How to Get Paid Promptly… and Not Get Sued


How to Get Paid Promptly… and Not Get Sued
by Barry Temkin and Kate DiGeronimo
Every design professional likes to get paid promptly. While it is not the only reason you are in business, getting paid certainly beats the alternatives. But did you ever think that ensuring prompt payment from your clients can help reduce errors and omissions claims and enhance your insurance loss ratio? Our experience in litigating engineer and architect claims has been that design professionals who are meticulous about getting timely paid are less likely to endure the indignities, time waste, and expense of litigation, with its endless meetings, document production, depositions and, God forbid, trials.
A moment’s reflection will reveal that this proposition is simply common sense. The last thing a design professional wants to do is to have to sue an erstwhile client, thereby damaging the relationship and incurring substantial legal fees. More importantly, there is usually a reason, good or otherwise, for the customer’s failure to pay. Even if the customer’s resistance is completely bogus, there is undoubtedly some reason for the failure to pay and as is often the case, that reason is a lack of cash. But when confronted with an affirmative lawsuit from a design professional, the recalcitrant building owner or general contractor will be faced with two alternatives: negotiate a prompt settlement or defend the case. In the latter situation, which unfortunately constitutes the majority of construction disputes, the most obvious defense would be to claim that the quality of the work is flawed and a departure from the customary standards of practice; in other words, a malpractice or negligence claim. Such a claim will inevitably require reporting to the design professional’s errors and omissions insurance carrier, thereby negatively affecting their claims ratio and invoking their duty to contribute to defense costs, if any, under any applicable self-insured retention, or deductible. In short, the last refuge of scoundrels who do not pay their bills is to point the finger back at the design professional, by arguing that any delays or damage to the construction project is the fault of the architect or engineer, not the contractor which actually did the work.
It is one thing to say do not sue your customers, and another to actually accomplish this. As other columns in this newsletter have suggested, one way to avoid litigation is to have a clear contract, preferably reviewed by a trusted attorney. Second, as cost overruns are endemic, if not routine, in the construction industry, it is important to keep an eye on the meter in order to ensure that cost overruns do not get out of control. A cost overrun of more than a relatively modest amount should, as a rule, be documented in a change order or other clear written document. Otherwise, a design professional is likely to be faced, months or even years down the road, with an argument over whether additional services were necessary or within the scope of the initial contract. We have seen cases in which cost overruns mounted well into the six-figure category, increasing the pressure on the design professionals to resort to litigation with its inevitable counterclaims for malpractice.
One way to avoid cost overruns is to try to pause any new major stages of your work on the project until there is clarity on whether additional work will be covered. There should be a clear understanding, confirmed in writing, before additional work not specified in the contract continues. As many design professionals have said to us over the years, “I would rather not do the work and not get paid than do the work and not get paid.”
In addition, it is important to keep the scope of work in mind. Many construction industry professionals get into trouble by straying beyond the original scope of work contemplated in the contract. In this regard, it is worth recalling the old, familiar principle that no good deed goes unpunished. Sometimes litigation arises from well-intentioned contractors who perform work beyond that called for in their contracts.
There are provisions under federal and state law to protect contractors, architects and engineers from the wiles of nonpaying customers. For example, contractors doing business with federal government agencies are entitled to prompt payment under the federal Prompt Payment Act, which imposes late payment interest penalties on federal agencies who unreasonably delay payment to contractors. Under the provisions of the Act, payment must be made within 30 days after receipt of a proper invoice from the contractor or another such date as specified in the contract. Interest begins to accrue the day after the required payment date and ends only once the federal agency makes a payment.
Prompt payment requirements on non-federal public and private projects are governed on a state-by-state basis. Various states have enacted their own versions of prompt pay statutes, sometimes providing expedited arbitration for construction industry disputes, mandating that design professional and contractor claims and invoices are paid in a timely manner and under certain circumscribed grounds. For example, the New York Prompt Pay Act requires that invoices are paid within thirty days of receipt and can only be denied under particular grounds specified in the statute. Other states have similar statutes, including Texas and Florida.
Other dispute resolution mechanisms, such as a cooling off period, mediation, or both, can be strategically inserted into a well-drafted contract at the onset of the project, and can even be agreed upon after the project is done, once the matter appears headed toward a dispute.
In addition, virtually every state recognizes some kind of mechanics lien procedure, which may bring to bear pressure upon the building owner without directly resorting to litigation, although the owner’s remedy might be a petition to the court to vacate the lien. There are advantages to filing a lien instead of suing. In filing a lien, you are asserting the propriety of the lien, and the value of your underlying services, which is preferable to defending a malpractice claim. However, you should keep in mind that all statements made in furtherance of a mechanics lien should be completely accurate and truthful, as there may be severe penalties for improperly imposed liens, including paying the other side’s attorney’s fees.
In short, litigation against non-paying customers should be a last resort, rarely invoked and only in the most extreme circumstances. This is because a recalcitrant, non-paying customer, is quite likely to counterclaim for negligence or malpractice. Rather, the measures set forth in this article, including tight contracts, prompt and thorough change orders, and alternative dispute resolution mechanisms, can try to keep design professionals out of court and at their jobsites where they belong.
About the Authors
Barry Temkin is a partner at Mound Cotton Wollan & Greengrass LLP. Mr. Temkin is a graduate of the University of Pennsylvania Law School. He has extensive trial and litigation experience, and has litigated design professional cases in New York, New Jersey, Florida and Connecticut. Prior to joining Mound Cotton, Mr. Temkin served as staff counsel to American International Group, where he litigated construction and design professional cases. He served as an assistant district attorney in Brooklyn for 7 years, where he tried over 40 cases to jury verdict. Mr. Temkin can be reached at
Kate DiGeronimo is a graduate of Fordham Law School and an attorney with ten years of litigation experience. She is special counsel to the firm, and has litigated numerous construction and engineering and architecture cases to successful conclusion. Ms. DiGeronimo has won motions to dismiss and for summary judgment in federal and state court, as well as in arbitration. Ms. DiGeronimo is admitted to practice in the state and federal courts in New York and New Jersey, and has appeared in court and arbitrations throughout the country. She has served as a guest speaker and moot court judge at Fordham University, and has delivered presentations on the relative merits of arbitration vs. litigation. Ms. DiGeronimo can be reached at article here 
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