I’m in the final throws of a major remodel. In fact, all that remains is the final payment. The final payment, less than 5% of the total, was indenteded to ensure punch items got done and that lien releases were provided. In order to receive it, all my GC needs to do is provide lien releases. The draw schedule had draws for rough in of major systems and a second draw for completion of those. All of those draws have been paid to the GC. The plumber called today saying that he is waiting for his final payment. He went on to say that the GC told him that he’s not able to pay until I make the final payment. I understand his position, but it’s hard for me to believe that after all the draws that have beed paid so far, the GC can’t make the final payment to the plumber without the final payment from me. I don’t want to parse out the final payment, because I don’t know who else is waiting for payment and I want to retain as much leverage as possible. Is there a way to resolve this deadly embrace?
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If you have one contract...with the gc...and he has contracts with each of the subs...then there is nothing you can do for the plumber or any other sub. No matter how much they whine and cry and negotiate, you cannot pay them directly. I'm not saying that if you pay them directly that you will loose your bargaining position ... I'm saying that you have no authority to pay them directly. What you can do is explain to them that you are waiting for lien waivers from the gc, and as soon as you get them all you will cut a check. End of conversation.
Whenever you are asked if you can do a job, tell'em "Certainly, I can!" Then get busy and find out how to do it. T. Roosevelt
With all due respect, Ed, the very idea of a lien is that the owner ultimately owes the money to the person who did the work or supplied the materials. A sub can lien a property directly, and any contract with a GC for the work is irrelevant. If a plumber called me and said my GC had not paid him, AND I could verify that (major caveat), I would pay the plumber directly and ask for a lien release at the same time. I've seen plenty of consumer info from state licensing boards that suggests paying subs directly if you're concerned about the GC's failure or possible failure to do so.
It sounds like the GC is in trouble. With only 5% remaining he should not be out of dough to run the job. That 5% (or more) is supposed to be his profit. If I were the homeowner I would actively be calling all of the subs and finding out exactly where they stand in terms of payments from the GC. And I definitely would not be paying another penny to the GC until I got signed lien releases for the entire job.
Sounds like trouble... brace yourself.
>If a plumber called me and said my GC had not paid him, AND I could verify that >(major caveat), I would pay the plumber directly and ask for a lien release at the same time
If I have worries like that, I joint-check all subs and suppliers from the get-go. Particularly if I don't know them well.
remodeler
I'm curious about this "joint check" thing. I heard from my plumbers helper while telling me the story about how his boss got burnt, that the HO paid the contractor with joint checks and was able to cash them and still burn the subs.
Did he have to get the subs to endorse them, or did he possibly forge their signatures?
How serious does a bank take a joint check?? ie, if you are Mr. Money bags and walk into the bank to your favorite teller with a joint check, are they going to deposit it or cash it for you with out the other endorsement?
I like the idea of partial lien releases as the job progresses, but that doesn't solve the problem in the end.
Eric
If you ask the bank about a check and they look at it you will it has to be EXACT down to the period after the initial.
But if you deposit a batch of checks into a business account then anything goes.
It does not have to be made out to the desositor and it does not need to have a "valid" signature or indorsement. Just something that looks valid.
Or does the payee bank look at it.
When the check is returned to the maker and if there is any question then they need to protest it to their bank which will then protest it to the despositing bank which will inturn protest it to the depositor.
"But if you deposit a batch of checks into a business account then anything goes."
Yup. I've seen this several times. The most recent was when the Ben Moore dealer in town (Ream Steckbeck) closed and I had to buy paint at Sherwin Williams.
I wrote out the check to Ream Steckbeck out of habit.
I noticed it when I was balancing my checkbook. It went all the way through with no problem.
Rich Beckman
Another day, another tool.
Same thing - dozens of times. The only time I remember challenging a check paid out was when I HAD WRITTEN IT FOR $3.50 AND THE BANK PAID OUT $350.00
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I never submit Lein Releases until after the final check is in my account and has cleared. This means a few days go by before the Client gets the LRs after I am paid. However, I always show up to the Final Payment Meeting with the releases in hand.
