In this blog, presented by SunRay Construction Solutions and Leslie A. Boe, Shareholder/Director, Dysart Taylor, we'll explore how you can expedite payments for your Kansas projects by effectively managing contracts, using mechanics liens and bonds, and ensuring you're paid promptly.
Getting Paid Fast vs. Getting Paid Faster
Let's start by distinguishing between getting paid fast and getting paid faster. Simply using the available tools won't guarantee immediate payment; but employing them correctly will undoubtedly speed up the payment process compared to not using them at all. To achieve either "getting paid fast" or "getting paid faster" in the Kansas construction industry, it's important to:
- Have clear and well-drafted contracts: Ensure that your contracts specify payment terms, schedules, and any penalties for late payments.
- Efficient invoicing: Send accurate and timely invoices that are easy to process.
- Use technology: Embrace SunRay’s digital invoicing and payment systems to reduce administrative delays.
- Communication: Maintain open lines of communication with project owners, contractors, and clients to address any payment-related issues promptly.
- Monitor payment schedules: Keep track of when payments are due and follow up if they're delayed.
- Legal remedies: Familiarize yourself with Kansas construction lien laws and consider using mechanics' liens as a legal remedy for non-payment.
Understanding the Payment Process in Construction
The construction payment process involves multiple parties, leading to delays. To mitigate these delays, it's essential to have systems in place with triggers and red flags to prompt action when necessary. Understanding of Contracts and Documentation is must to avoid any such delays. Let’s find out the best practices for each of these!
What are the Best Practices for Contracts?
Contracts are the foundation for timely payments. Whether you're negotiating a new contract or revisiting an existing one, understanding and adhering to it is crucial. Key provisions in contracts that facilitate faster payments include:
- Review Payment Clauses: Know the required documentation for your payment application, which can vary based on your position in the contractual chain.
- Negotiate Specificity: Avoid vague clauses, nail down payment requirements to prevent delays.
- Dispute Resolution Clauses: Include provisions for mediation or initial decision-making before legal action.
- Notice Provisions: Adhere to notice requirements to prevent payment disruptions.
- Knowing When to Suspend Work (Pay- when-paid Clauses): While suspending work should be a last resort, understand your rights for non-payment issues. Review your contract for pay-when-paid clauses, and guidelines on when and how to suspend work and seek legal counsel if necessary.
Bonus Tips - What to do before Suspending Work on a Project?
Here are some steps you can take:
- Review Your Contract: Start by carefully reviewing your construction contract to understand the payment terms and any dispute resolution procedures outlined in the contract. Contracts typically specify when and how payments should be made. Ensure you look out for pay-when-paid clauses to avoid payment concerns. One of the major reasons of delayed payments in construction industry is the “Pay if Paid and Pay when Paid” clauses included or implied in construction contracts.
- Send a Demand for Payment: If payment is overdue, send a formal written demand for payment to the party responsible for payment. Clearly outline the amount owed, the due date, and the consequences of non-payment. Keep copies of all correspondence.
- Record Keeping: Maintain detailed records of all work completed, including invoices, receipts, and any relevant communications. This documentation will be crucial if you need to pursue legal action.
- Consult an Attorney: If your demand for payment goes unanswered, consult an attorney who specializes in construction law. They can advise you on the best course of action and help you prepare for potential legal proceedings.
- File a Mechanic's Lien: In Kansas, you have the option to file a mechanic's lien on the property where you performed construction work. A mechanic's lien is a legal claim against the property, which can prevent the property from being sold or refinanced until the debt is satisfied. To file a mechanic's lien, follow these steps:
- Step 1 - Make sure you meet the statutory requirements for filing a lien, including deadlines.
- Step 2 - Prepare and record a "Notice of Intent to Perform Work".
- Step 3 - File the mechanic's lien with the Register of Deeds in the county where the property is located within 120 days of the last date of work.
- Step 4 - Serve a copy of the lien on the property owner.
- Consider Legal Action: If the mechanic's lien does not result in payment, you may need to initiate a lawsuit to enforce the lien and seek payment. Your attorney can guide you through this process.
- Mediation or Arbitration: Some construction contracts may require mediation or arbitration as a means of resolving payment disputes. If this is the case, you should follow the dispute resolution process outlined in your contract.
- Bond Claims: If you are a subcontractor or supplier and the general contractor has a payment bond in place, you can make a claim against the bond for non-payment. This is a way to secure payment for your services.
- Consult State Regulations: Be aware that construction laws and regulations can change, and specific procedures may vary. Always consult the latest laws and regulations in Kansas or consult with an attorney familiar with the construction industry in your state.
As per AIA A105-2017 – Standard Short Form of Agreement Between Owner and Contractor
And, as per ConsensusDocs 200, Standard Agreement Between Owner and Constructor
Best Practices – Documentation
Always remember effective Documentation is Key! Here are the best practices:
- Clear and easy to understand claims get paid faster.
- Documentation must be contemporaneous
- Documentation is best if standardized company-wide with consistent internal practices and forms
- Good documentation helps establish the cause of events, reservation of rights, and identify actual costs and delays
How to use Liens and Bonds to get paid faster?
Here's a step-by-step guide on how to use liens and bonds to get paid faster in the Kansas construction industry:
Step 1 - Understand the Types of Liens and Bonds
Mechanic's Lien: A mechanic's lien is a legal claim against the property where you performed work. It ensures that you are paid before the property can be sold or refinanced.
