Getting Paid
If a pre-printed contract is used, a contractor or design professional should ensure that the contract addresses California state requirements. For example, if a national form such as an American Institute of Architects (AIA) form is employed, that form may not address requirements unique to California. For example, extensive notice provisions have been added for all residential construction. In addition, if the contract involves home improvement to a residence, there are certain additional requirements that must be contained within the contract that are not found within national forms. Also, architects and engineers are required to have prescribed information in a written contract.
Along the lines of documenting proposals, there is a need to document disputes, or the lack there of. If, in the process of collection, somebody in your office contacts a client who tells you that a check is in the mail, or that they are having a cash-flow problem, or they have not been paid by the owner, it is good practice to send a confirming letter to document the fact that the reason you have not been paid is because of a cash-flow problem. This helps to negate disputes that are often concocted on the steps of the court house or arbitrator's office.
In order to maximize one's legal position, one should avoid abandoning a job before its completion whenever possible. This will eliminate the owner being able to receive a credit or back charge in the amount of the sums necessary to have the work completed by other contractors. Typically, this sum will far exceed the amount of money you would have to spend to complete the work. Also, in many instances this may be warranty work which would cost you virtually nothing. Prior to taking any measures, it is important to look at the appropriate termination section of any contract. Most contracts require written notice and a set time period prior to taking any steps to terminate the contract.
It should be kept in mind that when a contractor agrees to perform services for somebody and to be paid over time, he or she is essentially agreeing to extend credit to the individual. Unless the contractor is being paid directly from a bank or you have adequately protected your mechanics' or designers' lien rights, one should scrutinize the credit history of the customer. There have been many situations where a contractor goes into a project knowing full well that there will be financing problems or a monetary short fall. These circumstances should present a red flag to the contractor that there will be a payment problem. Even if one does not do a formal credit report on a prospective client, it is good practice to elicit as much information as possible as to the type of entity, principals involved, bank references, credit references etc. It is also good practice to copy all incoming checks. This is helpful for several reasons. First, it can help to tell you the type of entity with which you are dealing. It is not uncommon to be contracting with one entity, but to receive a check from a limited partnership which has been established for the purposes of paying construction-related debts. Secondly, in the event that an arbitration award or judgment has to be enforced, the contractor can levy on that bank account and not have to spend a lot of money looking for assets. Many companies extend substantial amounts of credit to an entity whose form they are unsure of and do not perfect lien rights. It can be critical to know with whom you are dealing, because in the event of a corporate obligation, it is good practice to attempt to attain a personal guarantee.