Things don't always go as planned on my jobs. Sometimes I underbudget, sometimes I spend moneys from one account on another account - ex: vehical broke down and repairs were more than my discretionary reserve. Sub was paid from Final Payment rather than Substantial Completion Payment. 3 weeks difference. It sucks and I hated doing it but .......
Get your nose out of the GC's books. Did he do the job he was contracted for? Is he finished? If both of those questions have a yes answer - pay up. Otherwise YOU will be the one causing the sub(s) to not get paid.
BTW - 5% of the job of a "major remodel" is prob some serious green. If so, then the GC will have some money after being paid to get straight with his subs.
F.
Edited 6/23/2004 1:42 am ET by Frankie
Frankie,
What can you do to a client that doesn't pay you if you hold LRs from the subs?
Samt
Attach a lein. Pretty simple. May not be effective if the client is the sole owner of the property and has no intention of making any other large purchases.
F.
I gotta disagree on this one Frankie. I don't normally have to deal with these sticky wickets in spite of doing quarter to half million dollar jobs, but the homeowner's rel;ationship is with the GC whose responsibility it is to pay his subs, even if he has to steal from his babies and wife. If this HO pays the GC, and the GC does not pay hios subs, then the HO still has to turn around and pay the subs to get his releases.
I favor the pro-active approach recommended above. Contact all the subs to see what is the total outstanding before formulating ANY plaqn, and that possibly woith help of a lawyer.
I am picturing a scenario where this 5% is only a third or a fourth of the total outstanding to all subs and suppliers. The HO LOSES ALL LEVERAGE IF HE PAYS UP
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
As I beleive I stated before - how did the rest of the job go? Did everything (most things) go well? If so, pay up.... and you'll get your LRs.
If a client went around and asked my subs what I owed and if I was prompt in paying, I'd be pissed and would basicaly drop that sub. Then I would take my gloves off with the client and they would consistantly be on the bottom of my priority list if they needed and adjustments, repairs or hand holding during the coming year. I would still warranty my work for the year post-renovation but ya know, "I'm really busy, but I'll try to stop by and have a look soon."
Bottom line, the client trusts the GC or doesn't. If the client does't, do the research and understand that a bridge is being burned. I can't tell you hopw many times I have run over to a Client's apartment on a Sat night, Sunday afternoon, or on a Fri before a long weekend to flip a tripped circuit, replaced a fried dimmer, or dealt with an appliance issue. It's a valuable part of OUR relationship. Once the relationship with the GC is no longer one of respect and trust all that other stuff is lost too.
About the LRs. No sub is going to sign one of those ahead of time if they don't trust the GC to pay them. Many times I have had my subs sign then prior to full payment. They know/ trust that they will get paid. As long as I show up to the Final Payment meeting with the LRs the client should not have any worries. If the client doesn't want to wait 3 days for the check to clear to receive the LRs, wire the funds to the GC's account. Then have a cup of coffee. Usually (esp. if you use the same bank) the transfer happens within an hour. Once it took 5 mins!
Now, I'm getting worked up. The GC's agreement with the client is to provide the subs, coordinate, and renovate. The methods of business practices and proceedures are not a part of the aggreement. Keep it that way.
I understand the concern, but if the client pays AND gets LRs then the client is covered. Where's the problem?
F.
Edited 6/23/2004 9:30 am ET by Frankie
frankie- sounds like the sub (plumber) contacted the client directly, not the other way around when plumber wanted payment, contractor hung it on the ho, that's no way to do business he should be resolving this, not ensuring that everyone is scared and talks directly can't blame the ho for not wanting to cut checks a second time or to live w liens on property which have to be dealt w at some point
like you, i pay my guys and no one has to worry sure doesn't sound like the plumber or the ho trusts this contractor, gotta be a reason ho may as well play it safe
You are getting worked up - but you are personalizing and reacting to this like as though it is YOU.
