Will new payment law for subs help or hinder development?

Development projects always carry risk. For the developer, issues of completion of the project on time and under budget, the successful sale or lease of the project and the potential for accidents during the project.

For a general contractor or subcontractors, the risk is always that the project will collapse before the last check clears, leaving them in line with other bankruptcy creditors and on the hook for the cost of supplies and labor.

A new Massachusetts law is now in place that will provide subs with better treatment for the timing of their payments. Subs have long pushed for this legislation, claiming they were often waiting for their final payment long after the project was completed.

Contract disputes arose concerning this payment timing, which developers and owners claim is essential to provide them with the necessary leverage to extract final performance from recalcitrant subs.

The retainage fee has been reduced to 5 percent of the subcontractor’s contract and it must be paid within 30 days of the “substantial completion” of the project. For developers, it provides that some funds may be withheld for incomplete or defective items.

And this, of course, will become a likely area for dispute. Subs will argue that a project has reached the necessary “substantial completion” stage and their payments are due, while owners and developers will claim punch list items were never completed or were defective.

As the story notes, reputations are important, so with all of your contract disputes, you need to determine not only the amount of funds at stake in a particular instance, but the cost, if any to your reputation.

The answers never get any easier.

Bizjournal.com, “Mass. subcontractors get some help with new construction law,” Mary Moore, August 25, 2014