advanced search

Loser-Pays Provisions Simplify Collections

Mar 1, 2006 12:00 PM

Most major contract documents in the construction industry do not contain “loser-pays” provisions, revealed the American Subcontractors Association (ASA) in a recent report This reality often forces specialty trade contractors to incur additional expenses when forced to hire attorneys to collect payments for properly performed work. Urging contractors to consider adding specific language to subcontract agreements that spells out who will pay attorney feeds in case of disputes, a new white paper published by ASA can help protect electrical contractors.

“Dispute Resolution: The Cost” explains that “subcontractors often find that the cost of collecting overdue payments from customers, including particularly the cost to employ a lawyer, renders pursuit of unpaid accounts economically unattractive, or even foolish.”

The current legal system generally does not provide subcontractors relief from the costs of collection. Following are some tips for contractors interested in increasing the clarity of their contracts.

Take the initiative

Without legal relief to resort to, most subcontractors must modify subcontract agreements in order to make it economical to pursue claims for amounts that are less than the cost of collecting them. This means adding a contract provision to the effect that the loser in the dispute must pay attorney fees.

Get to know the law

Even in the few states that do have loser-pays statutes, the laws are not always effective. For example, while California's prompt payment law, applicable to private construction, mandates that attorney's fees “shall” be awarded to a “prevailing party” in any suit for “collection of funds wrongfully withheld,” other states have no such provision — or leave the award to the discretion of the court. Some even limit awards of attorneys' fees to cases where the unpaid subcontractor can prove “bad faith.” Therefore, most subcontractors are unable to recoup attorneys' fees in a collection action absent a contract provision requiring such an award.

Get it in writing

Unless you're willing to write off some debts because they are too costly to collect, your best option is to include specific language, a loser-pays provision, in the contract that shifts the cost of dispute resolution and collection to your customer. Taking this step can make it economically feasible for you to collect all debts for work performed under every agreement you sign.

To learn more about how to recover attorneys' fees relating to collections disputes, visit www.asaonline.com and click on “Stand Up! For Subcontractors” for more information.

Want to use this article? Click here for options!

© 2008 Penton Media, Inc.

  

	Arlington Indoor InBox Easy install makes Indoor InBox preferred for power & low voltage applications. Furniture and appliances stay close to the wall!...

"Sizing Gen-Sets: Facts, Hints, and Good Judgment"

Sponsored By:

Learn how HRG technology can mitigate and reduce the arc flash hazard; design considerations to remember when specifying and installing an HRG system. On-Demand Webinar - Sponsored by I-Gard

Browse Back Issues Select an Issue August 1, 2008 July 2008 June 1, 2008 May 2008 April 2008 March 2008 February 2008 January 2008 December 2007 November 2007 October 2007 September 2007 August 2007 July 2007 June 2007 May 2007 April 2007 March 2007 February 2007 January 2007 December 2006 November 2006 October 2006 September 2006 August 2006 July 2006 June 1, 2006 May 1, 2006 April 2006 March 1, 2006 February 2006 January 2006 December 2005 November 2005 October 2005 September 2005 August 2005 July 2005 June 2005 May 2005 April 2005 March 2005 February 2005 January 2005 December 2004 November 2004 October 2004 September 2004 August 2004 July 2004 June 2004 May 2004 April 2004 March 2004 February 1, 2004 January 1, 2004 December 1, 2003 November 1, 2003 October 1, 2003 September 1, 2003 August 1, 2003 July 1, 2003 June 1, 2003 May 1, 2003 April 1, 2003 March 1, 2003 February 1, 2003 January 1, 2003 December 1, 2002 November 1, 2002 October 1, 2002 September 1, 2002 August 1, 2002 July 1, 2002 June 1, 2002 May 1, 2002 April 1, 2002 March 1, 2002 February 1, 2002 January 1, 2002 December 1, 2001 November 1, 2001 October 1, 2001 September 1, 2001 August 1, 2001 July 1, 2001 June 1, 2001 May 1, 2001 April 1, 2001 March 1, 2001 February 1, 2001 January 1, 2001 December 1, 2000 November 1, 2000 October 1, 2000 September 1, 2000 August 1, 2000 July 1, 2000 June 1, 2000 May 1, 2000 April 1, 2000 March 1, 2000 February 1, 2000 January 1, 2000 December 1, 1999 November 1, 1999 October 1, 1999 September 1, 1999 August 1, 1999 July 1, 1999 June 1, 1999 May 1, 1999 April 1, 1999 March 1, 1999 February 1, 1999 January 1, 1999 December 1, 1998 November 1, 1998 October 1, 1998 September 1, 1998 August 1, 1998 July 1, 1998 June 1, 1998 May 1, 1998 April 1, 1998 March 1, 1998 February 1, 1998 January 1, 1998 December 1, 1997 November 1, 1997 December 1, 1996 November 1, 1996 October 1, 1996 September 1, 1996 August 1, 1996 July 1, 1996 June 1, 1996 May 1, 1996 April 1, 1996 March 1, 1996 February 1, 1996 January 1, 1996 December 1, 1995 November 30, 1995 November 1, 1995 October 1, 1995 September 1, 1995 August 1, 1995 July 1, 1995 June 1, 1995 May 1, 1995 April 1, 1995 March 1, 1995 February 1, 1995

browse e-newsletters