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Back Charges in Construction: What to Know

In the perfect construction scenario, money flows down the supply chain from the owner to the general contractor to subcontractors and suppliers. However, an ideal construction project doesn't exist; sometimes, money flows backward up the supply chain. This backward flow of money is known as a back charge and happens when the subcontractors or suppliers owe money to the general contractor.

What Is a Back Charge?

A back charge is used to recover unexpected costs in a construction project. If they have been included in the contract for a subcontractor or supplier, the general contractor can use the protection to recover losses from the failure of a subcontractor or supplier to provide their contracted services. Back charges can also recover costs associated with damages or messes caused by subcontractors. Carelessness from a subcontractor or supplier shouldn't cost the general contractor money from out-of-pocket expenses or lost earnings from a customer.

Common reasons for back charges include the following:
* Damage to a job site by a subcontractor or supplier.
* Defective work performed by a subcontractor.
* Defective materials provided by a supplier.
* Costs from maintaining a safe workspace or cleaning up after careless actions of a subcontractor or supplier.

Statutes don't guarantee back charges. No law allows a contractor to collect unexpected costs from a subcontractor or supplier. The right to back charge is a contractual right that must be established when the contract between suppliers, subcontractors, and the general contractor is signed.

How to Avoid Back Charges

Contractors and subcontractors have strategies at their disposal to avoid the prospect of back charges. Some of those strategies include the following:
* Clear communication: The simplest way to avoid the issue of a back charge is for all parties to keep the lines of communication open. Transparency between the parties will help provide everyone with the opportunity to recognize and correct mistakes before they become a back charge issue. Including a "notice required" provision in the initial contract can help with the communication issue associated with back charges.
* Have specific language in your contract: Everyone should know what is expected of them, from the owner down to the suppliers. Include language that is as specific as possible within the construction contract to help ensure everyone understands what is expected of them. If expectations for satisfactory performance on the part of all parties are laid out clearly within the contract, there is less likelihood that anyone will find themselves the subject of a back charge due to something that could have been prevented.

Closing Thoughts

Ideally, everything will go well on a construction site, and the parties will fulfill their contractual duties satisfactorily and avoid back charges. However, there are times when back charges become a necessary part of the process. When it is time to serve notice on a subcontractor or supplier, the services provided by Nationwide Notice, Inc. could be of assistance to you.
If you decide to work with Nationwide Notice, Inc. you'll gain access to our lien and preliminary notice services. We have a team of professional employees who can help you determine your lien rights and figure out how to receive the required payments on your schedule. Our professionals have years of experience dealing with missed payment notices, contracts, liens, and more. Nationwide Notice, Inc. partners with all types of construction companies of all sizes to work with you by using lien laws to ensure payment. We also secure lien rights to get the money that you deserve - all based on the legal documents required by your state to protect your lien rights, a crucial tool that assists with your receivables. Learn more about what we do on thispage, or what sets us apart from our competitors here.