Does the new infrastructure bill remind you of federal projects?

This new $1.2 trillion infrastructure bill is prompting many contractors to consider trying their hand at federal projects. Bigger doesn’t always mean better though. Especially if it means more risk. It is important to think carefully before jumping in and educate yourself on what you might encounter when taking on a new federal project! Being aware of what these projects could mean for you and your business could save you trouble later. Keep these practical considerations in mind before diving into uncharted waters. We’ll dive deep into federal projects and what it could mean for your business.

Federal projects often require bonds

Something to consider before embarking on a federal project is the bonds. Almost all federal construction projects require bonds. It is important to note that a deposit isno insurance. If there is a claim filed on your surety bond and the surety company pays the claim, you are required to repay every penny the surety pays. To obtain a surety bond, you must sign a personal guarantee and pledge your personal property, which is liable to be taken if you do not repay the surety company.

There are two types of bonds: a payment bond and a performance bond. A payment bond ensures that all your workers and material suppliers are paid. A performance bond will cover the cost of completing your scope of work if you drop out or are fired from the project. The general contractor will be required to provide a bond to the federal government. In most cases, the general contractor’s surety company will ask all subcontractors to “bounce back”. Bonding means that subcontractors will receive both payment and a performance bond for the full amount of their subcontract, which is payable to the general contractor if they do not pay everyone or complete not the scope of their work.

Federal projects are slow to pay

Nothing goes faster when you’re dealing with the government, and that couldn’t be truer when it comes to federal government projects. They are the bureaucracy of the system. It could easily be 90 days from the time you submit a payroll request before you get paid, if you work directly for the government. Due to the pay-at-time clause, it may take even longer if you are a sub-contractor. It is important to note that under a pay-when-paid clause, a general contractor (a contractor hired directly by the federal government) has no obligation to pay the subcontractor until the government pays for it. Once paid, they then have an additional period before being required to pay the subcontractor. Before you take on a federal project, you need to make sure you have a stable enough cash flow to handle financing all of your project materials and labor for months after you submit your applications. pay. To learn more about pay-as-you-go clauses, check out the free course at subcontractorinstuite.com.

How Federal Bond Claims Are Supposed to Work

In addition to slow payments, you cannot file a lien on a federal project. You can file a claim on the general contractor’s bond to protect your payment, but it’s more nuanced than filing a typical lien. As mentioned earlier, the law requires the general contractor to obtain a payment bond for federal projects, but the federal government has no obligation to ensure that a bond is actually provided; this is why it is so important to obtain a copy of the bond from the general contractor before starting work. Additionally, the federal government has no liability to unpaid contractors and material suppliers, even if they have funds owed to the general contractor.

After requesting payment from the general contractor, this request is then forwarded by the general contractor to his surety company. Because there are obvious problems with this system and it doesn’t always happen, it’s important to get a copy of the bond before you sign the subcontract so you know exactly who you need to contact. If you did not obtain a copy of the bond before starting work; you can always get a copy (if the general contractor actually got one). To do so, contact your local General Service Administration in the United States. Once you request a copy of a bond for a project, they must comply. If you are a subcontractor or a material supplier, you must send the general contractor a notice of your request for security. The notice must be sent within 90 days of the last work or materials supplied. You don’t have to send it to the surety company, but it will give you more leverage if you do. Therefore, I would recommend sending this notice to the surety company as well.

Conclusion

If you don’t sign public works contracts often, it’s worth having your contract reviewed by an experienced construction lawyer. Even if you don’t want to negotiate any of the terms, it’s a good idea to be clear about what you’re agreeing to do when you sign the contract. There are some very risky clauses to be aware of in commercial construction contracts that deal with the federal government. To learn more about these scary free provisions and how to negotiate them into your contracts, check out subcontractorinstitute.com or call your trusted construction attorney today!

About the Author:

Published author, award-winning lawyer, devoted wife and mother of three daughters, and veteran owner and managing partner of The Cromeens law firm (TCLF), Karalynn Cromeens is a real jack-of-all-trades. Karalynn is co-founder of Morrell Masonry Supply and owner of The institute of the subcontractor, an easy-to-access online educational platform for entrepreneurs. In addition to TCLF and the Institute of Contractors, she is also the host of the fast-growing educational construction podcast, stop being fooled – the free provision of information on the industry to entrepreneurs throughout the country. In 2021, Karalynn published two Amazon Best-Selling books – Stop being tricked: understand and negotiate the subcontract and, in September, Stop Stiffening: A Texas Contractor’s Guide to Liens and Collections.

In the seventeen years she has practiced construction, real estate and business law, Karalynn has reviewed and explained thousands of subcontracts. For years, she tried to save companies that had signed problematic subcontracts and lost compensation for their work. Unfortunately, it was too late when they came to see her; she couldn’t do anything to help. She hated to see clients lose money—sometimes their entire business—because of language they didn’t understand and laws they didn’t know. Watching these situations unfold day in and day out has been the driving force behind his two books, The Subcontractor Institute, and the company’s accessibility efforts. Providing entrepreneur education on a national level has become Karalynn’s personal mission, and she always does what she can to help make it a reality.

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