ASAMW Member Response to April 20, 2021 Owner’s Panel - Response 1

I am following up on the Owner’s Panel on Subcontractor Payment which ASA hosted earlier this week. First and foremost, thank you for putting together such an informative program. I thought the panel did a great job with the question at hand. Paul did a wonderful job by keeping the mindset thinking out of the box . However, I am not sure that they were really able to answer the question “how can we keep subcontractors from financing construction projects?”

The major theme that I heard in the conversation was that subcontractors need to have accurate paperwork to be paid on time, which I agree with, in theory. Unfortunately, I think there are many other factors that impact timely subcontractor payment which did not get addressed and I thought I would address them here.

Contracts seems like the most obvious starting point to address this issue. First, ensuring that all contracts in the construction process, starting with the owner’s contract (the terms of which generally get flowed down to subcontractors) are reasonable is essential.

Second, but possibly more importantly, contracts between the general contractor and the subcontractor should contain more protections for the subcontractor. In our experience, we have witnessed GC’s taking too much latitude in their contractual relationship with subcontractors resulting in delayed or reduced payments. Some examples include:

• Subcontracts often give the GC too much power in holding subcontractor payments. This can include anything from scheduling, paperwork or even compliance issues. Subcontractors must pay their labor forces despite any of these issues and therefore, this is an unfair practice.

• In some cases, we have had GC’s withhold payment because they were losing money on the project and wanted to spread the pain evenly amongst all the parties at the end of the project. Again, subcontractors should not be held liable for problems that they did not create.

• As a finish trade, the poor performance of the GC or the non-performance of other trades should not impact us, but it does. For instance, when work is out of sequence, it leads to massive rework and lack of production. In short, we lose money when the project is not well run.

• The issues are not limited to base contracts. Change orders and ticket work are a huge issue in subcontractor payment. We are forced to negotiate extra work prices for 50-75 cents on the dollar rendering this work unprofitable at best. Furthermore, the burden to track and get approval on extra work fall squarely on the subcontractor, which leads to increased administrative costs.

Lastly, I believe there is a huge double standard that exists in our industry. Subcontractors are expected to finance construction projects, but if they ask for help or inquire about a payment, it is perceived as a weakness and may even jeopardize future work. This is a dynamic that truly needs to be shifted.
I hope this perspective is helpful. I would be happy to discuss with you further as necessary. 

PS – As I always state Wage Theft is not only unfair/stealing from the work force it also causes uneven playing Field for getting work!

Cindy Athey
mobile 703.898.2679
email [email protected]
605 Raleigh Place SE | Washington, DC 20032

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A Member’s Comments on April 20th Owners’ Panel - Response 2

Thank you for hosting the seminar last week. While I was so looking forward to the topic and was hoping for solutions to this problem (especially for small subs), I was extremely disappointed with the outcome. I felt we were no further in gaining ground. The financing is squarely on the back of the subs.

I agree that the conversation needs to start somewhere, but the panel (other than Avalon Bay) did not acknowledge that this issue was theirs to help resolve. The statement that ‘if we (the subs), think that GCs are willing to take the risk of paying us early before they get paid, that’s not going to happen.’ So, we, the subs, are asked to take all the risk, our profit margins are extremely low and we will continue to finance these projects. The ‘process’ for submitting/approving/paying AIA pay apps is so tedious on the approval end and the responsibility for making sure everything is exactly correct was again on the subs.

I was disappointed that ‘retention’ was taken off the table for discussion. We have almost $600K in retention on our books and have to fight like heck to get paid for it ~ many times we are done with our work for over year before the GCs will release it ~ AND many times it’s only a few thousand dollars.

Possible Solutions:
• Get GCs to place a threshold for ‘paid when paid’. Contracts less than $50K should be paid net 30.
• GCs should be open to deposits on material.
• Hold retention on labor only.
• Hold retention for a max of 6 months after a sub is complete.
• Give more consideration/incentives for subs who always perform (preferred subs) rather than always shopping price ~ that never works, you get what you pay for.
• Stop offering discounts to smaller subs to get paid early (which means ‘on time’) ~ we can’t afford any discounts.
• Eliminate/suspend the escalation cost clauses in times where our economy is pushing us beyond making any profit (many times ‘buying’ the project).

The panel did not address the current economic disaster (we are forced to absorb the severe price increases of lumber and steel). It’s killing our contracts. The suggestion that we need to ‘procure’ our products ahead of time from our suppliers to eliminate pricing issues is not possible in the current market. We secure our contracts 6-12 months before we purchase materials. There was no way to predict what’s currently happening in the steel market just like no one could predict the pandemic. Steel prices change twice a day ~ and it’s always up. Our steel suppliers won’t hold prices past 24 hours. The panel is not aware of the subs’ ‘buying/purchasing’ position. All the subs on the webinar need help with price escalation.

I do want to thank you for opening the door for discussion. I just wish there was the possibility of moving in a direction for the elimination of the subs financing the construction projects.