When you want to ensure that you maintain a healthy relationship with your owner as you make progress on a building project, including a Payment Provision in your contract can help ensure that you receive payment for your hard work while satisfying the needs of your owner. At Cotney Construction Law, our Fort Lauderdale construction attorneys are intimately familiar with the efficacy of Payment Provisions. When two parties want to mitigate the chance of a legal dispute, a Payment Provision is one of the best methods of fostering transparency throughout a project’s timeline.
In part one, our Fort Lauderdale construction attorneys introduced Payment Provisions and what to include on one to protect yourself and the owner. In part two, we will explore some common issues with Payment Provisions and how to prevent them from occurring.
What Are the Common Issues with Payment Provisions?
As we mentioned above, transparency is vital to the success of a Payment Provision. In many cases, contractors fail to include a system to verify when specific items (provisions of labor and supplies) have been completed. While this affords the contractor more freedom to make autonomous determinations about factors that can greatly affect profits, it doesn’t bolster confidence in the owner, who may feel as though you are trying to hide information about the cost of building. For contractors, the allure of self-reliance may seem like an attractive alternative to daunting owner oversight, but more often than not, failing to communicate clearly with your owner will result in litigation.
If you do not draft a comprehensive Payment Provision into your contract, the owner may breach the contract by disputing your cost estimations or claiming your work was defective or undeserving of full payment. If this happens, you should cease construction and consult a Fort Lauderdale construction attorney before proceeding with any legal actions.
When it comes to preventing litigation when using a Payment Provision, your best defense is a thorough provision that eliminates any guesswork on the owner’s part. Include information about how scheduled items will be assessed for completeness and have your provision reviewed by an independent counsel to help determine areas of your provision that need clarification. The majority of disputes arise over the completion of scheduled items and the payments associated with those items. Fortunately, by maintaining clear communication channels, you can settle these conflicts out of court using mediation or arbitration.
Allowing the owner to create an inspection system using an independent specialist to backup your progress report can help foster trust between both parties. You can allow them to inspect the project before each payment to verify that every scheduled item is updated accordingly.
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.