A Contractor’s Resource for Getting Paid
Updated: Jun 5
We Don’t Serve Contractors, We Work Alongside Them Minnesota Construction Law Services (MNCLS) is a law firm that doesn’t just serve contractors, we are personally involved in the industry right alongside them. We don’t sit looking down from skyscrapers downtown, instead, we visit with our clients at their job sites. We focus on the individual business level, and that includes providing resources and being engaged in discussions that directly impact contractors. MNCLS’s unique approach to construction law includes experience in construction and expertise as a lawyer, and when used together, it gives us the capability to provide comprehensive construction education. Our goal is to equip contractors with the knowledge and tools to protect their businesses. MNCLS’s Devotion to Providing Educational Resources Construction education programs and resources are a key component of our services. A contractor’s goal is to build things, not decipher complicated legal jargon. A contractor’s most important project will always be their business; so while it is not the most exciting part of a contractor’s job description, it is a critical role. That’s where we come in, we make the complex simple through accessible and easy to understand construction education. One of the most common problems contractors face is not receiving payment for their work. Imagine you go to a local restaurant; order food, receive the food, eat the food, and then just leave without paying the bill. Not only does it hurt the local business, but it impacts the server, the cooks, the host, and the busboy. When a customer refuses to pay it causes your business to take a huge hit, and that’s exactly what MNCLS aims to protect our contractor clients against. Below is a breakdown of why and how your business can protect your next paycheck. Business Success Relies on Getting Paid To get paid, contractors need to follow business best practices to implement precautions that will protect against payment delays. This includes using contracts with provisions specific to their business and project to properly outline the rules of the game; using industry-drafted contract templates that haven’t been modified to reflect the contractor’s specific business needs and the nuances of the particular project can create payment delays. It is also important to ensure the contract reflects current retainage laws and how they impact the contractors. Last, contractors need to include beneficial terms to protect their rights and wallet with legal and business options for collecting payment. 1. Why Your Business Needs to Be Profitable Being profitable doesn’t mean just getting paid for your services, it means operating a business set up to succeed. And when a business is successful, it in return creates profitability. How can a contractor create business success?
You need to know where your construction business is going. This means creating and following a strategic plan.
Once you know where your business is going, you need to determine how you will get there. To do so, you need to develop a business plan.
Follow your plan. Only take on projects that support your business and your plan of action, rather than taking detours that appear as opportunities but are rather hindrances to your success.
Create the “rules for your game.” A contract is a fundamental part of a project, it keeps all the players of the game (contractor, owner, subcontractors) accountable using straight-forward and detailed communication.
Follow your rules. A successful business is one that is consistent both for the growth of their business by cultivating value but also to build strong relationships.
The rules of the game are critical to following your business plan to achieve your high-level strategies. Your contract is the rules of the game for each of your projects. 2. How Contracts Safeguard Your Profitability, and the Concerns of Using Industry-Drafted Contract Templates Contracts are private law agreements between the parties. They outline the rules of the game; it’s the what, where, when, why, and how for each construction project. As all contractors know, every project is different. While there may be repetition across projects, there remain different agreements for each one. Therefore, a contract for construction work needs to be customized to each project that will uphold the parties’ agreements. Oftentimes, contractors will use a standard construction contract drafted by a large organization as a template for all construction projects. Industry-drafted contract templates provide an economical option with language that has been honed and tested for many years. In its original form, it is a good starting point. Yet, the template is not meant to be used out of the box; it’s designed to be customized to your specific project, and that’s where the risks begin. Since these types of construction contracts are created to work for all construction projects, it is unlikely it will have the specific provisions needed for each project. Customizing a standard construction contract requires exhaustive measures to ensure each contract (contractor-owner, contractor-subcontractor, etc.) coincides. If you change a single provision in one part of the contract package, you’ll likely need to alter a provision in another document in the package. What started as a cost-effective and fast solution quickly turns into a time-consuming and risky process. A standard construction contract template has its benefits, although it’s a situation where the risks can quickly outweigh the benefits. Instead, your business can invest in creating a standard construction template contract specific to your business and your projects. It reduces the amount of customization required for new projects thus reducing room for error. If a contract is improperly created, you risk not being paid. 3. Current Retainage Laws The retainage is oftentimes the contractor’s profit. The final payment is the profit, so it represents the paycheck for business owners. Unfortunately, the retainage laws can be misused by the owner or customer causing a high percentage to be withheld from the contractor and underpaying for the project. The first main update focuses on paying subcontractors within 10 days of receiving funds related to the labor of materials with a 1-1/2% interest rate if not paid. Second, the owner must provide the retainage release within 60 days following substantial completion of the project. Any other payment agreements require contract terms, therefore emphasizing the importance of a comprehensive contract to enforce your right to get paid. If there is not retainage in the prime contract, then there cannot be a retainage down the line. Retainage is a conflicting practice in construction that impacts how and when contractors are paid for their work. Therefore, it is critical to understand the changing construction laws and what contractors are both responsible for and have the authority to require relating to retainage laws 4. Understand Your Collection Options Minnesota mechanics lien law is a claim against the equity in real property, meaning it is not a claim against the owner. Instead, it’s a claim against the property. Unfortunately, mechanics liens are widely considered the first and only option for getting paid. In some cases, a mechanics lien is a suitable option for enforcing your rights to get paid. It is a powerful tool that can have exceptional results, that is if it’s prepared correctly. Knowing how to file a mechanics lien is a tedious process that requires following a strict procedure. It is recommended to work with an attorney familiar with mechanics liens to have a successful outcome. But importantly, a mechanics lien is not a contractor’s only option. There are other alternatives to collecting payment that may be more rewarding for your case. Some examples include:
Alternative Dispute Resolution
Conciliation (small claims) Court for amounts up to $15,000
District Court for any amounts
Ordinary legal remedies for breach of contract when there is not a recorded mechanics lien until the SOL or SOR has run
Where To Go From Here
Review your current contracts
Are you using a template? Does each contract (subcontractor, owner contacts) support and align with one another?
Create a personalized contract for your business
Talk to a construction contract lawyer about your options for developing a standard construction contract for your business.
Understand the updated retainage laws
Rules and regulations in construction are constantly changing, such as Minnesota construction retainage laws. Research your rights and responsibilities as a contractor so you are not being withheld payment that is legally yours.
Know your collection options
You deserve to get paid. To make sure you do, executing the best collections remedy for your case will get you the best results possible; this means understanding all your options.Minnesota Construction Law Services will work with you as you go through these steps. We will review your current contracts to evaluate legal effectiveness and create new standard construction contracts for your business if needed. We can explain and guide you through the updated retainage laws so you are equipped with the knowledge to make informed decisions for your business. And of course, we will represent your business when you are not being paid using all our legal, business, and construction tools. Contact us to get started.