CONTRACTOR COMMUNITY

In Contractor Community
May 7, 2018
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May 2018

ASA General Counsel Kegler, Brown, Hill and Ritter Revises FASA’s Retainage Laws in the 50 States

Before you bid or negotiate your next contract, be sure to know the laws regarding retainage where the project is located. The Foundation of ASA’s Retainage Laws in the 50 States 2018 summarizes retainage laws in the states and the District of Columbia. Each state entry reviews critical factors in retainage laws for public and private work, including the rate permitted, release milestones and any options to provide alternative securities in lieu of retainage.

In most states, retainage is a typical practice in both public and private construction contracts. The mandatory or permissive nature of retainage varies from state to state. In a few states, the retained funds may be held in escrow, to be paid back to the contractor or subcontractor with interest. Some states also permit contractors and subcontractors to substitute securities in lieu of retainage. Other states require contracting agencies or owners to reduce or even eliminate the rate of retainage once a certain portion of the contract is complete.

ASA-member law firm and ASA general counsel, Kegler, Brown, Hill and Ritter, Columbus, Ohio, prepared the manual, which contains contributions from construction attorneys from across the country.

“Since its founding in 1966, ASA has been an advocate for the elimination or reduction of retainage,” said ASA Chief Advocacy Officer E. Colette Nelson. “Through ASA’s efforts, the federal government eliminated routine retainage on federal construction in 1983. ASA chapters and members continue to lead efforts to reduce or eliminate retainage on public and private construction in their states.”

FASA Retainage Laws in the 50 States is available under “Contracts and Project Management” in the Member Resources section of the ASA Web site.

ASA’s White Paper Helps Subs Master the Ability to Stop Work for Nonpayment

Everyone’s heard the safety message, “Stop, drop and roll.” It’s one of those simple sayings that you’re supposed to be able to remember—even if you’re on fire! This well-known safety message conveys a simple solution to a pretty dramatic problem. Wouldn’t it be nice in the construction industry if subcontractors could, when not paid on time, just stop work, drop everything and roll away from the project until the progress payment (plus additional costs for stopping work) arrived?

Dealing with slow payment is not as simple as “stop, drop and roll,” but stopping work for nonpayment can be a critical, effective tool when properly wielded. ASA’s new white paper, Mastering the Ability to Stop Work for Nonpayment, discusses industry practices, statutory and common law trends, and what steps subcontractors can take to establish the right to stop for nonpayment. The white paper advises subcontractors to clearly establish the right to stop work, particularly when dealing with inconsistencies in common law. Given the fact that most prime contractors will assure that the ability to suspend work is accorded them by the owner before any work begins, a subcontractor should consider insisting on the same rights and considerations. The delivery of work on time, a sound subcontract, and good business practices may not be enough. The need and the emerging trend for a clear statutory remedy to this long-standing issue are apparent.

The white paper is located under “Contracts and Project Management” in the Member Resources section of the ASA Web site.

ASA Model Documents Can Help Subs Deal with Price Volatility

With the uncertainty of materials prices roiling the construction industry, subcontractors need to take steps to protect their companies. The cost of construction materials already is outpacing inflation, rising 3.8 percent between January 2017 and January 2018. The Trump Administration’s tariffs on steel, aluminum and other construction materials also add to the volatility.

Documents included in the ASA Subcontract Documents Suite include tools that can help subcontractors deal with price volatility in materials. The first step a subcontractor should consider to protect the firm from price volatility is to limit the duration of the bid’s validity. For example, ASA’s Subcontractor Bid Proposal limits the validity of the bid to 30 days. A subcontractor also can include a provision requiring an equitable adjustment to compensate for rapidly increasing materials prices. For example, ¶3 of the Subcontractor Bid Proposal states:

“A change in the price of an item of material of more than 5% between the date of this bid proposal and the date of installation shall warrant an equitable adjustment in the subcontract price.”

By including such language in its own bid proposal, a subcontractor has reserved the right to reject egregious language in a prime contractor’s proprietary subcontract and to negotiate this and other acceptable changes or to walk away from the project.

Once a prime contractor sends a proprietary subcontract to the subcontractor with unacceptable price escalation language, a subcontractor may want to include in its own addendum or its subcontract markup language such as that in ¶2 of ASA’s Subcontract Addendum, which states:

“A change in the price of an item of material of more than 5% between the date of subcontractor’s bid proposal and the date of installation shall warrant an equitable adjustment in the subcontract price.”

ASA members can access the ASA Subcontract Documents Suite under “Contracts and Project Management” in the Member Resources section of the ASA Web site.

Guideline Helps You Protect Your Cash Flow Lifeline

Everyone knows that construction is a “relationship business.” And relationships are built on trust. The customer trusts you to properly perform your work. You trust the customer to pay on time and in full for such work. Some customers will miss the due date in the rarest circumstances; others are chronic late payers; and then there’s everyone in-between. While trust is an essential part of the relationship between you and the customer, it is critically important to know how to protect yourself from the devastating effects of late progress payments. Knowing and establishing your legal and contractual rights is the bedrock for handling progress payment issues with customers, familiar or unfamiliar.

The “Guideline on Prompt Payment” jointly developed and published by ASA, the Associated General Contractors of America (AGC), and the Associated Specialty Contractors (ASC) as part of the Guidelines on a Successful Construction Project, provides a touchstone for discussing your concerns with customers. It sets forth a suggested schedule of billings, certificates and payments by the whole construction team. Use the guideline when explaining the measures you propose to assure prompt payment, such as:

Identifying a date certain for payment in the contract. If it’s not there, put it in. If the customer resists, show them the guideline and ask what is unreasonable about being paid according to the best practices outlined there.
Conditioning your bid using the ASA Subcontract Bid Proposal which incorporates the kind of unambiguous schedule for payment applications and receipt of progress payments that will help you get paid on time. The ASA Subcontract Bid Proposal is part of ASA Subcontract Documents Suite.
Requiring prompt notification of disputed amounts in writing. The guideline says: “It is important to note that along the sequence of events, any recipient of a payment request who takes exception to an item of billing should immediately contact the initiating party and attempt to resolve the matter. Failing resolution, the party taking exception should notify the other party in writing of the reasons for the action.”
Promptly initiating collections of unpaid amounts. The guideline notes that “[i]t is also suggested that collection efforts be commenced immediately following the day any payment due was not paid.” Consider incorporating penalties for late payments, including interest, de- and re-mobilization costs, as well as the ability to recover attorney fees during a dispute. A trust fund provision in your contract would say that moneys received by a contractor for work done by you are to be held in trust for payment to you. Establishing the contractual right to suspend work is another strategy.
Complying with relevant payment laws in your state—they may provide some statutory protections. See ASA’s Prompt Payment in the 50 States, which is located under “Contracts and Project Management” in the Member Resources section of the ASA Web site.

The guideline includes an illustration of the timeline for prompt payment that is easy to show to customers and their employees. Use it to get the prompt payment assurances you need, but under all circumstances don’t give your customer room to place the blame on you when its payment is late. Too many payments are delayed because of improper or late invoicing. All else aside, it never helps to be the one who submitted the wrong paperwork.