But it is not you in this relationship. You are deserving of that rust.
This particular contractor has done something to put the trusting relationship in some doubt.
You said, "The GC's agreement with the client is to provide the subs, coordinate, and renovate. The methods of business practices and proceedures are not a part of the aggreement."
But according to the original poster here, the agreement required the GC to provide the lien releases before final payment. There was good reason for that line in the contract and now the GC wants to break it. It is happening in a way that makes one wonder if other subs are being strung along too.
i've got plenty of other thoughts but i'll just read the rest of the thread before i respond further. Some information might be hanging loose there for me to read .
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
Okay, I'll relax.
A. "This particular contractor has done something to put the trusting relationship in some doubt. "
I am just taking the orig post at face value. Seems the concern began with the call the HO got from the plumber. My understanding is therefore the plumber, not the GC, was the catalyst. What's the plumber's motivation for getting paid before the final payment is made to the GC? Does he/ she have a boat/ alimony/ mortgage/ vig payment to be made? Or is the plumber a nervous nelly? I don't know.
B. The HO originally posted " In order to receive it [payment], all my GC needs to do is provide lien releases." Fine. But as I stated earlier (I think) I never give up the LR until the check has cleared. Sure, if the HO puts a stop payment on the check after it's issued, I'll eventually get my money, but why go through the hassle. The HO though, always sees the signed LRs when the final payment is issued. Why can't the HO proceed in this fashion?
C. Basically my main concern is that the HO doesn't undermine the GC's authority. The sub should not be rewarded for not sticking to protocol. Otherwise, in future jobs the sub will always want to be paid by the HO. Then the sub is no longer aligned with the GC. The construction dynamic is lost and greater problems are on the horizon. If the GC took care of the HO's interest during the project, the HO should reciprocate by respecting the GC's interests. Telling the sub that his/ her work was valued and respected as was the work of the GC and therefore it's best that the proceedures established during the course of the project be maintained. State in as few words as possible what the status of the punch list is and when a final payment check might be issued. This would serve 4 purposes: 1. it would remind the sub that your contract is with the GC, not the sub; 2. Final payment has not yet been made; 3. Final payment will be made; and 4. Most importantly, establish that the relationship with the GC is intact and strong.
D. The information is limited. So limited, that recommending lawyers, phoning all the subs, having a group final payment meeting, etc all seems a bit over the top. Why not simply make a call to the GC? Has the GC done many things during the course of the project to arouse suspicion of ethics - business or otherwise? All judgements/ speculations have been resulting from one phone call from the plumber - hardly a disinterested party.
E. I have found that after a job is done, if the client no longer thinks they need the services of the GC, some clients feel the GC's role was an overrated expense. They try to rationalize the GC's ineffectiveeness or inefficiencies and their own superior management skills and construction acumen. A call from the plumber may have only serviced to validate this mindset.
F. Still, the HO was having second thoughts and therefore posted here. That's not a good sign - it's a GREAT sign. So let's not ALL get the rope ready for a hanging.
F.
OK, You make some good points now, but I read it differently. Instead of seeing the origination of the problem when the sub went to the HO, I saw it as being created when the GC told the sub that he couldn't pay him because the Ho had not paid the final yet.
Not only was that irresponsible and unprofessional of the contractor - in some states it was illegal for the GC to with hld from the sub for work completed on that basis - but by doing so, it seems that he sideslipped his responsibility and his authority. That left the sub hanging and with little other recourse than to go to the HO for his relief. I'm not saying that I would do the same as a sub, but I sure would not pass off like that as GC either.
But like you say, maybe we lack quite enough info to make it an issue worth arguing over.
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
I see it as the GC is already in trouble.
If the plumber is a regular sub for the GC, he oughta know he'll get paid.
BUT, he's calling the HO for his money cuz he's getting the runaround.
Something is wrong, HO is right to be concerned.
Contact the rest of the subs, see what the total might be before you get any lawyers going.
