The final payment on a construction project can be one of the toughest to collect, and it usually takes the longest. Every T has to be crossed, and every I dotted. After all, the final payment is the last bit of incentive the owner has to make sure everything is complete on the project, and they usually aren’t willing to let it go without a fight.
Most prime contracts, or the contract between the owner and the general contractor, will stipulate the documents that need to be turned in and completed before final payment is released. The bank or financing company for the project may have their own list, as well.
All contractors, whether a general contractor or subcontractor, should read their contract documents carefully so you know what has to happen or what documents need to be turned in before final payment is released. Subcontractors are well within their rights, and actually should, ask for a copy of the prime contract between the general contractor and the owner, so you know what requirements are listed there. It isn’t a good idea to start a project without knowing what documents you have to produce in order to get paid.
The Contractor’s Checklist for Final Payment
There are about as many possible documents required for final payment as anyone can imagine. However, there are a few items that show up fairly often on any list of documents required prior to release of final payment. This list pertains to both general contractors and subcontractors.
Application for Final Payment and Retainage
Subcontractors and suppliers will submit their final payment application to the GC. GCs will bill the owner for retention or final payment to signal that the project is complete. Make sure you use the payment application form that has been required throughout the project, or a specific form if the contract calls it out. Use a payment application checklist to make sure you have all your ducks in a row.
Using AIA documents? You’ll want to look closely at the final payment clauses in the AIA A401.
If you’re a subcontractor, ask the GC if an application for retainage is required for final payment to be released to you. Some software packages track retention automatically, and a final bill from a sub isn’t necessary. Others may need it for their systems or to verify that your amounts match.
Either way, ask first so you don’t waste time preparing a document that the GC doesn’t need.
Lien Waivers
GCs and subcontractors will often need to turn in final conditional or unconditional lien waivers from themselves as well as lower tier subcontractors or suppliers. For a GC, collecting waivers and releases from all of the subs and suppliers can be the most difficult part of submitting a final pay app.
BE CAREFUL when submitting final waivers: Signing a final unconditional waiver or release before you receive payment can relieve your hiring party from the obligation to pay you.
If you are a lower tier contractor or supplier, please don’t hold these documents up. Everyone’s payment is dependent on the swift return of these waivers and having to tell a sub that they aren’t getting paid because someone else hasn’t turned in their waiver isn’t fun!
Consent of Surety to Final Payment
If you’re working on a project with a payment bond, the bank or financing company may require a Consent of Surety before releasing final payment. It may sometimes be used by financial institutions on projects without a bond, as a way to get a list of amounts owing before final payment is released. Sometimes lien waivers are required as back-up documentation.
The American Institute of Architects (AIA) produces a popular Consent of Surety form. This form is signed by the GC and lists any vendors who are still owed money on the project at lower levels.
Punchlist Items
At or just after substantial completion, the owner, architect, and contractor will perform a project walk-through where deficient items are listed. These may be small repairs or parts of the building design that were missed during construction. All final items listed on the punchlist need to be completed and the owner needs to sign off that they are complete to their satisfaction before the final payment will be released.
Subcontractors need to work collectively and with the GC to complete these items in as short amount of time as possible, usually 1-2 weeks.
Project Completion Date
Determining the date of completion on a project can be difficult, especially if your company was only involved at the beginning of the project. Check your contract and the prime contract with the property owner to make sure you know when the project is considered substantially complete. This date is important, because it starts the deadline clock for final payment and retainage. It also starts the clock for mechanics liens, bond claims, and warranty periods.
Substantial completion is typically met when only punch list items remain on a project, and the structure is ready for use.
In some states, the notice of completion formalizes the date the project is substantially complete (when the owner is able to move in and occupy the space or building). It is signed by the GC, owner, and architect, then it is recorded at the county clerk’s office and posted at the project site.
On some projects, a certificate of occupancy will signify recognition by the inspecting jurisdiction that the project is complete, and the owner can occupy the space. A certificate of occupancy may only be issued when a new building is constructed, or if a building was rendered unlivable and was returned to service. Otherwise, a final inspection record will serve the same purpose. When a Notice of Completion is not required, a Certificate of Occupancy acts as the completion notice, starting the clock for lien filing deadlines. This date is also usually the start of the warranty period.
Mechanics lien deadlines
Track your deadline to file a mechanics lien (or a bond claim), which differs state-by-state. In many cases, this deadline is calculated from your last day of providing labor or materials to the project. In other states, the deadline to file a claim is based on the substantial completion of the project as a whole. Knowing and tracking this deadline will be critical to ensuring that you protect your final payment, and ensure that it is paid on time.
You can use a mechanics lien deadline calculator to make this process easy, especially if you’re working on multiple projects in different states. Make sure you have documented all of the required notices in a central place, like a project folder.
One thing to watch out for: Some finance companies will try to hold final payment past the lien filing deadline to make sure that no encumbrances are filed. This predatory tactic often requires contractors and suppliers to choose between filing a lien and maintaining a relationship with the finance company. Unfortunately, that’s not always an easy choice, but it may be a clear sign to avoid working for that company in the future. A company credit policy is a valuable tool in cases like this, because it will provide a procedure that you always follow.
Remember that filing a mechanics lien is just part of the collection process, not a punitive act.
Final Payment Delay? Take Action.
Once all the required documents are collected and turned in to the owner or finance company, then final payment can be released. It takes a team effort to collect all these documents, so it is best if everyone replies as promptly as possible.
If final payment is taking a really long time, and all the documents have been turned in, review the prime contract and your own company collection procedures for next steps to take. Sending a notice of intent to lien, even if you don’t actually plan to file one, can often help expedite payment. If your mechanics lien or bond claim deadline is approaching, file a claim. Delaying a claim because of the owner’s promises to pay can be an incredibly costly mistake.
As the saying goes, “the squeaky wheel gets the grease.” That is especially true when it comes to getting paid what you’ve earned in construction.