Project Management

Project Management Central

Please login or join to subscribe to this thread

Topics: Communications Management, Construction, Risk Management
Delay/withholding of payment
How to deal with the situation when the Contractor is not paid in time against work done Invoice and there is no provision for equitable compensation.Please share your experience.
Sort By:
1. If there is a contractual agreement - then a legal proceeding. But this option is a bit tricky considering future relations and customer-base building. Usually this is the last option left.
2. Follow-up with everyone inside, till they pay - and almost everyday if required. Though this has the draw-back of being labelled as pesky and annyoing. And requires a lot of patience as well. This could be the second last option.
3. Associate with other contractors and then see if the pressure works. But often, the quality of other contractors is not known. And besides there is not say if others are willing to associate with you.
4. Specific and periodic follow-ups - example - only to the purchase manager or the Finance team. This may not be that effective but usually the first choice.

This is what I used to attempt.
...
1 reply by Chandrashekhar Thatte
Feb 14, 2017 1:45 AM
Chandrashekhar Thatte
...
I agree with you Shreeram,in absence of any tangible remedies available to the Contractor;he will have to rely on using the soft skills and business acumen to somehow convince the Client on the inevitable consequence on the work progress on account of his inability to manage the risk(cash crunch) which ,primarily falls in the Client's domain.
What type of contract are you managing in this situation?
...
1 reply by Chandrashekhar Thatte
Feb 14, 2017 1:50 AM
Chandrashekhar Thatte
...
Michael,type of contract is immaterial ,such situation is tough to deal with in absence of contract provision for equitable compensation.
Feb 13, 2017 7:33 AM
Replying to shreeram madangopal
...
1. If there is a contractual agreement - then a legal proceeding. But this option is a bit tricky considering future relations and customer-base building. Usually this is the last option left.
2. Follow-up with everyone inside, till they pay - and almost everyday if required. Though this has the draw-back of being labelled as pesky and annyoing. And requires a lot of patience as well. This could be the second last option.
3. Associate with other contractors and then see if the pressure works. But often, the quality of other contractors is not known. And besides there is not say if others are willing to associate with you.
4. Specific and periodic follow-ups - example - only to the purchase manager or the Finance team. This may not be that effective but usually the first choice.

This is what I used to attempt.
I agree with you Shreeram,in absence of any tangible remedies available to the Contractor;he will have to rely on using the soft skills and business acumen to somehow convince the Client on the inevitable consequence on the work progress on account of his inability to manage the risk(cash crunch) which ,primarily falls in the Client's domain.
Feb 13, 2017 9:11 AM
Replying to Michael Ziyadeh
...
What type of contract are you managing in this situation?
Michael,type of contract is immaterial ,such situation is tough to deal with in absence of contract provision for equitable compensation.
From the contractors perspective doesn't this depend on whether the invoice is for the entire assignment or just a part of it?

There are quite a few dimensions that come into play as Shreeram has indicated, but ultimately the action needs to be evaluated against some kind of risk-reward model.
...
1 reply by Chandrashekhar Thatte
Feb 15, 2017 2:11 AM
Chandrashekhar Thatte
...
Cris,work invoice ,obviously,is a contractual entitlement irrespective of whether it is corresponds to part or full assignment.What is risk-reward model and what are the provisions ,please elaborate for my understanding.
Feb 15, 2017 12:04 AM
Replying to Cris Casey
...
From the contractors perspective doesn't this depend on whether the invoice is for the entire assignment or just a part of it?

There are quite a few dimensions that come into play as Shreeram has indicated, but ultimately the action needs to be evaluated against some kind of risk-reward model.
Cris,work invoice ,obviously,is a contractual entitlement irrespective of whether it is corresponds to part or full assignment.What is risk-reward model and what are the provisions ,please elaborate for my understanding.
...
1 reply by Cris Casey
Feb 15, 2017 9:16 AM
Cris Casey
...
Hi Chandra -

The point I was trying to make Is from the perspective of the Contractor. Here's a more complete explanation/example:

I am an electrical contractor who has contractually agreed to perform services for a customer. Before I signed the contract I did my due diligence on the Customer to make sure they are financially stable and hopefully ethical in their business dealings.