5% of whatever won't go far with a lawyer, see what you can find out on your own first.
Maybe ask the plumber who has already contacted you if the rest of them are also hung out for the job.
Joe H
Before contacting subs, talk with the GC. Give her a chance to straighten this out with the subs, but let her know you're concerned about everyone getting paid.
>Get your nose out of the GC's books. - pay up
It sounds like to me the gc is unwilling to sign the homeowner's lien waiver to release the final payment, not the other way around.
I assume homeowner has lien waivers up to the final 5% payment.
It also sounds like gc is unable to sign lien waivers, because he can't pay his subs or suppliers and obtain all necessary lien waivers.
So maybe a joint check is the right solution for this person. I would call everyone involved in the sub and get to the truth of the situation.
I almost went to court this week over a similar situation, except I had agreed to a joint check and idiot sub refused to endorse it, thinking it was some sort of leverage over me (he was demanding final payment, which was contingent on approval by utility co, and he had not obtained approval)
remodeler
i'm w two other posts... lawyer needs to negotiate this to protect you and a sub can't just issue lien waiver without payment in hand, he loses his leverage if their work has been completed they deserve to get paid been there, done that contractor we all knew and trusted got bunch of us to sign off just in advance of closing, costly mistake
lawyer can arrange for swap of checks from law firm's account, or bank checks for lien release brought in it's not his p**g match, not going to jeopardize his license for contractor's benefit if it's not a lot of money, or can't afford attorney, go to subs directly and do a swap, bank check for lien release, then remit entire remaining balance to contractor if you're fully paid up w all parties, no one has a claim then if you have a warranty problem in the near future w anyone's work, bet the sub will take care of it
Thanks, all for the opinions. To put this into perspective without completely disclosing my personal business, I'll reveal that the plumber says he's owed $2500. The draw schedule was set up so that a big payment was made when the plumber, electrician and HVAC completed their rough in. Another payment, was made after they completed fixture hookup, outlet installation, Grill installation etc. This payment, made week before last was $3000.
Although I considered it, I have avoided asking the subs if they have been paid because I felt it would be inappropriate for me to undermine the GC's position with his subs. But, when the plumber contacts me, it makes me nervous; wondering who else hasn't been paid. As I understand the law, if I make the final payment and the GC doesn't pass that on to the subs, the subs can still come after me.
My desire is an has been to keep my nose out of the GC's books, but my nose is deep into my books. Seems my recourse is minimal if I make the final payment and it doesn't make it's way to the subs.
Any more thoughts based on this?
You are right to be concerned and a lot depends on the state you are in. Your sitiation sounds all to familiar. The subs can come after you if they have not been paid. YTou may have some recourse if you can prove that you paid the GC for the specific services the subs provided (a detailed invoice from the GC). The day of closing on my home I had 3 liens in the mailbox when I got home. There were several other subs that didn't get paid but had waited too long to file their leins and had no recourse. I could have easily been on the hook for 30-40k. You need to talk to an attorney and make sure you cover your ####. Sounds like the builder is headed for bankruptcy to me. Took over four years to finally get everything settled on my situation and I still feel terrible about the subs who never got their money. I have talked to most of them about the situation and have even hired some for other work since. This situation is all too common around my area. Hope it all works out for you. Tom
Douglasville, GA
I would take your contract and visit with a local attorney or a free to aobut $100 consult and where you stand and what the lien laws are in your state.
While the concept of liens is similar there are a number of details that differ from state to state.
And some state have conditional lien releases, just for cases like this.
I have not seen the total document but it appears to state that the total due is xxx and they relase it on payment of xxx and if xxx does not clear then the lean release is void.
http://www.megadox.com/docdetail.php/4860
One reason you don't want to pay the sub directly ... maybe he has a beef with the gc, and he's not owed as much as he says ... so he makes up a good story and you buy it ... and you end up paying him more than he's owed ... you won'r ever get that money back.
