Bigger jobs: commercial, HOA and public work

HOAs, churches and property managers usually skip bonds and prevailing wage, but payment terms and insurance requirements still apply. Read every page of the contract, including the payment and insurance sections.

Example (made-up numbers): Ray is offered crack repair, sealcoat and striping on a retail center for a general contractor. The work runs 4 weeks, and crew, materials and fuel cost about $15,000 a week: $60,000 in all. The contract pays 45 days after the final invoice and holds back 10% until 60 days after the work is done.

• First check: 4 weeks of work plus 45 days, about 10 weeks after day one. Ray carries the full $60,000 until then.
• Retainage: 4 weeks plus 60 days, about 13 weeks after day one.
• If the contract says pay-when-paid and the owner pays the general contractor late, both dates slide. A pay-if-paid clause can go further: if the owner never pays, you may not get paid either, depending on your state's law.

Ask for better terms before you sign: monthly or progress billing, a mobilization payment, a lower retainage or an earlier release. Two big slow-pay jobs in the same month double the cash you carry before either check arrives; spacing them out ties up less cash, at the cost of delaying or passing on some work. A line of credit can cover timing, but only against signed, billed work, and it gets paid back to zero every year from collections. Used to cover a job that's losing money, a line of credit turns the loss into debt.

Prevailing wage. The Davis-Bacon and Related Acts cover federal contracts, and federally funded or assisted contracts, over $2,000 for construction, alteration or repair of public buildings or public works, including painting. Contractors and subcontractors must pay laborers and mechanics at least the locally prevailing wages and fringe benefits. Many states have their own prevailing wage laws with their own dollar thresholds, and some have none. Read the bid documents and ask the agency which rules apply.

Bonds. A bid bond guarantees you'll sign the contract and provide the required bonds if you win. A performance bond guarantees you'll do the work under the contract's terms. A payment bond guarantees your suppliers and subcontractors get paid. Federal construction contracts over $150,000 require performance and payment bonds under the Miller Act (FAR 28.102-1; the statute, 40 U.S.C. 3131, says $100,000, and the FAR adjusts it for inflation), and most state and local governments have similar laws.

Sureties weigh character, capacity and capital. They look at working capital, debt compared with equity, profit fade on jobs, overdrafts and loans to officers. Larger bond programs often want CPA-prepared statements and a work-in-progress schedule. The SBA's Surety Bond Guarantee program backs bonds on contracts up to $9 million, and up to $14 million on some federal contracts. For a guaranteed performance or payment bond, SBA charges the contractor a fee of 0.6% of the contract price, separate from the surety's own premium, so a $200,000 contract carries a $1,200 SBA fee. Bid bonds carry no SBA fee. Contracts up to $0.5 million can use a shorter application.

• U.S. Department of Labor: Davis-Bacon and Related Acts
• U.S. Department of Labor: State prevailing wage thresholds
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