, according to sources familiar with the project, but more than a half million dollars went unpaid for 18 months.
The feeling that "We don't have to take it from them," may only last as long as the good times, but for now, subcontractors have options. Michael Markham, a Phoenix-based paving and grading and sewer contractor, feels armed and capable of dealing with prime contractors that want to hold onto his money. "It forces us to pay smaller subcontractors ourselves, although we haven't been paid, but it also makes us get much firmer in our position on extras. It doesn't make us more willing to be negotiable, it makes us more hard-nosed on what we deserve."
by Richard Korman, with David Kohn
44 MASONRY FEBRUARY, 2001