Driving Home Subcontractor Payment Abuses
While a lot has changed about the industry in the last five decades, industry surveys indicate that serious payment problems persist.
ASA Past President Anne Bigane Wilson made a radical statement about subcontractor payment abuses at the ENR Risk & Compliance Summit on Sept. 20 in New York City — the purpose of which was to discuss how contractors manage risk, including subcontractor default.
“Construction subcontractors and suppliers should get paid promptly and in-full for work properly performed,” she said. “While it may seem silly for that to be a radical statement, it is a sad fact that in our construction industry many subcontractors and suppliers do not routinely get paid promptly — and sometimes not at all — for their work.”
Richard Korman, Engineering News-Record’s managing senior editor of ENR.com, noted in his “Views Differ from Places on the Payment Flow-Chart” that Wilson’s “conversation seemed to have as much to do with morality and the public good as with management. The prompt payments that subs need to stay alive, she implied, were just as important as the risks to the prime contractor of subs going belly up,” Korman wrote.
Wilson, who is president of both Bigane Paving Co., a fourth-generation family firm specializing in asphalt paving, and Ogden Avenue Materials Inc., an asphalt manufacturing plant, explained that payment has always been a problem in the construction industry.
“That’s why the American Subcontractors Association for which I served as national president in 2002-03 was founded in 1966,” she noted. “While a lot has changed about the industry in the last five decades, industry surveys indicate that serious payment problems persist.
The ENR summit brought construction industry leaders together to assess various new and changing risks, discuss how to measure and control them and explain how the risks may change in the years ahead. Wilson turned the focus around and back onto contractors. She explained that some payment challenges can be attributed to operational mistakes, which may be quickly rectified, or institutional delays, which can be attributed to standard operating procedures and may be more difficult to overcome.
“But they don’t have to be and shouldn’t be SOP,” she said. “Indeed, standard industry documents, including ConsensusDocs … have addressed these issues with more reasonable payment terms.”
Wilson urged those in the audience to examine their own companies’ contract documents and consider modifying some of the provisions so they’re in the best interest of the project. Many payment problems, however, are the result of predatory practices by bad business operations, she continued.
“These firms prey on subcontractors and suppliers that are small, inexperienced, naive or just too hungry,” Wilson said. “They use strategies and tactics that delay and even deny payment to those that can least afford it, with the goal of lining their own pockets.”
Wilson proposed several legislative solutions for predatory practices, including legislation making pay-if-paid clauses void and unenforceable and legislation allowing contractors and subcontractors to stop work for nonpayment.
“The time has long since come when contractors but, particularly subcontractors, can’t continue to have the life squeezed out of us by operational, institutional and predatory slow pay. We must lead the industry — kicking and screaming if need be — down the road to payment reform.