Rancho Mesa's Alyssa Burley and Surety Relationship Executive Anne Wright discuss how contractors can utilize payment bonds as a backstop for getting paid. 

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Director/Host: Alyssa Burley

Guest: Anne Wright

Editor/Producer: Lauren Stumpf

Music: "Home" by JHS Pedals, “News Room News” by Spence

© Copyright 2022. Rancho Mesa Insurance Services, Inc. All rights reserved.

transcript

[Introduction Music]

Alyssa Burley: Hi! This is Alyssa Burley with Rancho Mesa’s Media Communications and Client Services Department. Thank you for listening to today’s top Rancho Mesa news brought to you by our safety and risk management network, StudioOne™. Welcome back, everyone. My guest is Anne Wright, Surety Relationship Executive with Rancho Mesa. Today, we're going to talk about how contractors can utilize payment bonds as a backstop for getting paid. Anne, welcome to the show.

Anne Wright: Thanks, Alyssa. It's nice to be back in the studio.

AB: Now, we work with a lot of contractors and when they fulfill their contract, they expect to be paid. However, sometimes, depending on the project, it may be harder to get paid than on other projects. So it seems like a business's collection process or policy would be key in making sure they get paid. So what do you recommend contractors do to improve their chances of getting paid for the work that they've done?

AW: Well, there's a few things to cover. As you mentioned, collections policies are key. Accounts receivable people in companies sometimes have many roles depending on whether it's a large or small company, but you have to be diligent in your collection processes and never be afraid to be a squeaky wheel if you're owed the money that you're trying to get paid for. Make sure that when you're billings do go in, when you set the job up, you're going to look at the contract and it's going to dictate what requirements are there for you to be able to get paid. Whether that's your certified payroll, getting your certificate of insurance and whatever it may be. You want to make sure you're reading the contract and that you have everything in place so that when it comes time for you to submit your progress payment or your final payment retention billing that your client has what they need to get you paid.

AB: Those are all really good points. So what should a contractor do if they're struggling to get paid? Maybe they've done all of those things, but they still can't get that check.

AW: Yeah, there's a few things to consider depending on what type of work you're doing. And I want to clarify that we're talking about undisputed billings here. If it's a disputed billing, there's other processes that will come into play. You need to know where your money's coming from. So if you're doing work for someone on a public project, that money is going to be available from that public owner. They will have committed the funds before the contract is started. So you have some assurance there that the money’s there. If it's change orders, that could be a different story. On private works, it's a little more difficult because you need to find out where the money is coming from to pay you on a private job. It could be from a construction loan from a lender. It could be out of the owner's pocket. So there's some research that you need to do. If you are a contractor that is looking to bond a private works project, your surety is going to be asking those questions to help you get that information as well. Your payment protections come in various forms, depending on whether or not it is a public works project or a private works project. On those public works jobs, at certain thresholds, the public owners are required to have their general contractors bonded. So if you're a subcontractor supplier to someone on a public works job, your payment bond is going to be your best protection for getting paid. We like to think that bonds have value, and this is one place where that comes into play. If it's on a private works job again, you want to make sure that you set up your job file timely preliminary notice, because that's going to be a condition to maybe pursuing some other payment protections that we'll talk about in a bit.

AB: Should the contractor ask for a copy of the payment bond from the general contractor?

AW: Absolutely. Again, when you set up your job file, that's a key component that should be there. It's not something you want to have to pursue once you're in an adversarial position and you're not getting paid. So there's no reason they shouldn't give you a copy of the payment bond, especially in a public job. It's, you know, public information. But always ask to have that to paper your file.

AB: And what if there isn't a payment bond in place? What should contractors do?

AW: That's where these other mechanisms for getting paid can come into play. And they're a little trickier. You can file a mechanic's lean, which puts you in a position on the lean of the title of the project and the property, actually. It's a recorded document that lets everyone know- lets the lender if it's ever foreclosed upon or the loans paid off, that you're in a secured position, hopefully to receive your money on that. It's something that you may need to get an attorney involved in. Stop notice rights is another mechanism. If you're on a private job, that usually is filed with the lender. And again, it lets them know that you're having a problem getting paid and there needs to be somebody getting involved to stop and investigate that.

AB: Is there anything else that you'd like to let our listeners know about surety and if they're trying to get paid on a project.

AW: We can file set ups key. There's some basic things that you contractors should do and best practices do follow. If it's something where you think you're going to need to pursue something down the road, get that payment bond. Know what your line rates are. So there are specific filing processes if you're going to file a lean or a stop notice. Any attorney can help walk you through that process. If you're a member of a trade organization, there's going to be a member there that will probably offer you a timetable. Most of them have that written out. There a little complicated, a little confusing. So unfortunately, sometimes you need to pay an attorney to pursue that payment. And it's always a business decision on what you want to pursue. We talked to a lot of clients that don't want to get crosswise with their owners or their general contractors thinking it might jeopardize their next opportunity to do work for them. It's totally the contractors call, but you do have rights to get paid and you ought to pursue them.

AB: All right. So Anne, if listeners have questions about payment bonds, what's the best way to get in touch with you?

[Outro Music]

AW: They can always email me at awright@ranchomesa.com or call me at 619-486-6570.

AB: Anne, thank you for joining me in StudioOne™.

AW: You're welcome.

AB: This is Alyssa Burley with Rancho Mesa. Thanks for tuning in to our latest episode produced by StudioOne™. For more information, visit us at ranchomesa.com and subscribe to our weekly newsletter.