We are often asked to help clients by reviewing specific sections of contracts that they have been asked to sign. Invariably, the sections that clients most often ask us to review involve warranties, indemnity and insurance. Rarely, do our clients ask us to review the payment sections of a contract. When we raise questions about the payment sections, we often learn that our clients are not really looking at those sections themselves, except to see if the amounts that they proposed are included. Few design or construction professionals really study proposed contracts and consider the payment provisions – until they have not been paid, and then they want to know what remedies they have.
The payment sections of your contracts are important to your company being paid fairly and on time. Here is what you should look for in the contracts that you are being asked to sign:
- How are you going to be paid? Whether you are to be paid on a lump sum basis, amounts based upon time and materials, a percentage of construction costs, or where there is a guaranteed maximum price, those terms need to be clearly spelled out in plain English in the contract. For example:
For its basic services, Engineer shall be paid a lump sum of $100,000.00.
For its basic services, Contractor shall be paid for its time based upon the rate schedule attached as Exhibit A and reimbursed for its actual reimbursable expenses as set forth in Exhibit B.
In no event, shall Architect’s total fee exceed the sun of $100,000.00.
- How are adjustments made? You need to address how adjustments will be made if the contract is based upon a lump sum or guaranteed maximum price for changes in the scope of your work or services. There should be a section about changes in all design and construction contracts.
- What must be submitted and when? The contract must describe in detail the process to get you paid. When is your invoice due? What period or work scope should you invoice cover? What format must be used, and what information is required to be submitted? When will you be paid? Can you collect interest? Make sure that any interest rate you state in the contract complies with the laws of the state which governs the contract. Those rates vary from state to state. Some examples,
On or before the 5th day of each month, Contractor shall submit its invoice for work performed through the 30th of the preceding month.
- What happens if you are not paid on time? Can you suspend your work or services? Can you terminate the contract if you do not get paid? Can you revoke your client’s right to use your intellectual property? Your contracts needs to address what happens if for whatever reason your company is not paid.
We have developed a checklist to review the payment provisions in design and construction contracts. Contact us, and we will gladly send you a copy. If you have any questions about contract terms, contract review or if you need training regarding contracts, we would be glad to help you. The attorneys of Gibbes Burton are passionate about helping professionals and businesses to minimize risk and build success.