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Dealing with Non-Paying Owners Part 1

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Whether a payment is late or is a non-payment, either of these scenarios is the bane of a construction company’s existence. Unfortunately, the construction industry has a history of owners who are delinquent payers. When contractors have to wait on payment, this can impact the starting date to begin work on a new project, affect the bid process for future projects, and even result in the bankruptcy of a business. In this four-part article, the Knoxville contractor lawyers at Cotney Construction Law will discuss how to obtain payment from a delinquent owner or one that simply refuses to pay.

Why Owners Fail to Pay on Time

Naturally, owners are not going to want to provide a contractor with full payment before a project is completed. If work isn’t finished on time, performed incorrectly, or doesn’t meet the quality and expectations of the project, payment may be withheld from the contractor. However, in some cases, the owner may falsely claim that there’s a construction defect or issue with the contractor’s work, when in reality, they simply prefer to withhold payment.

The Issues With Cash Flow

Just like how contractors may struggle from time-to-time with their working capital, there can be cash flow issues for owners. Here are some examples of reasons the owner might withhold payment:

  • No Funds: There are several reasons why funding can dry up. Regardless of the reason, the end result is that the owner doesn’t have the funds together to compensate the contractor.
  • Overextended: Some businesses simply grow too quickly and haven’t received a return on their investments. The owner may have overextended their working capital or their capital is tied up in too many upfront costs.
  • Monitoring Cash Flow: Failure to monitor the capital coming into the company and going out to vendors often results in the owner losing track of future cash flow projections. Without a structured system in place, the owner may not have reserved funds.
  • Chain of Payment: Especially for subcontractors and suppliers, another entity in the supply chain is owed compensation and they can’t compensate the contractor until this payment is received.

Although none of these cash flow woes allows the owner to legally neglect payment, many will fail to appropriately compensate construction professionals that performed the work. If an owner owes you compensation, you should consult with a Knoxville contractor lawyer.

For solutions to receiving a late payment from an owner, please read parts two, three, and four.

If you would like to speak with one of our Knoxville contractor lawyers, please contact us today.

Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.