For two consecutive quarters, the U.S. economy experienced an economic decline—typical indicators of an impending recession. Despite what the numbers may indicate, it is still unclear what direction the U.S. economy may take. Whether a recession is already here or on the way, here are five tips to help protect your construction contracts—particularly payments for your work.
1. Review Your Construction Contracts
Do not wait to review your construction contracts. Understand the financial status and the payment terms applicable to each project. This review includes understanding exactly how any pay-if-paid or pay-when-paid clauses work. The exact meaning of these clauses varies depending on the laws of the jurisdiction applicable to your contracts. Some states have laws governing the enforceability of pay-if-paid clauses. Furthermore, caselaw and statutes in many jurisdictions have made pay-if-paid clauses of no effect relative to payment bond claims, including claims under the Miller Act and “Little” Miller Acts. Consult your contract disputes language, as well. A dispute over non-payment does not permit a suspension or termination of work pursuant to many contracts. Before suspending or terminating work for non-payment, consult with an attorney. A failure to do so could result in costly claims against your company and any performance bond.
2. Timely Preserve Your Lien and Bond Rights
If your project is showing signs of financial distress, protect the value of your company’s work in a project by preserving your lien and bond rights. Lien and bond laws vary in each state and strict compliance with statutory requirements and deadlines is absolutely essential to preserving your rights. If you are not aware of your lien and bond rights or the deadlines, please consult an attorney as soon as possible. Early understanding of lien and bond deadlines and requirements will reduce your risk of non-payment.
3. Notice and Claim Deadlines, Time and Cost Impacts and Releases
Almost all contracts and subcontracts have notice provisions related to claims for additional time or costs associated with work. Courts in numerous states reject claims for additional time or costs when the contractor fails to strictly comply with notice requirements of a contract. A failure to adhere to notice provisions can result in costly waivers of claims. Complying with notice provisions will reduce or mitigate your losses on projects. Similarly, blindly signing payment waivers and releases could leave you without any rights or recourse for additional costs and time impacts to your work. Payment waiver and release forms are becoming more complicated on many construction projects and can lead to construction companies unwittingly releasing claims.
4. Learn Before You Take on Work New to Your Company
Before you leap into a new industry, location, or project type, make sure you are aware of the laws and regulations governing the same, including any licensing or regulatory requirements. Practicing without a license in some jurisdictions can result in criminal and civil fines, as well as loss of payment for unlicensed work. Similarly, if your business is geared towards federally funded infrastructure projects, you should be aware of the compliance measures necessary for contracting with the U.S. government, including labor law requirements. Given recent appropriations for infrastructure projects and the Biden Administration’s commitment to improving infrastructure, the government has funding for construction projects. However, the opportunities created by this funding can lead to costly mistakes if you do not account for regulatory requirements.
5. Plan Before You Terminate Labor
Finally, although many companies may think layoffs are a key cost-saving measure in the face of an economic downturn, this may be a costly decision for construction companies. The loss of trained, skilled labor may make it difficult to rehire once the economy improves or, more importantly, to meet later-slated project requirements. Costs associated with layoffs and terminations—as well as costs associated with new hires, including onboarding and training—should be considered, particularly if upcoming projects could be impacted by delays in the onboarding process.
If you have questions about how best to protect your company during an economic downturn or any other construction law matter, please contact Jessica duHoffmann or Annie Hudgins, the authors of this blog, or another member of PilieroMazza’s Construction Group.