The lien release can have a clause in it that states that the release is effective with the simultaneous transfer of funds to the contractor / subcontractor / supplier. So if you get a signed release, and later get a cancelled check back from your bank as proof that he cashed the check, you're covered. Same for the contractor ... if he signs a release, and you can't produce proof that he got a check, then the release is void.
In your situation, sounds like it's time to have a meeting with the gc to get everything out on the table.
Whenever you are asked if you can do a job, tell'em "Certainly, I can!" Then get busy and find out how to do it. T. Roosevelt
Edited 6/23/2004 12:14 pm ET by Ed Hilton
Quick,
Just a HO, so you can take this with a grain of salt. If it was me, I would contact the GC, to whom you are contractually obligated, and set up a final payment meeting. Have your copy of the contract in hand along with a bank certified check. If I read you first message correctly, the GC provides the lien releases and you provide the final payment.
Now if the GC cannot get a release from a sub, for whatever reason, just get everyone to the table. So much easier to work it out face to face than playing post office. Once everyone is there, you can pay the GC as you are obligated and he can cut a check to the sub. Or he could request you cut the check directly to the sub. Always more than one way to skin a cat...certified checks, money orders, wire transfers, interfund transfers, escrow accounts. In any case, you are dealing with the person you are contractually obligated to deal with. Be flexible, but don't hurt yourself!
If the GC is that short and the final payment will not cover what he owes the sub, better to know it now!!! Call in a lawyer if you feel you are getting in over your head and whatever you do, address the issue quickly. Good luckFrank
play it safe, but maybe you can do it w/o contractor looking bad get a final payout for ea sub from him, verify it w subs and swap them bank checks for releases any balance owed to contractor should be paid as well if he's smart he'll work w you and get everyone settled up
lien release comes in different forms an individual sub can hand you theirs, or a signoff list type can be used w release clause at top and all trades listed below; ea sub signs off next to job(s) performed this was the type i had trouble w in a subdivision, was owed for half dozen houses signed off on one, but refused to sign the others the release forms originated w the mortgage insurance company and were presented at closing, minus genuine signatures for several trades after closings w/o paying all the subs, had a lawyer call the contractor guess he starting adding up the suits, jail time for forgery, etc. and paid everyone a lot of games get played, so protect yourself now while it's painless
The document you all seem to be alluding to but not identifying is a "CONDITIONAL LIEN RELEASE". "CONDITIONAL" in that the language of the document can be paraphrased as such: "When I (subcontractor or supplier) sign this lien release for the amount in question, it becomes effective only when you - GC or owner - actually give me the check and it clears your bank."
It is standard in commercial construction.
Edited 6/26/2004 4:43 pm ET by MHINSHAW
Me thinks some here need to bone up on what a lien release means for a property owner.
What would be the reason a GC would not be able to supply a lien release?
Any lien release presented to the property owner and signed by a subcontractor who has not been paid in full would constitute fraud.
Now I know this isn't the lawyers forum but if you regularly need to conduct business in an unlawful manor I'm not sure you should actually be in business, much less be giving out bad advice.
"Any lien release presented to the property owner and signed by a subcontractor who has not been paid in full would constitute fraud."
No fraud.
The sub-contractor that signs that is just saying that he releases any clains of being able to put a lien on that property. Does not say that he has been paid (unless it is written as such) and does not release the owner from making any payments. The sub can still sue for payment, but depending on the state and constracts with the GC and the GC to the owner he might only be able to sue the GC or maybe only the HO or maybe both.
And also don't forget that some state allow conditional lien release that basically say that this is a lien release, but it is not valid until the sub's payment clears.
From my days in commercial contracting, each periods payouts are done in exchange for partial lien releases, from the general and all the subs.
Ten percent retention is always held, and the last release of retention isn't done until everything is complete, signed off on, as-built drawings filed, operating manuals submitted, all warranty details, etc., etc.
Thus, when you get down to the end of the job, it is really really done, and everyone has evidenced lien releases up to 90 percent of total contracts plus all change orders.
The final payment of the retained amount is done in exchange for final lien releases.