Payment Bond: In some cases, especially on public projects, there may be payment bonds in place. These bonds guarantee payment to subcontractors and suppliers.
Step 2 - Know Your Deadlines
In Kansas, there are specific deadlines for filing mechanic's liens and making claims on payment bonds. Be aware of these deadlines and adhere to them to protect your rights.
Step 3 - Provide Proper Notices
Before filing a mechanic's lien, you may be required to provide pre-lien notices to the property owner, general contractor, and other parties involved in the project. Ensure you meet these notice requirements.
Step 4 - Prepare and File a Mechanic's Lien
If you are not paid for your work, you can prepare and file a mechanic's lien with the county clerk's office in the county where the property is located. The lien should include details about the work done and the amount owed.
Step 5 - Serve a Copy of the Lien
After filing the mechanic's lien, you must serve a copy of it to the property owner and any other interested parties. Proper service is essential.
Step 6 - File Suit to Enforce the Lien
If you are still not paid after filing a lien and giving the property owner an opportunity to respond, you may need to file a lawsuit to enforce the lien. This can lead to the sale of the property to satisfy your claim.
Step 7 - Claim on a Payment Bond
If there's a payment bond in place on a public project, you can make a claim against the bond if you're not paid. Follow the bond claim process, which may involve providing written notice to the bond's surety company.
Step 8 - Consult Legal Advice
It's highly recommended to consult with an attorney who specializes in construction law in Kansas. They can provide guidance on the specific requirements and help you navigate the legal process.
Step 9 - Document Your Work
Maintain thorough records of your work, invoices, contracts, costs for labor, material, equipment, and any correspondence related to the project. These documents will be crucial in proving your case if a dispute arises.
Step 10 - Negotiate Payment Terms in Contracts
Whenever possible, negotiate clear payment terms in your construction contracts. This can help prevent payment disputes from arising in the first place.
Remember that the rules and procedures for using liens and bonds in the construction industry may vary from state to state. It's essential to familiarize yourself with the specific laws and regulations in Kansas, and seeking legal advice is often the best course of action to ensure you follow the correct procedures and protect your rights to payment.
Understanding Mechanics Liens
Mechanic's liens are powerful tools in construction. They grant individuals in the industry who haven't been paid for their work on a property the legal right to claim compensation. To ensure they receive what they're owed, understanding the process and deadlines for mechanic's liens in their state is crucial. In Kansas and many other states, mechanic's liens are a vital resource for contractors, subcontractors, and suppliers to secure payment for their services.
Navigating Bonds on Public Projects
Bonds are crucial in public construction projects, ensuring financial security and payment assurance. Familiarizing yourself with bond requirements and deadlines helps in resolving payment issues promptly.
Public projects often require bonding to protect the interests of the public entity and subcontractors and suppliers involved in the project. Here are some best practices for handling bonds on public projects in Kansas:
Understand Bond Requirements
Before bidding on a public project, carefully review the contract documents and specifications to understand the bond requirements. Kansas law often mandates the use of payment and performance bonds for public projects.
Select a Reputable Surety Company
Choose a reputable surety company to provide the required bonds. The surety company's financial stability and experience in the construction industry are crucial considerations.
Start the Bonding Process Early
Initiate the bonding process early in the project. This will give you ample time to secure the necessary bonds and avoid delays in the project's commencement.
Review the Bond Language
Thoroughly review the bond language to ensure you understand your rights and obligations. Work with an attorney who specializes in construction law to assist with this if necessary.
Provide Accurate Project Information
When applying for bonds, provide accurate and complete project information to the surety company. This includes details about the project, contract amount, and other relevant data.
Prequalification with Surety
In some cases, the surety company may require subcontractors and suppliers to go through a prequalification process to ensure their financial stability and ability to perform the work.
Maintain detailed records of all bonding-related communications and documents, including bond applications, correspondence with the surety, and bond premiums paid.
File Bond Claims Promptly
If you are not paid for your work on a public project, file a claim against the payment bond promptly. There are strict time limits for making bond claims, and failing to meet these deadlines can result in the loss of your rights.
Consult an Attorney
If you encounter issues related to bonds or payment disputes on a public project, consult with an attorney who specializes in construction law in Kansas. They can provide legal guidance and help you navigate the process effectively.
Build Good Relationships
Maintain positive working relationships with the project owner, general contractor, and other stakeholders. Open communication and collaboration can help resolve issues more efficiently and avoid disputes.
Follow Contractual Requirements
Ensure that you comply with all contractual obligations, including meeting project milestones and delivering quality work. Failure to do so may lead to claims against your bond.
Public projects often come with specific requirements, and the regulations may change over time. Staying informed about the latest laws and best practices is crucial for a successful construction project. At SunRay, our deep knowledge of the Kansas construction industry equips us to assist you in ensuring regulatory compliance and safeguarding your interests. You can reach out to us here, for any assistance.
Speeding up payments in construction involves a combination of understanding contracts, mechanics liens, bonds, and effective documentation. By proactively using these tools and best practices, you can increase the likelihood of faster payments and ensure the financial success of your construction projects. Don't hesitate to assert your rights and pursue prompt payments, as in this industry, being proactive often leads to quicker results.
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