3 Payment Mistakes Subs & Suppliers Make
Kegler Brown Construction Newsletter March 1, 2017
Payment is the lifeblood of any subcontractor or supplier. Yet subs and suppliers frequently make these common mistakes that harm their collections:
1. Failing to Serve a Notice of Furnishing (“NOF”)
Subs and suppliers who want to exercise lien rights in Ohio typically need to serve a NOF upon the project owner (or request a Notice of Commencement (“NOC”) from the owner without a response) and secure a written receipt. This means that subs and suppliers who fail to do so on private work may be operating without effective lien rights, thereby diminishing their collection options.
2. Agreeing to “Pay if Paid”
While suppliers working under purchase orders normally do not need to worry about contingent payment, subcontractors are often presented with subcontracts containing “pay if paid” language. Such language means that the subcontractor has no entitlement to payment in the event the contractor is not paid by the owner for the sub’s work. Such a clause shifts the risk of non-payment by the owner from the contractor to the subcontractor.
3. Failing to Utilize the Prompt Payment Act
Ohio law requires that a contractor who has been paid by the owner must pay the subcontractor or supplier within ten (10) days or face 18% interest. After thirty (30) days, legal fees are owed as well for a Prompt Pay violation. Yet many subs and suppliers fail to inquire about the payment status upstream and remind contractors of the risks associated with failing to pay promptly.
If subcontractors and suppliers can avoid these common mistakes, they can increase the likelihood that they are timely paid and profit accordingly.