Paid-when-paid contract - Reasonable Time 10

[ME27272727]

Hello. I'm a self-employed consulting engineer. In the building design and construction world, many contracts are typically "paid-when-paid" terms, with some wording stating that invoices will be paid in a "reasonable time-frame" to circumvent payment protection laws. I'm looking for opinions and experience on what constitutes a "reasonable" time-frame. 30 days? 6 months? A year? It's a good, reputable client of mine that is starting to approach 6 months past due on a big invoice (big for me anyway). It's always fun trying to strike a balance between maintaining good relationships while not being a push-over !

 

[IRstuff]

The converse, in San Francisco, is that they have 15-day escrows, almost as a norm, because so many buyers pay in cash.

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[glass99]

Anything under $25,000 is NET30.
Anything between $25,000 and $50,000 is NET45
Anything over $50,000 is NET60

The part that is stressful for me is that not NET anything, its just "whenever they get to it". Even if I knew with take-it-to-the-bank certainty it was going to be 100 days, I could at least just finance it and get on with my life, but the relationship stress that comes with "whenever" is actually harmful. The the half assed explanations, the "missing PO number on the invoice", some weird thing with an insurance certificate they only discovered 90 days in, the silence etc etc.

-> that's just griping. The important thing that needs to counterbalance the foot dragging is what are consultants willing to do when a client violates an agreement. Stopping work would seem obvious, but its not for some reason.

 

[IRstuff]

Consultants, in particular, are beholden to their customer base, and any whiff of disgruntled customers will have a deleterious effect on future contracts, so I can certainly see why a more nuanced approach is necessary.

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[Ron]

Glass99.....yes, I have used our lien law in Florida on two occasions. In both instances it got me paid.

Read your state's lien law carefully. In some states (Florida for one), there is a construction lien law separate from the typical mechanic's lien law. Whether a catch-all mechanic's lien law or a specific construction lien law, there are usually limitations on time to file and on giving a notice to owner at the beginning of a project.

 

[glass99]

yes, I have used our lien law in Florida on two occasions. In both instances it got me paid.

very interesting about the lien. I have always been too timid to file a lien, so well done. Just looking online, it seemed that the deadline to file a lien was actually very short, something like 60 days. Is it actually that short, because I usually don't get mad enough to consider a lien until about 120 days. What do you mean give notice to the owner at the beginning? Is that something you have in your standard terms and conditions?

 

[Ron]

glass99....A Notice to Owner is something that a contractor is required to give an owner at the start of a project to put them on notice that they will be working on their project and should be paid for their work. This applies to subcontractors as well. For contractors, this is mandatory or they cannot file a lien.

In some states, a design professional is not required to give a Notice to Owner; however, they must still abide by the time constraints for filing a lien. In my state, we have 90 days from the last activity on the project to file a lien. Then we have one year to file a foreclosure on the lien if not paid. If we fail to file a foreclosure on the lien, it goes away after 1 year.

In the first one I filed, it caused the lender to withhold their final draw payment until they paid me....good outcome, easy resolution.

In the second one, filed against an office condominium association, they decided to contest the lien since I filed a foreclosure on 7 buildings with multiple unit owners and would have effectively made me an owner of each property. A slightly nasty legal battle ensued and since our state requires mediation attempts first to settle lawsuits, we went to mediation and decided to settle for about 50 cents on the dollar....better than nothing! The only reason I didn't decide to move forward with the lawsuit and to settle at mediation was that I was extremely busy and it was already taking up a lot of my time to do the legal battle. My practice is primarily forensic work so I'm very familiar with how much time a lawsuit can consume. My attorney even decided that I had such a good case that he would go forward with the lawsuit on a contingency basis, so my out of pocket would have been essentially nothing. If I had the time to deal with it, I would have gone forward, but my investigation, deposition and trial schedule was slammed so I just decided to make it go away and settle.

 

[glass99]

Ron: that's all super interesting real world feedback. I have heard about contractors using liens but engineers are a different story. 90 days from the end of the project isn't a huge amount of time, which is definitely something which would limit the usefulness of the process for me. Though being from the end of the project as opposed to when the invoice is issued is an important distinction for a long running project.

Its super gross about the condo association taking your claim to mediation. It seems like its just about raw power at that point, and nothing to do with doing what's right. Did they have any actual basis in truth for not wanting to pay? I have sat on condo boards in my personal life, and I know how stupid the dynamics can be. The whole point is that "we are broke, and its not my fault and if its someone else's fault who's not here that's perfect".

 

[ME27272727]

This is a great discussion. Thank your for your responses.

 

[Ron]

Glass99...the condo association blamed me for helping them select the contractor that ultimately had to be terminated. We had three contractors bid the project. The selected contractor was the low bidder and gave a construction schedule that the owners liked, but we questioned from the beginning. We had the contractor on a previous project and they did a good job...on time and within budget. We were promised the same project manager for the problem job; however, he decided to leave the company just before they were to be on site and after the contract had been signed.

They started showing their incompetent project management within a few weeks of starting. I went to the jobsite a couple of days after they started and found the contractor using day labor to perform skill-required functions and they were doing so without any personal protective equipment and on scaffolding that was not tied off. I started documenting, informing the contractor and informing the owner of the concerns.

This went on for several months of trying to get the contractor to perform according to their contract. They replaced the superintendent once, but kept the same PM. Continued to have issues. Finally about 8 months after they started the owners kicked them off the job. We had recommended it long before, but they delayed. They kept delaying our payment for about 60 percent of our work. Finally we told them we were stopping work on the project and filing a lien. Filed a lien on 6 out the 7 buildings on the project. Still no pay. One year after filing the lien we filed suit to foreclose the lien. That's when they countersued claiming that we delayed the project.....well we did delay the project because we rejected the work of the contractor on numerous occasions and they had to re-do the work.

