Stored Materials

[TBCEng07]

Can someone help settle a dispute between our staff.

Our Contract is written in vague language. It says: you basically pay for stored materials.

The Contractor has stored $10,000 worth of materials at the site. Now it is time to make the second progress payment.

Pay # 1 - $10,000 Stored Materials & $100,000 Work Total
Total Payment 1 = $110,000

Pay #2 - $5,000 Stored Materials (Remaining has used some up) & $220,000 Work Total
Total Payment 2 = $225,000 - $110,000 (Pay 1) = $110,000

one person says we should force the $5000 to $0 under Pay #2. i dont believe this is fair b/c this would force the contractor to absorb the materials stored. basically we would be breaking the contract since arent paying him for stored materials.

 

[SteveWag]

Seems like your paying $15,000 for &10,000 worth of stuff, unless the $5,000 on the second Pay is in addition to the $10,000. How much, total, was brought on-site and stored? If only $10,000 then it was all payed for in Pay #1.
Steve

 

[bpattengale]

You say that the contractor has stored $10,000 worth of material on the site as of payment #1. So the first payment paided for the $10,000 materials and the $100,000 work total for a payment of $110,000. The material on site has been paid for as of payment one. The $5000 should be forced to $0 under payment two. I'm assuming that the contractor did not bring additional material onto the site between the first and second payment. The contractor is not absorbing the cost of the material as he was already paid for its value with the first payment. Thats how I view it.

 

[TBCEng07]

No new materials are being brought to the stie.

Okay. i forgot the negative amount for materials used. Confused myself.

Pay#2 would actually be

$5000 Stored Materials and $220,000 of total work.
The way our calculation works is that we have a negative number applied to our Total work in the amount of the stored materials used.

So Pay#2 would be $225,000 - $110,000 (pay #1) - $5000 (materials Used) = $110,000

This process will continue until the materials are used up and the materials stored balance reduces to zero.

Basically this gives us the ability to credit for materials that continue to be stored from pay estimate to pay estimate.

 

[cvg]

either your contract is vague or not. If you are required (by the contract language) to pay for stored materials (and the contractor is asking for them to be paid in his pay request) then pay them - otherwise, don't.

 

[bimr]

One would expect that the Contractor has read the contract and submitted his invoice in accordance with the contract.

Your job is to confirm that the Contractor submitted his invoice correctly. You do this by carefully reading the contract.

 

[csd72]

Just dont pay for the same thing twice.

 

[dik]

bimr has the right approach. Generally, material secured on site should be paid for and is the property of the owner. The contractor cannot remove it.

Dik

 

[MiketheEngineer]

Call your lawyer??

 

[Ussuri]

It depends how you interpret it.

Valuation Period 1. Contractor brought material onto site and stored it as per contract. You paid for him to store the material.

Valuation Period 2. No new material was brought onto site, but during the valuation period half of it was used.

One interpretation is that the material was brought onto site and you paid to store it. No new material arrived so no additional payment is required. The storage has not changed and a one of payment made (think lump sum) so the contractor gets nothing.

Or the storage was based on a 'renting space' arrangement. To start with you needed space to hold $10000 of material. Now they only have $5000 stored so less area taken on the site but it is still stored. You then need to pay the 'rent' for the land it stands on.

If your contract is vague, get ready for a claim.

 

[cvg]

I disagree - owner is not obligated to pay rent to the contractor - unless it is specifically written into the contract. Contractor is required to secure and pay rent for his own marshalling yard. Project site is owned by the owner and no rent is charged. Owner does not pay for the storage, he reimburses the contractor for purchasing it. It is simple, if the contractor purchased the material and is stored on site, he can ask for payment, based on his direct cost.

 

[Ussuri]

I dont think it is clear from the OP. He states they have to pay for storing it. Clearly this is different to paying for the material itself.

I dont think I have come across a contract where the client pays for the material and then pays the contractor to hold it for him. As you say, the client owns the site, its his land which he is allowing the contractor to use. If the site is large enough.

If the site was too small and materials are stored elsewhere then the contractor will have a cost associated with setting up and maintaining a compound away from the site. He is entitled to be reimbursed for this.

 

[TBCEng07]

We are paying ahead for the materials that are stored, not the rent for the space.

I understand Ussuri, but by forcing the stored material account balance to zero, the contractor would not be credited for the materials that remain stored on site. How is storing half the materials in the second period different from storing the whole lot in the first period?

Note that the fact that they used half of the materials results in a deduction in the total payment #2, because we paid ahead for the materials that were used and these need to be subtracted from the payment.

In my mind it is the same thought process that we use to pay for constuction work, just in reverse. You take the total work completed on the project and subtract the dollar sum of the previous payments to determine what is due. In the case of stored materials, there may be materials stored for the duration of the project that don't get used until the end of the work, but eventually this will zero out.

 

[cvg]

i think you still need to go back to the actual contract language. the contracts I have seen do not pay for "storage". they only pay for the "materials". they are paid to be purchased and delivered. Full payment is requested on the next pay request after delivery. There is no "account balance" for stored materials. rent, storage and protection of them is the contractors responsibility and is not a pay item. Many contracts limit this reimbursement only to "major" material deliveries by setting a minimum dollar amount before the contractor can even ask for payment.

 

[muuddfun]

You need to look at the materials payments as an advance, and keep it seperate from the value of the work completed to date. Then you can subtract the value of the materials used so that the remaining progress payments are still giving you the equivalent of the actual progress they have completed. In other words the remaining progress payments would be less than they would be if you had not advanced the payment for the materials in the first place.

 

[coloeng]

Let me see if I have this correct.

Payment #1: The Contractor has done 100,000 worth of work and has 10,000 worth of material on site. You paid him $110,000.

Payment #2: The Contractor has done $220,000 worth of work and still has $5,000 worth of materials on site that has not yet been incorporated into the work.

It seems to me that the Contractor has expended $225,000 worht of labor, equipment and material. You have paid him $110,000. You owe him $225,000 - $110,000 = $115,000.

 

[LCruiser]

coloeng has it. I'm not sure what's confusing, except I wouldn't say the Contractor has "expended" the labor, equipment, and material. They have done $220k worth of work and have $5k of material on hand. That's $225k, minus $110k = $115k payment.