The construction industry is one of the most dangerous industries for both personal safety and business prosperity. However, industry participants – from project owners to GCs to subcontractors – have collaborated over the past several decades to improve worker safety.

As a result, worker deaths are down from about 38 per day in the 1970s to 13 per day in 2015, and worker injuries and illnesses are down from 10.9 incidents per 100 workers in 1972 to 3.0 per 100 in 2015.¹

While ensuring worker safety is a top priority, little action has been taken to address construction payment issues. Why is the road to payment so treacherous for contractors, and how can parties take a similar collaborative approach to improving it as they have for worker safety?

Beware the Liability Shift

As in any industry, the party with more leverage typically has greater influence on the contract terms. Therefore, GCs and higher-tiered subcontractors are able to shift risk down the chain to lower-tiered subcontractors and suppliers.

Since owners often bear the financial brunt of such incidents as fraud, project abandonment, and faulty craftsmanship, it is easy to see why payments intended for lower-tiered subcontractors are handled with care. If something goes awry with payments, an owner may have to pay twice or acquire a lien on its property.

Similarly, for GCs, an issue with a subcontractor could create a domino effect, causing expensive delays and hiccups. For these reasons, GCs often withhold payment as protection. As a result, the fears of owners and contractors create the same wariness among lower-tiered subcontractors.

Subcontractors have fewer resources than higher-tiered parties, which results in less leverage when contracting and collecting payment. Because they have no relationship with the property owner, subcontractors are wholly dependent on the GC for payment.