2017.01

Practical Tip #2 To Ensure Prompt Payment of Amounts you are Owed

By: Shane E. Kazushner

As a construction lawyer and commercial litigator, I frequently get calls from clients and potential clients to discuss payment disputes they have on job sites.  These disputes range from minor disagreements about the expected scope of work to major disagreements such as when to walk off the job site.  I have come up with some practical tips to increase your chances to obtain prompt payment of amounts you are owed.  This article will focus on one tip but don’t forget to check back often for more of my articles and tips.

Although there is no tip to guarantee prompt payment, if you consider implementing some of my tips then it certainly will increase the likelihood of obtaining prompt payment or, at least, reduce legal fees in pursuit of those funds.  

Tip #2 – Take advantage of payment bonds if they are available on your project

Surety Bonds, if they are available on your construction project, may be a quick and easy way to collect funds you are owed.  In other words, these surety bonds - like insurance - protect your construction investment which you made by providing your work and services.

In this turbulent economy, it may not be a surprise to you that sometimes the project’s owners or general construction companies, even large ones, cannot pay their contractual obligations.  If you are owed money on a project, this is when you should think about turning to a payment bond for payment.  In these types of situations, it is wonderful if there is a financially stable bonding company in place that can step in and pay you what you are owed for providing your work and services to the construction project.

Having said that, not all construction projects have surety bonds in place.  Also, there are also different types of surety bonds available.  Further, even if there is an available surety bond in place on your construction project, you may not be a proper claimant under that bond.  This is why it is worth investigating further.

The bigger the construction project, the more important the availability of a payment bond is.  The reason is simple:  the higher the contract price for amounts you are owed then the greater negative impact it will have on your business by non-payment.

Having said that, there are many smaller construction projects where there are no payment bonds available.  This is because having a surety bond available on a construction project costs money.  This extra expense on smaller construction projects may make little sense to the owner and/or contractor.

There are some construction companies who require a surety bond to be available as protection before they agree to provide work and services on a construction project.  Of course, this type of demand reduces the number of construction projects they are prepared to service but to those companies it is a valid prerequisite in considering a large construction project.

In considering whether to take on a construction project, with or without this added “payment insurance” in place, it is worth considering how your company could withstand the impact of nonpayment. 

Don’t confuse this with slow payments or partial payments on amounts you are owed.  Rather, ask yourself whether your company can completely absorb a nonpayment.  If you can’t absorb that loss entirely then it may be more critical to have this insurance in place rather than completely risking your company and business on another party’s ability and willingness to pay you. 

Because surety bonds can pay you amounts you are owed directly, it is imperative that you fall within the conditions of payment as outlined in the available payment bond.  For example, you need to be a proper claimant under the bond and your claim is time sensitive.  These essential factors are determinative if a payment bond is available to you to make a claim under.

Knowing more about payment bonds and whether they are available to you may be your key to obtain prompt payment and avoid litigation.  Because claims against payment bonds are time sensitive, you should not wait too long before investigating or seeking legal assistance.  As always, I would be delighted to make myself available to you and your company in order to discuss this tip or handle your legal issue or problem.

 

For further information,  please contact Shane E. Kazushner by phone at (416) 368-6431 or by email at skazushner@businesslawyers.com.

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