In Florida, mediation is required first before a lawsuit goes to trial. Only if mediation fails does a trial occur. I settled for about 50 cents on the dollar because I didn't have the time to deal with the suit.

 

[miningman]

Slightly different situation, but if you are having difficulty collecting on a judgement you have been awarded by the courts, have the local sheriff "seize" all the office furniture of your dead beat client. Based on my experience , he doesnt physically take possession of the furniture , rather he staples a notice to the office stating stating that the following goods have been seized and any attempt to remove theses goods , or this notice is contempt of court.

Most organizations dislike having this notice affixed to the front door , and suddenly develop the ability and willingness to pay their debts.

 

[glass99]

Ron - appreciate the back story and the resolution. Really useful to hear about liens being used in real life.

 

[TheTick]

Paid-when-paid is for suckers. It's easy to get suckered when you're young and/or hungry. I did, but on a small enough scale to walk away from. (Kickstarter-type projects.) Good customers have good credit lines.

A good rule of thumb is "Don't make their money problems your money problems". Cash flow? Tax issues? Kids' Christmas presents? Don't care. Pay me.

 

[Ron247]

The paid when paid is similar to something I observed when I was about 20 years old and in residential construction. Brand new high end subdivision. Developer told new and aspiring brick mason he was not sure how good he was. Give the developer a good price on the chimney and the brick porch slab and he will consider him on all future houses. The mason did a bang-up job and at almost free price, and it turned into "Give me the same deal on all houses and I will hire you.

End story, dishonest people ALWAYS cheat honest people, honest people NEVER cheat dishonest people.

 

[gte447f]

Paid-when-paid is for suckers. It's easy to get suckered when you're young and/or hungry. I did, but on a small enough scale to walk away from. (Kickstarter-type projects.) Good customers have good credit lines.

A good rule of thumb is "Don't make their money problems your money problems". Cash flow? Tax issues? Kids' Christmas presents? Don't care. Pay me.

The paid when paid is similar to something I observed when I was about 20 years old and in residential construction. Brand new high end subdivision. Developer told new and aspiring brick mason he was not sure how good he was. Give the developer a good price on the chimney and the brick porch slab and he will consider him on all future houses. The mason did a bang-up job and at almost free price, and it turned into "Give me the same deal on all houses and I will hire you.

End story, dishonest people ALWAYS cheat honest people, honest people NEVER cheat dishonest people.

These are nice anecdotes, but the reality is that "pay when paid" and even "pay if paid" are the industry norm between architects and their subconsultant engineers for many projects and firms of all sizes. Most subconsultant engineers I know just accept the terms and hope for the best and usually get paid in 60-90 days but often have to wait much longer. I personally despise the practice and am hoping to begin to have success in negotiating alternative terms and enforcing them. Suspending services/stopping work is a powerful leveraging tool but may not be good for business long term. I am currently in the middle of just such an experiment on a project that is in construction and for which I am providing construction phase services. Still no check in the mail, but on the plus side, my holidays have been much more relaxing and enjoyable without the work We'll see what happens.

 

[bridgebuster]

In New York, our public clients require we pay our subs within 7 to 10 days; depending on the client. My employer never does that; subs can wait for months. The longer they hold the money the better they look, cash flow wise, to their Wall Street pimps.

 

[gte447f]

bridgebuster, what you are describing is not the problem of "pay when paid", but of course it compounds the problem for the subconsultants. For a prime to hold money due to subs even after it has been received from the owner is really poor form. Those are the clients that subs should really kick to the curb immediately. But, of course the sub usually isn't aware that this practice is going on because the prime probably just lies and says they have not received the money yet, using the pay when paid provision as a smoke screen.

 

[bridgebuster]

gte447f - I agree it's poor form to delay payments. The OP implied he works as a subconsultant and wanted to know what's a reasonable time frame for payment. I think a lot of our subs know we don't pay promptly. We're a big company and they want to work for us.

 

[glass99]

In New York, our public clients require we pay our subs within 7 to 10 days

It's interesting 7-10 days is requirement, I didn't know. The NYC DDC took 1921 days (~5 years) to pay my last invoice. The DDC still insists it pays within 30 days, but it gets around that by not starting the processing time until "all conditions have been met", which can include them having the money, and can be years.

 

[gte447f]

I’m sure that 7-10 days that bridgebuster refers to is 7-10 days for prime to pay sub after prime recieves money from owner.

In GA there is a prompt pay act that requires payment to prime within 15 days and payment to subs within 7 or 10 days from the time that prime receives money from owner. In general construction primes hold owners to this and construction subs hold construction primes to this. Unfortunately design consultant primes do not hold owners to this and design consultant subs do not hold design consultant primes to this.

The above prompt pay act timeframes can be altered by contract and many contracts between design consultant primes (architects) and owners are 30 days, but the owners don’t adhere to this and the architects don’t enforce it. Many contracts between design consultant primes (architects) and subs (engineers) are pay when paid or pay if paid.

 

[bridgebuster]

glass99 - I had a DDC invoice rejected (one of many)because our time cards are printed last name, first name but the payroll abstract was submitted first name, last name. Their explanation: "How do we know it's really the same person?" Of course, this was after we had submitted numerous invoices that way.

One of many DDC horror stories; I'm sure you have many as well.