There can be many differences between private and public construction projects, especially when it comes to securing a fair contract and collecting your money. Knowing these differences and approaching them correctly from the start will save money, time and headache down the road. Don Gregory presented "Private Work: How to Secure a Fair Contract + Get Paid" on May 1, 2014, and examined contract provision, contingent payments, lien rights, change orders and prompt payment acts. The briefing, held in the offices of Kegler Brown, was essential for anyone who provides labor, material or equipment to privately owned construction projects.

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THE PROBLEM -
TOO LITTLE WORK FOR TOO MANY
CONTRACTORS CREATES DESPERATE
CONDITIONS RIPE FOR:
1. Bid Shopping
2. Killer Contract Clauses

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THE CONTRACT IS THE BIBLE
that establishes RISK –
and RISK must be managed and priced
appropriately.

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PRIVATE WORK V. PUBLIC WORK
Private Work – Can Present or Negotiate a
Fair Contract
Public Work – Bid Must Be Responsive and
Cannot Change Contract

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WOULD A CONTRACTOR PRICE
RISK THE SAME IF -
+ No differing site condition clause?
+ No extensions for weather delays?

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WOULD A SUBCONTRACTOR OR
SUPPLIER PRICE RISK THE SAME
IF -
+ No lien rights?
+ No bond rights?

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CONDITION YOUR BID
1. Suppliers – Control Risk by Purchase Order
2. Subcontractors – Condition Your Bid.
“This bid is conditioned upon the use of the
ConsensusDOCS 750 or other subcontract
form acceptable to Subcontractor.”
3. Contractors – Provide contract in advance and
say “bid this.”

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CONTRACTORS HAVE A FRIEND IN:
Fairness in Construction Contracting Act –
R.C. § 4113.62

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WHAT TYPE OF CONTRACT
PROVISIONS ARE
UNENFORCEABLE?
+ No Damage for Delay Clauses
+ Waiver of Bond Rights
+ Subject to Foreign State Law
+ Forced to Arbitrate or Litigate Out of State
+ Final Payment as Waiver If Prior Notice

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FAIRNESS IN CONSTRUCTION
CONTRACTING ACT PROVIDES:
Nothing in a contract or change order can waive
responsibility for the –
“Owner’s acts or failure to act”
(and Contractor’s acts or failure to act if you are a sub)

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PAYMENT
THE LIFEBLOOD OF ANY SUBCONTRACTOR
WHO PAYS LABOR EVERY FRIDAY AND
SUPPLIERS IN 30 DAYS.

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YET SUBS ARE ASKED TO TAKE
CREDIT RISKS
NOT ACCEPTED BY GCs AND SUPPLIERS.

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AND IF SUBS ARE NOT PAID
THERE IS OFTEN THE PRACTICAL EFFECT OF
NOT PAYING SUPPLIERS!
So Suppliers Should Care About “Pay-if-Paid” too.

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TWO TYPES OF CONTINGENT
PAYMENT
1. Pay-when-Paid
2. Pay-if-Paid

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PAY-IF-PAID
Shifts 1. Credit Risk of Owner
Non-Payment
2. Risk of Contractor (or other Sub)
Non-Performance

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PAY-WHEN-PAID
+ In most states, an implied duty to pay in a
REASONABLE PERIOD OF TIME.

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THE KINDER-GENTLER PAYMENT
TERM
+ Pay-When-Paid
+ Paid within a reasonable period of time.
+ General Contractor still obligated to pay even if Owner
doesn’t make payment.

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WHAT WORDS SHOULD BE
AVOIDED?
+ IF
+ CONDITION PRECEDENT

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HOW TO SPOT A PAY-IF-PAID
CLAUSE?
Condition
Precedent

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TO BE ENFORCEABLE A PAY-IF-
PAID CLAUSE MUST BE:
+ Clear and unambiguous
−If not, construed against the drafter
+ Will render the term Pay-When-Paid
+ Why is that important?
−It must be drafted correctly
−If not, “benefit of the doubt” will go to the subcontractor
+ Construed as the more favorable Pay-When-Paid

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WATCH OUT FOR PAY-IF-PAID IN
CLAUSES GOVERNING:
1. Change Orders
2. Claims or Requests or Equitable Adjustment

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WHAT ABOUT LIEN OR BOND
CLAIMS?
Generally cannot recover on payment bond or
foreclosure lien (“no money yet due”).
Unless your state statute provides otherwise.

