It’s amazing how many construction companies will delay making payments to those they do business with, while expecting extremely prompt payments from others. However, when it comes to back charges in the construction industry, it’s often the opposite. Everybody working on a construction project faces back charges, but companies often wait for months or until the end of the project to bill back charges. This leads to nothing short of resentment, anger, and even court cases.
Back charges in construction happen for many reasons. Maybe the work was subpar, maybe somebody damaged something, or maybe a third party hired by a sub didn’t perform their role as they should have. Sometimes a general contractor will hire another sub to redo poor work done by a primary sub.
If you use the ‘request for information’ system early in the project to iron out any onerous areas, you set yourself up for fewer back charges.
All those costs become back charges against the primary subcontractor. The essence is this: Somebody made something cost more than it should have, and so somebody’s got to pay. Here are some tips on avoiding back charges to subcontractors.
Document, document, document
You might get back charges if you misinterpret a specification or use a wrong item or method. To avoid these, you must start using project documentation way back at the point of planning a job. If you use the ‘request for information’ system early in the project to iron out any onerous areas of the specs, you set yourself up for fewer back charges. Almost everything in construction goes smoother when you get out in front of it.
Once construction is underway, documentation is even more important. Foremen, supers, and PMs need to document anything out of the ordinary. If a delivery is late, document it. If you are down one worker, document it. If work on one job activity is running longer than usual, document it. If you’re hanging drywall and an electrician shows up to punch a hole for a new outlet, document it.
Documentation doesn’t mean you’re on the prowl for back charges. It simply means you are keeping good records. If you get hit with back charges in the future, and your records show that it was the actions or inactions of others that caused the back charges, then you have grounds to pass that cost on. On the other hand, if you get back charges for something that is your fault, the documentation will help you confirm that.
Use favors cautiously
The participants on some projects know each other well and have worked together many times. During their working relationships, they’ve fallen into informal behaviors. where favors may start substituting for back charging. If you allow others to use your company’s equipment to move materials around, why shouldn’t they reciprocate with a favor for you? This can get dangerous, though, when there’s a lot of give and take going on, and everybody’s keeping their own scorecard. Eventually, there are too many stories that aren’t completely true.
Lesson: A little give and take is necessary, but it should remain the exception and not the rule.
Provide proper notice
People hate surprises, especially when it comes to money. Somewhere in your contract documents there’s a process outlined for providing notifications. Miss a notification deadline and you might lose your option to recoup money that should come your way. But there’s also a very human reason for properly notifying people about back charges; it helps prevent unpleasant surprises. It also shows you are forthcoming and not trying to sneak a little extra padding into the budget.
Be quick and consistent
If you wait too long to notify or bill for back charges, you increase the risk of disputes. Too often companies do a bunch of back charges at the end of the project. It seems as if they’ve hit a budget problem, and they’re pulling out all the stops to overcome it. What they’re relying on is that everybody they’re charging doesn’t have documentation to dispute the charges. It’s a lousy way to do business as it causes a lot of ill will and anger; it may even threaten working relationships on future projects.
Besides filing back charges in a timely manner, be sure to do so consistently. Preferential treatment never stays private, and once the word is out, you’ll sow the seeds for distrust and disputes.