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Look Before You Leap: How to Ensure That a Project Owner Can Pay Part 1

There are a myriad of tools that a contractor can utilize to secure payment from a fraudulent owner. The mechanic’s lien, in particular, is incredibly useful in this regard, but wouldn’t it be nice every now and then to get paid on time and without hassle? In this two-part article, our Chattanooga contractor attorneys from Cotney Construction Law discuss how you can ensure that an owner can afford the sizable bill of a construction project. This is essential for ensuring prompt payment and avoiding a dispute that can only lead to a dead end. 

Verifying an Owner’s Finances 

As stipulated in the American Institute of Architects’ A201-2017 form, General Conditions of the Contract for Construction, there are two moments where you can verify an owner’s finances: before breaking ground and after construction begins if there are concerns with an owner’s ability to pay. Here, it is clearly stated that you can submit a written request before work commences for evidence of an owner’s ability to finance a project. If they refuse, there are additional provisions allowing for a delay until such evidence can be provided. 

Of course, no owner intends to go bankrupt, and construction can be far along before any signs of a late payment become apparent. Again, this general agreement stipulates that proof of finances can be requested if:

  • An owner is late making progress payments
  • There is a reasonable concern that the owner will be unable to make payments 
  • There is a change to the scope of work that increases the project’s cost

If proof of an owner’s finances are not provided within 14 days, you are permitted to stop work until this information has been provided. 

What Is Considered Proof of Finances? 

Remember, A201-2017 is considered a standard contract for managing the relationships and transactions involved in construction projects. As such, it will never be as comprehensive as a contract drafted by a Chattanooga contractor attorney. It does not, for example, specify what constitutes proof of finances. To further complicate matters, an owner may deem any evidence provided as confidential, limiting who you can show this evidence to. 

As we continue in part two, we will discuss how subcontractors can verify an owner’s finances and what you should do if you are faced with the possibility of requesting financial information from an owner. For contract drafting and review services that can protect your from payment disputes, consult the Chattanooga contractor attorneys from Cotney Construction Law. 

If you would like to speak with a Chattanooga contractor attorney, 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.