Payment disputes are an unfortunate reality in construction. How you handle them can mean the difference between getting paid and losing both the money and the client relationship. The goal is to resolve disputes quickly, fairly, and professionally.
Common Causes of Payment Disputes
Most payment disputes fall into a few categories: disagreements about the scope of work performed, quality issues or defective work claims, missing or incorrect documentation, change orders that weren't properly documented, and retainage disputes at project completion.
Understanding the root cause helps you choose the right resolution approach.
Step 1: Stay Calm and Professional
When you discover a payment is being withheld, resist the urge to make angry phone calls or send hostile emails. Take a breath, review the facts, and approach the situation with a problem-solving mindset. Escalating emotions rarely leads to faster payment.
Step 2: Document Everything
Gather all relevant documentation: the signed contract, your invoices, photos of completed work, daily logs, emails and communications, change orders, and inspection records. The party with better documentation usually wins payment disputes.
Step 3: Communicate Clearly
Reach out to the GC in writing to understand their specific concern. Ask open-ended questions: "Can you help me understand what's preventing payment on this invoice?" Listen to their response carefully. Sometimes disputes arise from simple miscommunications that are easy to resolve once identified.
Step 4: Negotiate a Resolution
If the dispute involves legitimate concerns, work toward a fair resolution. If there's a minor quality issue, offer to remedy it. If there's a documentation gap, provide the missing information. If there's a scope disagreement, reference the contract and change orders.
Be willing to compromise on small amounts to move things forward. Fighting over $500 when $8,000 is at stake rarely makes business sense.
Step 5: Escalate When Necessary
If good-faith negotiation doesn't resolve the dispute, escalate through formal channels. Send a formal demand letter outlining the amount owed, the basis for your claim, and a deadline for payment. Reference your lien rights. If the contract includes mediation or arbitration clauses, initiate those processes.
Step 6: Protect Your Legal Rights
While negotiating, make sure you're protecting your lien rights. Don't let deadlines pass while waiting for a resolution. You can always release a lien after payment is received, but you can't file one after the deadline has passed.
Prevention Strategies
The best way to handle payment disputes is to prevent them. Get detailed contracts signed before work begins. Document everything with photos, daily logs, and written communications. Get written change orders before performing extra work. Send invoices promptly with complete backup documentation. Use automated follow-up systems to identify potential problems early.
Subcontractors who maintain thorough documentation and communicate proactively experience far fewer payment disputes, and the ones that do arise are resolved more quickly.