If you are a General Contractor, or a Sub Contractor who hires second tier subs, the risk for failures of the payment process down the supply chain is yours to manage. How well you do this and keep the work flow moving forward determines if the end result is a successful and profitable project. The ability to balance Financial Stewardship with the temptation of helping others by assuming their risk depends on your commitment to discipline and leadership.
Maintaining your discipline to the risk management practices you have established shows leadership to the rest of your project partners, i.e. the other sub contractors and suppliers. For the 80-90% of your Subcontractors who get it, you are showing them that you appreciate their efforts, you are protecting the integrity of the project, and therefore you are protecting the partnership as a whole. Requesting the proper lien releases from suppliers, labor releases, using the joint check process, etc. are a must have in your efforts to protect everyone connected to the project. Here are some other ideas to practice pro active Leadership:
– Make sure your Billing process and requirements are explained and understood before your contracts are executed
– Involve your Subcontractors Admin and/or Accounting departments to make sure they understand your expectations
– Coach, teach, and train the contractor on the why behind your process
– Proactively communicate with Subs on the anticipated timing of the funding from the owner
– Do not assume their accountability for getting paid.
If you have set your expectations, communicated your process, taught the why, and still find yourself with Subcontractors that feel the need to ask for relief from your absolutes, I have a suggestion. Use the following to explain your position.
“We are contractually obligated to deliver a lien free project to our owner. I think when you look at the big picture; you will find that we go to great lengths to protect everyone that touches our projects equally. This includes our sub-contractors. We work hard to make sure you get paid, and in addition, all the labor, material suppliers, etc. get paid also. We find that when we collaborate and protect each other, the owners are happy, the suppliers are happy, your laborers are happy, you are happy, and we deliver a great project. This in turn creates more business opportunities for us, and hopefully more for you. This has been a successful strategy for over (fill in the blank) years. You want to work with a partner that is committed to your success on each project, don’t you?