Lock in Payment Plans like a Pro: 4 Expert Tips to Get Paid & Avoid Litigation in Florida

In this blog, presented by SunRay Construction Solutions and Alex Barthet, Principal, The Barthet Firm, construction professionals in Florida can learn four crucial tips to get paid smoothly while working on various types of construction jobs.

Tip #1 - Get it in Writing & Signed by a Principal

The foundation of a reliable payment plan lies in clear documentation. It's imperative to get all agreements in writing and have them signed by a principal. This not only solidifies the terms but also provides a legal framework for any potential disputes that may arise.

Tip #2 - Get the Correct Terms in the Agreement

Beyond mere documentation, the importance of getting the correct terms in the agreement cannot be overstated. Specific terms related to payment schedules, milestones, and penalties for delays should be meticulously outlined. This level of detail ensures enforceability and serves as a safeguard for both parties.

Tip #3 - Only Offer Credits Upon Payment in Full

While offering credits can be a strategic move to incentivize timely payments, it's crucial to do so judiciously. Only offer credits in exchange for full payment to avoid potential loopholes or misunderstandings. This practice promotes a healthy payment culture and minimizes risks associated with partial payments.

Tip #4 - Don’t Give Up Lien or Bond Rights too Soon

One of the most common pitfalls is giving up lien or bond rights prematurely. These rights serve as crucial protections for contractors and suppliers, ensuring they receive payment for their work. Under no circumstances should these rights be relinquished sooner than necessary, as doing so can jeopardize financial security.

Understanding the 4 Tips in Detail

In essence, implementing these tips not only fosters transparency and trust but also safeguards the interests of all parties involved in construction contracts. Let’s dive deep into each of these tips so that you can navigate payment plans with confidence and mitigate potential risks effectively.

Why get it in Writing & Signed?

• Creating a Solid Foundation for Payment Plans - One of the most critical aspects of managing payment plans in construction contracts is ensuring that agreements are clearly documented and signed by the appropriate parties. While emails and texts can serve as initial communication, they lack the legal weight of a formal, physical document.
• Formal Agreements vs. Informal Communication - Having a formal agreement not only establishes clarity but also provides a concrete reference for both parties involved. An email or text message can supplement this agreement but should not replace it, as they are not as legally binding.
• Verifying Authority - Furthermore, it’s crucial to verify that the person signing the agreement on behalf of the other party is authorized to do so. In Florida, a straightforward method to confirm this authorization is by checking if the signer is listed on the Secretary of State's website (sunbiz.org) under roles like president, vice president, secretary, treasurer, director, or managing member of the business.
• Avoiding Common Pitfalls - Avoid relying solely on signatures from individuals who may not have the authority to bind the business legally, such as salespersons or project executives. While their signatures may hold some weight, it’s preferable to ensure that the signatory's authority is officially recognized by consulting state records.
• Postdated Checks as a Form of Assurance - Some may argue that receiving postdated checks as a form of assurance bypasses these formalities. However, postdated checks, while providing a sense of security, are merely promises to pay. If these checks bounce when deposited, they do not constitute a legally enforceable agreement.
• Building a Strong Legal Framework - The essence of creating a payment plan within a construction contract is to establish a separate, enforceable agreement. This ensures that in case of non-compliance with the payment terms, legal action can be taken not just for the original debt but also for breaching the specific terms outlined in the payment plan. This dual-layered approach strengthens your position in legal proceedings and reinforces the validity of the payment agreement.

Why use the Correct Terms?

• Total Principal Debt - Begin by clearly stating the total principal debt owed. This information is vital, especially when discussing potential credits or adjustments later in the agreement.
• Payment Schedule - Specify the payment terms with precision. Instead of vague descriptions like "within 30 days," use specific due dates such as "Payment due on the 15th of each month." This clarity avoids confusion regarding payment timelines.
• Avoiding Date Ambiguity - Be mindful of weekends and holidays when setting payment dates. Including a calendar chart in the agreement with exact payment dates helps prevent potential delays or misunderstandings.
• Payment Receipt Confirmation - Clarify that payment is only considered received upon actual receipt, not just when it's sent or mailed. This distinction ensures accountability and avoids disputes regarding payment deadlines.
• "Time Is of the Essence" Clause - Incorporate the phrase "Time is of the essence" in your agreement. This legal term emphasizes the importance of meeting deadlines. If a party fails to adhere to the agreed-upon timeline, they are in breach of the contract, allowing you to demand immediate payment of the full principal amount.
• Enforcing Agreement Terms - By including these critical terms in your payment plan, you establish a clear framework for payment obligations. This not only helps avoid misunderstandings but also provides leverage in case of non-compliance, empowering you to enforce the terms and protect your payment rights effectively.

Why offer Credits upon Payment in Full?

• Full Payment Requirement - State clearly that any credits offered are contingent upon receiving full payment. For example, if you agree to accept $10,000 instead of $15,000, emphasize that you will not provide any concessions until the full $10,000 is received.
• Avoid Misconceptions - Many individuals assume that offering credits alone is sufficient. However, it's vital to differentiate between offering a credit and receiving actual payment. Emphasize that credits are not substitutes for payments and should only be given once full payment is made.
• Protecting Your Rights - By demanding payment in full before offering any credits, you ensure that your rights are protected. This approach prevents potential misunderstandings and reinforces the importance of completing payment obligations as agreed upon in the contract.
• Sample Language for Clarity - Consider using sample language in your agreements to clearly outline this principle. Such language can reinforce the requirement for full payment before any credits are extended, ensuring that both parties understand their responsibilities.

Why shouldn't you give up Lien or Bond Rights too soon?

• Understanding Legal Remedies - When entering a payment plan and encountering a default, you have legal recourse under both the original debt and the breach of the payment plan. This means that if you're owed $10,000 and sue under the payment plan, the court may order payment of the original $10,000, allowing the other party to sue you again for breaching the agreement.
• Avoiding Double Liability - To prevent this double liability scenario, ensure that your payment plan does not include clauses where you give up lien or bond rights simultaneously with offering credits. Preserving all legal remedies from the original contract and the payment plan is crucial to protecting your interests.
• Preserving Legal Options - By maintaining your lien and bond rights until necessary, you retain the ability to pursue all available legal options. This ensures that you have leverage in case of non-compliance with the payment plan and can seek appropriate remedies without compromising your position.

Key Takeaway

In summary, securing your payment rights in construction contracts requires meticulous attention to detail and clear communication. By following these tips and understanding the nuances of payment plans, you can safeguard your interests and mitigate potential disputes.

If you find yourself in a situation where you need assistance to get paid, then ensure that you get in touch with SunRay’s experts well in advance, so that they can take all the required steps promptly. Call 800-403-7660 today and get paid what you deserve.

Other Recent Questions from Contractors about Payments in Florida Construction

Can payment plans be modified after they are signed?

Yes, payment plans can be modified after they are signed, but it's crucial to ensure that any modifications are documented in writing and signed by all parties involved to avoid misunderstandings or disputes.

What should construction professionals do if a client defaults on a payment plan?

If a client defaults on a payment plan, construction professionals should follow the procedures outlined in the agreement, which may include sending formal notices, pursuing legal remedies such as filing a lien, or seeking alternative dispute resolution methods.

How can construction professionals ensure timely payments from clients?

To ensure timely payments from clients, construction professionals can implement strategies such as setting clear payment schedules, offering incentives for prompt payments, maintaining open communication with clients, and promptly addressing any payment-related issues that arise.