Getting late payments in the construction industry is a blight for decades. When we analyze different industries, we found that this industry has the worst payment record in many countries. I think that the main reason is behind the structure of the industry. There can be different causes of late payments in this industry. From the birth of management contractor in the 1970s had led to the construction companies that employed direct labor and specialists. They often lease or own plant and shift the liabilities from the balance sheet. It is because there are high chances of getting clients when a company has few liabilities on the balance sheet. Moreover, it is important to keep the workforce acquired rather than sitting idly.
All of this is effective to make a long supply chain of specialists that can be called when needed. However, in this way, the money passes through many hands before reaching to the company. So, the main two reasons for delayed payments is cash flow and retention.
The client withholds some of the money known as retention in cases when the work is not done on time or when the work is not done correctly. The contract between the company and the client allows the client to retain some of the money throughout the construction process. Well in a way, retention has a good purpose but some of the contractors do not like it. Specialist contractors want the abolition of retention. Well, the retention is good for the transparency of the work as it encourages the contractors to come back to the site and rectify shortcomings in their work. Without this, the only way to redress the matter is through the court. The problem is when lawyers involved in a matter, the outcome cannot be according to the expectations of both parties.
The clients and the contractors sometimes hold payments to improve their cashflow. There can be the following reasons:
- They may do not have the money
- Or maybe they work is more than what they have
- Maybe they are waiting for the payment.
- Moreover, maybe they are depending on the suppliers to bear the burden of their finance rather than borrowing from the bank.
How to File a Case
To resolve the late payment problem in the construction industry, you need to file a mechanics lien. If it is filed against the owner then the process of construction will be put on hold until paying of the disputed debt. It is a perfect tool for the contractor to assure that the owner will pay all the payments pending of a project. If a subcontractor that does not have a direct contract with the owner wants to file a case. Then it needs to provide a preliminary notice in the time limits. In most of the cases, they need to provide notice 20 days before. Moreover, the subcontractor needs an outline from the main contractor explaining all the services performed by the individual on the property.