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SOME STATES PERMIT “PAY-IF-PAID”
BUT STILL ALLOW LIEN RIGHTS TO BE
PRESERVED
+ Indiana
+ Ohio
+ Missouri

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TRANSTAR ELECTRIC
There is a case now pending in the Ohio Supreme
Court that will determine if Pay-if-Paid remains
enforceable in Ohio.

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LIEN RIGHTS ON
PRIVATE COMMERCIAL
PROJECT

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STEP ONE: REQUEST A
NOTICE OF COMMENCEMENT
−Provides information about an improvement
−Filed with the county recorder where the improvement
is located
+ Not so for Public Projects
−The recording of the Notice of Commencement triggers
the obligation to provide a Notice of Furnishing
−Owner should record

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REQUEST FOR NOTICE OF
COMMENCEMENT
Private Commercial Project

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NOTICE OF COMMENCEMENT
Private Commercial Project

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WHO DO YOU REQUEST IT
FROM?
Private Commercial Project

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STEP TWO: SERVE A NOTICE OF
FURNISHING
− Puts the Owner and Original Contractor on
notice
− Send by Return Receipt (certified mail)

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NOTICE OF FURNISHING
Private Commercial Project

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WHO DO YOU SEND IT TO?
1. The Designee listed on the Notice of
Commencement
+ If no Designee, send it to the Owner as listed on the
Notice of Commencement
2. The Original Contractor
Send By Certified Mail
Obtain Return Receipt

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WHEN DO YOU DO ALL OF
THIS?
+ Simple Answer
+ Right When You Start Work /Furnish Material
+ 21-Day Window
+ “Better late than never”

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21-DAY WINDOW

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PHASE 2 – PERFECT YOUR LIEN
RIGHTS
+ Rumors
+ You Have Payments Overdue

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MECHANIC’S LIEN AFFIDAVIT

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TIMING MATTERS
Private Commercial Project

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OHIO PROMPT PAYMENT ACT
Provides that when the Contractor Receives
Money from Owner
CONTRACTOR MUST PAY SUB OR SUPPLIER
WITHIN TEN (10) CALENDAR DAYS.

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APPLIES TO SUBS TOO
AND SUB MUST PAY ITS SUB-SUBS AND
SUPPLIERS WITHIN TEN (10) CALENDAR
DAYS.

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WHAT IF PAYMENT NOT MADE
TIMELY?
OFFENDING PARTY MUST PAY
18% interest and attorney’s fees!

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CHANGE ORDERS
Why wait?
Big wait = Big Disappointment
NOTICE, NOTICE, NOTICE
“Early and Often”
In Writing
Price estimates before the work is done.
Signed time tickets help, but are not everything.
[Beware of “hidden” all encompassing release language in pay request, change orders and lien
waivers.]
Benefits:
+ Avoids legal pitfalls of late notice.
+ Minimizes excuse that “if only we had known sooner …”
+ Allows a problem to be solved before it grows.

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“WHY I CAN’T WAIT FOR A CHANGE
ORDER”
Or
If I insisted on a change order for everything,
nothing would get built.
ONCE WORK PERFORMED WITHOUT A WRITTEN CHANGE
ORDER OR DIRECTIVE –
You are at risk and lose your leverage.
Use the contract language (must be in writing prior)
against the customer … “will hold up the work!”

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COLLECTION STRATEGIES
To Wait is Wishful Thinking.
Solutions:
1. Collection letters.
2. Mechanic’ liens
3. Payment bond claims
Benefits:
+ Focus collection activities on the sources of the payment
problem.
+ Utilize your true leverage.

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IT’S ‘THE PRINCIPLE OF THE
THING’
aka
PRINCIPLE COSTS!
MAKE A BUSINESS DECISION:
Attorneys fees are generally not recoverable so
compromise earlier rather than later. (95% of cases ultimately settle).
“A sign of a fair settlement is one in which both sides are equally displeased.”
You have got to give if you want to get.

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Thank You!
Don Gregory
Kegler Brown Hill + Ritter
dgregory@keglerbrown.com
keglerbrown.com/gregory
614-462-5416