Sometimes while reading another trade journalist’s work it happens to strike a nerve or plant the seed for another article. In this instance it did both.
I just happened to be reading an article, by Mr. Paul Ridilla, in P&M (Plumbing & Mechanical) magazine entitled “Stop That Financial Leak” and though I feel that Mr. Ridilla writes some very informative articles I also feel that some of his articles are “idealistic” and not really “realistic.
To clarify, in the aforementioned article, he says, “Insist on a 6 percent per month late payment penalty and avoid any type of “pay when paid” clause that could prevent you from getting paid”. This I feel is “idealistic”. Any of you fellow contractors who work for any of the larger general contractors, (in fact even small general contractors and subcontractors), know that most times you’ll never receive interest on payments you receive late, (except maybe some government projects) and in forty-four (44) years I’ve never seen a GC strike the “pay when paid” clause out of their Subcontract Agreement.
That’s not to say that there aren’t GC’s or subcontractors, (that you’re friendly with), that pay you in thirty (30) days or less, but there are very few. In fact the “pay when paid” clause is part of my company Subcontract Agreement when I am in a position to give a contract to a sub-subcontractor. None of us are banks (though some GC’s, owners and developers think we are and treat us as such), so that’s why it is part of my subcontract agreements.
GC’s Will Never Strike Pay When Paid Clauses
Please be hyper aware of this fact, there will always be another subcontractor, (in your trade), who the GC’s will go to that will take the job and neither insist on interest on late payments nor strike the “pay when paid” clause and if you want to continue to have work with those GC’s you’ll have to live and work by those rules. BTW I am not one that says just because it is now doesn’t mean it can’t change but I haven’t seen in my 44 years a consolidated trade wide effort to force the general contractors to make those concessions.
Another Way to Stop the Financial Leaks
I want to say that I had no intention of writing this article as a counterpoint Mr. Ridilla’s article. I want to reiterate that I think his pieces are very informative. I’m writing this article to shed light on another important topic that is extremely relevant to his article “Stop That Financial Leak”. It is a topic that I run into quite often and one line item that seems to be adversely addressed at the curriculum level in some of our construction management programs. On most contracts we see with larger GC’s you will notice that they do not allow markups to the incremental dollar amounts for premium time and shift work labor. You can and should insist this be taken out of your contract. It is a real cost of doing business and you are entitled to receive a profit.
I always take exception to this item and ask the GC’s representative what their rational is for inserting it into their contracts and they most often say, “You’re double dipping when you markup the premium time portion or shift time portion of your labor” and I always respond to them. “Am I not allowed to markup the dollar amount that I have to lay out to do a project? They usually respond that when we bid the project we had already marked up the total hours for the job. My response to them is that “it’s not the hours that are marked up but the total dollar amount for the hours that is marked up”. I also remind them that we are in business to make money and are entitled to overhead and profit markups for every dollar we anticipate having to spend for a project and also for every change order that we did not anticipate or know about which would include premium time labor and shift work. I remind the GC’s that on top of the incremental increases for premium time/shift work we also have to add federal and state taxes and any additional insurance premiums which causes me to lay out additional monies and for which I am entitled to markups. As an example, if the project were to have had overtime or shift work time included in the bid proposal we would have marked up those hours making the job more expensive up front. After some wrangling, the GC’s will begrudgingly consent to allowing us markup on the incremental premium time and/or shift time dollar amount.
Every Plumbing Contract is a Unique Experience
Obviously before every job awarded to us and before I make an issue with reference to the above I always look at the project as a whole. Here is some advice when facing this issue, ask questions and try to anticipate if there will be a need for premium time or shift time labor and make everyone you are bidding to aware. If you feel there will not be the need for overtime or shift work don’t address the line item. Sometimes it is better to treat this item in the contract on a case-by-case basis. But all being said, you are entitled to markups on premium time/shift time cost differential and insist upon them .