Why Wait? Resolve Extra Work Payments Now!

In this industry you frequently find yourself stuck in a very frustrating game of waiting until the end of the project to resolve extra work claims. Do you realize this results in you financing the extra work until you get paid for that work? As a Subcontractor, you must promptly pay for the labor and materials used to perform the extra work while you, the General Contractor, and even sometimes the project Owner, haggle over the value of that work or whether the work was already included in your original scope. Payment for the extra work typically lags way behind the performance of the work for months or often years on larger, longer projects.

When getting stuck in this type of situation, you end up regretting the day you signed a subcontract that requires you to perform extra work anytime the General Contractor (“GC”) directs you to.  This includes situations when there is no agreement as to the time or cost associated with the work. Here is a representative subcontract provision:

In the event that Subcontractor and Contractor cannot agree to the price or time impacts associated with any claimed extra or changed work, or there is a disagreement as to the scope of such work, then Subcontractor shall promptly perform such upon written direction of the Contractor pending resolution of the disagreement.

The issue is compounded when there are numerous extra or changed work directives and the Subcontractor has no choice but to perform the work and keep paying for the related labor and materials.

Frequently, the Sub follows up with the GC asking about the status of getting a formal change order and, more critical, getting paid for the work. What seems to be a simple request gets ignored and about 90% of the time, your GC comes back with the response that “the Owner is holding it up”.  Infuriating, but true.   

And, many times we see that the reason the Owner is “holding it up” is because (1) the GC has not yet requested a change order because they are behind in their paper work, (2) the Owner doesn’t want to pay because it can avoid immediately incurring the cost for that work, and/or (3) the GC or the Owner wants to “negotiate” all extra work claims together at the end of the project in order to force a compromise to reduce the amount of the claims.

Are you stuck waiting this indefinite amount of time to get an answer or payment?

No!

Not if you are willing to initiate the dispute resolution procedure for the extra work before the project is completed. While many subcontracts require the Sub to follow the prime contract procedure if the Owner may be the reason for the extra work, the Sub still can force the issue by following whatever procedures are required.

For example, a subcontract may state that the Sub will only get paid for extra work initiated by the Owner to the extent the GC gets paid from the Owner. Here is a common provision:

This Subcontract incorporates the dispute resolution procedure in the Prime Contract for disputes involving the Owner. Subject to compliance by Subcontractor to the changes and claims procedures in the Prime Contract, Contractor's only obligation is to present any timely-filed claims by Subcontractor to Owner under such procedure and Contractor shall only be obligated to pay Subcontractor the proportionate part of any sums paid by the Owner applicable the extra work performed by Subcontractor and for which Subcontractor is entitled.

If the Sub followed the notice provisions when the claim of the extra work first came up, there is no reason why the Sub needs to wait before moving forward against the GC with whatever procedure the GC would have to follow against the Owner. For example, meet and confer, demand mediation, or file a demand in arbitration – do whatever it is that the GC would have to do against the Owner.

What about the wording that says the Sub only gets paid for the extra work if the GC gets paid by the Owner? That looks suspiciously like a “paid-if-paid” clause, and there’s a good chance it would not be enforceable under California law

If the extra work is an issue only between the Sub and the GC, then the Sub can simply follow the dispute resolution procedure in the Subcontract. If there is no procedure, then file a lawsuit seeking payment just for the extra work. Most of the time, there is no good reason whatsoever to wait. There is nothing stopping the Sub from getting a resolution on the extra work even if it is still on site performing its original scope along with extra work.

Prime contracts and subcontracts that contain dispute resolution procedures requiring meetings between management and/or mediation offer the perfect opportunity for Subs to get movement on resolution and payment for the extra work.

Whether you choose to enforce the dispute resolution procedure earlier than later depends on how much is owed and how long it has been owed. But the reality we’ve seen is that when you start to formally enforce the dispute resolution procedure, the issue gets resolved pretty quickly.

Remember, once the extra work is done and the project is over, the GC knows you have less bargaining power and may try to pull the “…let’s negotiate the payment…” tactic. Starting the process sooner than later can only be to your benefit.  

So, what are you waiting for?