By Adrienne Smoot-Edwards, Regeneracy; and Mary Klett, ASA Communications
The construction industry is built on hard work, careful planning, and the collaboration of numerous trades and professionals. Yet, for subcontractors — the specialists who bring buildings to life with skilled labor, materials, and expertise — the industry’s payment process is a perpetual source of frustration and hardship. This article delves into the critical issue of prompt payment in construction, as explained by Adrienne Smoot-Edwards, President of Regeneracy Inc., in a recent interview with the American Subcontractors Association (ASA) podcast. Her first-hand experience reveals the deep challenges subcontractors face in securing timely payment for their work, and highlights opportunities for meaningful reform.
The Anatomy of the Payment Process
For subcontractors like Edwards, the timeline of payment on any given construction project is a long and winding road. The process starts with the submission of invoices, typically on a monthly basis. Subcontractors bill for work completed to date, including labor, materials, and any changes to the scope. However, the path to payment is riddled with obstacles.
First, general contractors (GCs) must collect invoices from all trades, reconcile them, and review them for accuracy before submitting a consolidated application for payment to the project owner. The owner — whether a government entity, developer, or private organization — then conducts its own review, often involving multiple layers of approvals, financing assessments, and internal audits. Only after this extensive process is the general contractor paid. Subcontractors, in turn, must wait even longer to receive their share. During this process, construction continues and subcontractors are spending money daily towards the next invoice cycle.
The time between the initial invoice and the subcontractor receiving payment can stretch 60 to 120 days or even longer if change orders (revisions to project scope and pricing) are involved. During this 60 – 120 day cycle, more invoices are generated while the wait for one invoice is funded. It’s a cycle that forces subcontractors to float the costs of labor and materials for months while simultaneously maintaining payroll, insurance, and other operational expenses as construction proceeds unhindered by the payment delays.
Financing Construction on the Backs of Subcontractors
What becomes abundantly clear from Edwards’ story is that subcontractors are effectively financing construction projects — a reality that most owners and even some general contractors fail to fully grasp. Every day a subcontractor’s crew is on-site, wages and benefits are paid, materials are purchased and delivered, and overhead costs accrue. When payment is delayed for months, subcontractors are left to bridge the gap, often robbing Peter to pay Paul — shuffling funds from one project to another just to keep operations afloat. Destroying their credit, their credibility, and often are faced with debt that keeps accruing late fees and interest which leads to cash only credit accounts.
Lines of credit, though occasionally available, are difficult to secure for small construction firms. Banks are wary of lending to companies whose receivables depend on the unpredictable payment timelines of the construction industry. As Edwards put it, “Banks don’t like funding construction companies, especially small ones.” The invoicing cycle is too subjective because the invoices have no due date.
The Myth of Prompt Payment
The Prompt Payment Act sounds like a logical safeguard — ensuring that subcontractors are paid within a set time after the general contractor receives payment from the owner. However, as Edwards explains, it addresses only part of the problem. The law does not govern the upstream process — the review, approvals, and financing steps that often delay payments to the GC in the first place.
Moreover, the seven-day window for paying subcontractors after the GC is paid is often irrelevant when months pass before the GC itself is funded. This is further compounded by banks who hold the deposits for upwards of 10 days before allowing subcontractors to spend the long awaited funding. For subcontractors, the real issue is the lack of a reliable, date-certain payment process. Without clear, enforceable timelines, subcontractors are left in limbo, unable to predict cash flow or plan effectively for future work; unable to stick to payment agreements with their vendors, unable to invest in the growth of their businesses, unable to reward their workers with bonus’ or pay increases. Unable to realize the fruits of their labor.
The Role of Change Orders
Change orders — alterations to the project’s original scope — further complicate the prompt payment issue. These are common in construction, but their processing is notoriously slow. In many cases, subcontractors are asked to perform extra work immediately to keep the project moving, even before formal approval of the change order. This leaves subcontractors in a precarious position: they perform work without any guarantee of full payment.