And the only way an owner ever paid a sub or materialman directly in those final stages is with a joint check. If Joe's Plumbing is owed $10,000 by A-Hole Builders LLC, then the check is written (as part of the final payment) jointly both to Joe's and A-Hole Builders.
If they end up in a shootout at the bank trying to cash it, the whole bloody deal is none of your concern. You have the final lien waivers.
I'm jumping in here a little late. Thanks to Bob. It took 17 posts before Bob gave you the correct solution. Joint checks. You could even pay the plumber's suppliers in like manner. The supplier, bye the way, can also lien for non payment, if the invoices indicate the material was shipped to your project. So make sure you can verify payments were made to supliers before you pay.
Lien laws vary. Have time periods for claiming expired? Are there other laws that apply to might protect you?
I don't agree that joint checks would be a proper solution. If you issue one and it's negotiated at the bank, whom can you say you've paid if it comes time to show the judge?
Technically, you should pay the GC. The contract doubtless states that you pay the GC, and not doing so constitutes breach of contract. If you can develop bulletproof information that the plumber has not been paid in full (and how much he has been paid already, if any), paying him directly will help avoid a lien.
Like the real estate saying, location, location, location. Documentatio, documentation, documentation. The parties agree to the terms and execute the agreement. The judge will see the lien release and documentation. Who said it will get to a judge.
If joints checks don't work, then pay the subs/suppliers directly, of course, once the parties agree. As someone wrote earlier, it's time to sit and talk."A contented man enjoys the scenery of a detour"
Whatever the problem, whatever the solution, Quickstep has left the building.
Joe H
Still here, sort of lurking. Lot of great opinions. I was eager to get opinions from both perspectives and have gotten plenty. Curious for another opinion...... How much is enough for a sub to pursue a mechanics lien? Seems at some point that the trouble might outweigh the gain. My expectation (hope) is that most subs wouldn't show up to do fixture install if they hadn't been paid for their rough in. As such, I'm guessing (hoping) that at this point, the outstanding amount at this point shouldn't be a lot.
That depends on how much sweet talking the contractor did to get the subs to come out to trim, or waved bad checks at them, who knows.
Why guess. Like someone said, money is power, you have the money now TAKE CONTROL. You could fart around for a month here getting all sorts of opinions, but nothings gonna happen until you make it happen.
EricEvery once in a while, something goes right!
It is time for a meeting.
Between you, and all the subs, all the suppliers reps, and the GC. Those parties from whom you have final lien releases will not have to attend, obviously.
If you can get an attorney to sit in, all the better. To save money, you may be able to hold the meeting at the atty's location. Deal with the easy ones, where the GC and the debtor agree on the amount first, then call in the atty for the rest.
The meeting will only last about 1/2 hour, as there is only one item on the agenda, and it is fairly straight forward.
Have the GC bring all payout records, and all lien releases he currently has.
Have all subs and suppliers bring all reciepts and a lien release covering their final payment.
Any sub or supplier rep who is not a principle to the contract must bring corporate authorization to negotiate for the corp/biz.
You must bring a final punchlist in order to negotiate any hold backs.
When the GC and a sub/supplier agree on an amount, get the lien waiver, cut the check, and send that sub/supplier on his way.
Either notify all attendees that lack of attendance will constitute a waiver of liens against you, (ok this with your atty first,) or be prepared to hold back all funds from the gc for any no-shows until the GC provides a lien waiver. Keep the GC in the loop, (don't ask, tell) as he can provide push to get everybody there.
Any checks cut will be done in front of everybody and with the consent of all. The Atty is there to insure that you are legaly covered by advising you. He will also be able to "speak with authority" to any dissenters.
Any funds left after all subs and suppliers have been paid is the GC's.
You are involved in a trilateral dispute (in the making,) anything done bilaterally can, and will, be held against you in a court of law.
Money equals power. You got the money. Act from a position of power.
Be brave. Be bold. Do right. Do good. Don't lie, cheat, or steal.
SamT