My contract calls for 5 equal progress payments as portions of the work are completed, with a 10% retainage (amount withheld from each invoice to be paid at the conclusion of the work). I complete, invoice and receive payment for the 1st 2 work segments.

However, after I complete the 3rd segment and send the invoice, no payment is received in the agreed upon timeframe. When I make inquiries as to when I might expect payment, I am given no firm information. At this point I need to perform a risk-reward assessment to determine what my next action is.

Here are some of my options, each of which have different potential financial impact and outcomes
.
1. Stop work until matter is resolved.
2. Send notice to customer that a breach of contract has occurred and continue working in good faith.
3. Formally bring legal action to enforce contract.

Each of the options have risk/reward attributes that I need to model and weigh before taking action. For #1 my reward is that I am no longer expending labor for which I may not receive payment and it may spur the Customer to issue payment. My risk is that the Customer may a)replace me, b)sue me for breach because I stopped work, c)permanently damage the relationship with the Customer such that no future work would be offered, etc. etc.
Specific and periodic follow-ups - example - only to the purchase manager or the Finance team. This may not be that effective but usually the first choice.
Other Options may be networking with other Contractors whose payment is also halted, and see if the pressure can work.
The Last resort is using lawsuit
I think this situation is led from traditional practice of delaying contractors payment, which is not a standard or best business practice. Little due to the notoriety of the construction industry itself, where parameters for measuring work completition and respective quality might not be ideal, thus leading to an intentional delay by the customer.

In my understanding follow up in such a case might not be a desired best practice, this could be a general rule.
From finance prrpective, 2-3 things can be established before accepting work from any customer-
1. Always refer to past history of the customer, has he unnecessary held up payment for previous work.
2. What is credit worthiness of such customer?
3. Payment terms must be agreed upon very carefully, instead of holding up the whole money, it can be agreed to hold i.e. 10% from any payment as payment to be relased after technical or quality verification, may be a win-win to both parties.
Feb 15, 2017 2:11 AM
Replying to Chandrashekhar Thatte
...
Cris,work invoice ,obviously,is a contractual entitlement irrespective of whether it is corresponds to part or full assignment.What is risk-reward model and what are the provisions ,please elaborate for my understanding.
Hi Chandra -

The point I was trying to make Is from the perspective of the Contractor. Here's a more complete explanation/example:

I am an electrical contractor who has contractually agreed to perform services for a customer. Before I signed the contract I did my due diligence on the Customer to make sure they are financially stable and hopefully ethical in their business dealings.

My contract calls for 5 equal progress payments as portions of the work are completed, with a 10% retainage (amount withheld from each invoice to be paid at the conclusion of the work). I complete, invoice and receive payment for the 1st 2 work segments.

However, after I complete the 3rd segment and send the invoice, no payment is received in the agreed upon timeframe. When I make inquiries as to when I might expect payment, I am given no firm information. At this point I need to perform a risk-reward assessment to determine what my next action is.

Here are some of my options, each of which have different potential financial impact and outcomes
.
1. Stop work until matter is resolved.
2. Send notice to customer that a breach of contract has occurred and continue working in good faith.
3. Formally bring legal action to enforce contract.

Each of the options have risk/reward attributes that I need to model and weigh before taking action. For #1 my reward is that I am no longer expending labor for which I may not receive payment and it may spur the Customer to issue payment. My risk is that the Customer may a)replace me, b)sue me for breach because I stopped work, c)permanently damage the relationship with the Customer such that no future work would be offered, etc. etc.

Please login or join to reply

Content ID:
ADVERTISEMENTS

"Interestingly, according to modern astronomers, space is finite. This is a very comforting thought--particularly for people who can never remember where they have left things."

- Woody Allen

ADVERTISEMENT

Sponsors