Mark McMunn

Working on commercial projects – especially large projects like new, multi-story office buildings – has always been a source of fascination for shops that have never been involved with such projects..

Something about the pace of work on commercial projects evokes thoughts of large sums of money flowing out to the stone subcontractor on the job as its crews install hundreds and sometimes thousands of square feet of flooring, wall veneer or hundreds of linear feet of countertops. Oftentimes, large projects are even on the local news as the project brings new high-profile corporations to a city or town. There is a certain prestige either real or imagined that goes along with being able to say that your company furnished and installed all of the stonework on a project. That kind of a boast is often meant to convey the message that your company has arrived, because your company was selected over others to perform the work, meaning that somehow you are a cut above everyone else. Many times this is true, and the boast has merit.

The commercial side of the business can be very rewarding for a company aspiring to be a company of substance, and reap the profits that can go along with it. A major milestone occurs when your company acquires its first million-dollar contract. The excitement of landing a large contract with a good profit will be one of the most satisfying moments of your career, and a celebration would be in order for such an occasion.
Let’s talk about some things that will help you along the way if you choose to move into the commercial side of the business.

You can step into the commercial job arena by letting large general contractors know that you want to be on their bidders list. The way to do this is to simply call the GC and ask whoever answers the phone that you are with XYZ Granite and Marble Contractors and want to speak with the person who can put your company on the list of companies to call for bidding on stonework.

The person you speak to may or may not ask you a whole lot of questions about your company history, but they will want to know that you have a sufficient level of insurance and have workman’s comp insurance as well.
You will be required to furnish a current certificate of insurance and you may find that you may not be sufficiently insured for some larger projects. If that should happen, simply call up your agent and get a quote for the additional cost, and then you can decide if you want to increase your insurance so that you are eligible to bid.

The contract you will receive will be very long and should spell out what the GC expects from you, how and when you will be paid, and what will happen if you do not perform in a timely manner. I want to emphasize that if you are going to go into commercial work that you have a good lawyer who specializes in construction law to help guide you through this part of the process.

Some contracts have clauses that you should definitely cross out. There is no room to write about those many clauses here, but you should ask your lawyer about them.
When you get your first contract, do yourself a favor and read the whole thing. It will be boring and tortuous to read through, but it will pay off for you in the long run because you will be familiar with the legal language of construction.

The next thing you need to know about commercial work is that the legal risks for non-performance are a lot higher than with residential work. Oftentimes, the granite and marble work is one of the last items to be installed, but all of the subcontractors, like concrete, steel, drywall and electrical who do their work at the beginning of a job often go way beyond their schedule on the calendar. And guess what? The GC will tell the remaining subcontractors that the job deadline remains the same, and they expect the finish contractors like cabinetry, stone, tile, carpet, and painting to still meet the deadline.

This is grossly unfair, but the GC expects you to know this going in, and it is implied that you will have the potential overtime figured in to your bid – so make sure that you do. If you do not meet the deadline, there is a thing called liquidated damages which is a penalty paid by the GC for every day that they are late turning over the project to the owner. The amount of liquidated damages can range anywhere from a few hundred dollars a day to tens of thousands of dollars a day, depending on the size of the job. The GC will then turn around and begin to assign the damages to the subcontractors according to the subcontractor’s portion of blame. Most of the time, a liquidated damages clause is used to keep a fire under subcontractors and keep them in line.

Getting paid can also be fraught with land mines, so please read this next part carefully. In construction, payments are usually made on a monthly basis. It is common that you will be required to have your monthly billing, called a pay application, sent in by the 20th of each month, and that you will be paid by the 15th of the following month. In most cases, the GC will not care if you are one or two days late with your billing, but sometimes the GC will be a real stickler and not accept a late pay application, and you may find yourself in a bit of a cash flow crunch, so be sure to get your pay apps in on time.

You should be aware that apparently it’s okay for the owner and GC to more than occasionally be late paying you. Also, there is a concept called retainage that you should be aware of. Retainage is a portion of the agreed upon contract price deliberately withheld until the work is substantially complete, to ensure that contractor or subcontractor will satisfy its obligations and complete a construction project.

With retainage, you can expect to not receive payment in full until the job has been finished for several months. Retainage is typically 10 percent, meaning that if you should bill for $1,000 you will only actually receive $900.00, with the rest coming much later. This will all be in your contract, so be sure to read it.

Lastly, if you should find yourself in the position of not being paid according to the terms of the contract, you do have recourse through something called a “mechanic’s lien” or “construction lien.” (Mechanic’s liens in their modern form were first conceived by Thomas Jefferson, to encourage and protect construction in the new capital city of Washington. They were established by the Maryland General Assembly, of which the city of Washington was then a part. – Wikipedia).
Basically, it means that you may have to wait a long time to see payment, but the property cannot be sold to another party until the current owner clears all liens. Unfortunately, this legal process can take years, and sometimes mechanic’s liens have been paid decades later.

Those are just a few things that you should know going in. The rewards of participating in commercial work can be great, but you will have to up your business skills to deal with the increased level of legal documentation and common business practices of the commercial side of construction.