At a Small Developer that owes subs for past deals - bad sign or somewhat normal?
Started at a small developer 4 months ago, sometimes get calls they owe money ($10-50k) to previous subs on deals already developed. Is this a cause for concern, why aren't they paying these when the bills were due 6-12 months ago?
My payroll is still coming in, we have a few new projects close to starting. We have a project we are selling for a good amount of money ($15-20 million). Is this a concern or somewhat normal for small developers? Seems ridiculous to me they haven't paid it yet and can't really see a reason for it besides they want to get discounts. Worried they could go under because why wouldn't they pay if they have the cash? What are some signs the developer you're at is going under?
Do they act as their own GC? I’ve seen late payments like this before - it happens, some invoices just fall through the cracks. Did your boss tell you specifically don’t pay these out? Ask for the reasoning. We’ve held payments back because we’ve either 1) already paid the GC who was supposed to pay the subs, 2) dispute the payment, or 3) awaiting funding to come through so we don’t need to pay anything out of equity unnecessarily. For 3) we’d push as long as reasonably possible if there was actual expectation of alternative funding sources coming soon
We have someone on the construction side so that could be it. Seems like it could be #3, but really 6-12 months overdue to pay them. Crazy
Sounds sketchy. If they don't get paid, they could put liens on the properties that they worked on. That would show up in a title search and make it hard to sell or refi the property.
But then they can just pay it off right? It's a very disorganized environment if you couldn't tell but I'm kind of stuck at 4 months.
Don’t worry about it. Not your problem. The GC of the job is who should be paying them. While yes. It rolls up to the developer. The GC could be withholding payment for specific reasons. You probably don’t have the facts. However, the subs could be getting screwed too - we don’t have all the facts.
Happens quite a bit. You'll pay the GC and then they screw over the subs. I have had countless scenarios where subs would threaten to sue us and we just put our hands in the air and say not our problem. The reality is the subs are just trying to get paid for work. Typically a lien from a sub might not get processed in court as there would be no agreement between the sub and us. Sometimes its just better to use a GC and let them deal with this. Once had a sub who was doing flooring that actually cried to me that he didnt get paid and he was just trying to take care of his family. I felt really bad, but had to show him a copy of the check I paid to the GC. I walked him through the process of taking the GC to court.
Aren’t you concerned about where your money is going if your GC aren’t paying the subs? That’s a red flag no? How do you deal with this?
Not really. Our agreement is with the GC and the GC promised per our agreement to deliver within set time frame and budget. Unless we do a change order, its on the GC to figure it out. Some of our GCs are premier companies in the market. In the case above, the flooring installer had a set agreement with the GC, but due to issues on the GC front, the installer had to come out multiple times. We were not aware of this situation and we simply owed the GC $X for that work. However, the installer said his work was worth more than that given the time it took. That is between the GC and sub. Its very common for subs to want to get more.
A lot subs will try and add extra at the end for change orders or overruns they say are outside of their contract/bid scope, it is very very common in construction. It is also common for subs to send bills to the owner/client of the project as 1. they may be able to lien the property and 2. they hope the owner may just pay and 3. They are hoping for exactly this type of reaction (and that the owner will call the GC and complain or ask questions).
Could it be a sign of something worse, sure I guess it's possible, but I'd first wager the guess it is normal activities. The GC may be feuding with your company over change orders/overruns/etc. as well, this is just a normal part of the business frankly.
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