Building Design and Construction

Trade Payment Breakdowns and Payments

The Contractor’s Trade Payment Breakdown (Fig. 17.20) is usually prepared by the contractor long in advance of purchase of materials or subcontracts. Therefore, the amounts shown may vary from the actual costs of the various items. In addition to this, the contractor usually has start-up costs for such expenses as mobilization, temporary structures, temporary utilities, and layout, which may not be reflected completely in the breakdown. To offset both of these conditions, the breakdowns may be unbalanced by giving greater value than true costs to the work of some of the trades done early than to the work of the trades done later. This unbalancing will enable the contractor to receive funds for these early start-up costs and thus to be compensated for having to pay various subcontractors and suppliers greater amounts than anticipated at the time the breakdown was prepared. The unbalancing will also make funds available for paying certain subcontractors and suppliers their retained percentages prior to payment of the general contractor’s retained percentage.

The reason why such payments are made earlier is that direct labor costs and many purchase commitments made by contractors, such as lumber, hardware, millwork,  doors, and frames, are not subject to retained percentage. These materials, which are merely delivered and not contracted for to be both delivered and installed,
must be paid for in full. Since there is a retained percentage being held on all of the work of the general contractor, funds must be available for the part of the retainage that is paid out by the contractor. The unbalancing of the Trade Payment Breakdown will serve this purpose. Payments to subcontractors and suppliers are made on the basis of payments received by the general contractor on monthly requisitions. The general contractor should pay to these subcontractors and suppliers only the same percentage as approved on the contractor’s requisition to the owner. In addition, the contractor should pay only extras for which corresponding payments have been received from the owner. In case of disputed extras, the contractor may have to pay a portion of the disputed amount to the subcontractor to keep the job running smoothly, despite the fact that the owner has not paid anything on these disputed claims.

Subcontractors should be paid only when the contractor gets paid for the subcontractors’ portions of the work. Furthermore, subcontractors should be paid only
after their subcontracts are signed and insurance certificates have been received. All subcontractors should be required to use the same requisition form. A typical Application for Payment on Account of Contract is illustrated in Fig. 17.21. Both the front and back must be filled out by the subcontractor and signed. Payments to a subcontractor should be shown cumulatively on the subcontractor’s financial folder, which should be separately set up for each subcontractor.
After the first payment is made to a subcontractor, the contractor should verify that the subcontractor is paying suppliers. If suppliers are not being paid, the general contractor should insist on joint checks to suppliers and the subcontractor and require that the subcontractor endorse the check so that the supplier can receive the funds.
In making final payments to subcontractors and suppliers, the contractor may be able to get a reduction in their claims and extras. In addition to this, the records of backcharges and other charges for use of hoists, etc. should be shown to them.
A close check should be kept on credits due. If a subcontractor omits portions of the work and if this is known, it is essential that a credit be requested of the subcontractor before final payment. All omitted work and shortcuts, especially in alteration work, should be recorded. Before final payment to a subcontractor, the general contractor should ensure that final waivers of liens have been signed and that all guarantees warranties, operating manuals, as-builts, and application for final payment have been received. After final settlement between contractor and subcontractor of all claims, and while final payment is being awaited from the owner, the subcontractor may often be willing to discount the final payment for immediate receipt of the money, rather than wait.

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