Sometimes change orders are disputed long after the work is completed, with owners or GCs pressing subcontractors to lower their prices retroactively. “We end up settling for 50 or 60 cents on the dollar,” Edwards explained, meaning subcontractors take a loss for work already completed — just to close out the project and get paid something.
The Cost of Delays
The cumulative effect of delayed payments and change order disputes is financial instability. Subcontractors cannot invest in new equipment, hire additional workers, or even take advantage of bulk material discounts because cash flow is so unreliable. The lack of timely payment forces many small subcontractors out of business — a costly loss of talent and capacity in an industry already plagued by labor shortages.
Edwards shared how some general contractors offer subcontractors early payment, some do it in exchange for a discount on the invoice. While this can help ease short-term cash flow issues, it comes at the cost of profit margins already razor-thin in a competitive market. Others do it because they realize the subcontractor can’t sustain long term cash flow hurdles that would in turn affect their performance on the jobsite. This too has its downside as the GC may decide the subcontractor is a financial burden and choose not to use the subcontractor on future projects.
The Disconnect Between Owners, GCs, and Subs
A particularly telling anecdote from Edwards’ interview highlights the disconnect between project owners and the realities of subcontractor payment. On one project, the owner’s representative was surprised to learn that the general contractor hadn’t paid Regeneracy for work completed months earlier. The rep assumed the GC would pay the subcontractor out of its own pocket, regardless of whether the owner had released funds — a fundamental misunderstanding of the payment chain.
This lack of awareness is pervasive. Many project owners don’t fully appreciate the extent to which subcontractors personally finance their projects, nor do they understand how chronic payment delays jeopardize the timely completion and true cost of work. Imagine being charged liquidated damages for delayed completion which is the direct result of not being funded for the work in place in a timely manner or design changes that are not fully funded and often don’t result in a time extension of the project. Ribbon cutting ceremonies don’t acknowledge the unseen owners of the projects – the subcontractors who were not fully paid for the work or the financial hardships they endured to get to the Grand Opening.
Proposed Solutions
Edwards and ASA advocate for several practical reforms to address these issues, including:
- Date-Certain Payments
All subcontractors should be paid on a fixed, predictable schedule — for example, on the 30th of each month — regardless of the owner’s payment status. Such a policy would allow subcontractors to budget and plan effectively.
- Streamlined Review and Approval Processes
Payment applications should be processed in smaller, trade-specific batches to reduce bottlenecks. Additionally, project financing should be structured to ensure funds are available upfront, rather than subject to piecemeal release.
- Immediate Payment Upon Approval
Once an invoice is approved, funds should be released immediately — not subjected to additional 30-day holding periods or further reviews.
- Education and Advocacy
Owners, GCs, and policymakers need education about the financial realities subcontractors face. Edwards urges subcontractors to join ASA, share their stories, and add their voices to the push for legislative reforms.
- Ban Pay-When-Paid Clauses
Pay-when-paid clauses, which tie subcontractor payment to owner payment, are already illegal in some jurisdictions like Virginia. Expanding this ban would prevent subcontractors from being caught in disputes between owners and GCs.
The systemic delays in payment that subcontractors face are not merely a financial inconvenience — they represent a fundamental flaw in the way construction is financed and managed. The current system places the burden of project financing on the very businesses least equipped to bear it.
By advocating for clear, enforceable payment timelines, streamlined processes, and greater transparency, ASA and leaders like Adrienne Smoot-Edwards hope to build a more equitable construction industry — one where subcontractors are paid promptly for the work they do, and where small businesses can thrive, not just survive.
Prompt payment is not just a matter of fairness — it’s essential to the long-term health of the construction industry itself. Without reforms, the industry will continue to lose talented subcontractors, increase project costs, and face delays caused by chronic underfunding of those doing the work.
The message is clear: Pay subcontractors on time, and the whole industry benefits.
https://www.youtube.com/watch?v=b4fvKbjErlQ&authuser=0
ASA member Adrienne Smoot-Edwards, President of Regeneracy, Inc., a restoration subcontractor in Washington, D.C. and board member of ASA of Metro Washington spoke with ASA, and offers firsthand experience on challenges with change orders and prompt payment.
