Construction Mobilization Payments
Construction Mobilization Payments and Apartments, Condos, and Townhouses
Question: Hi Diane:
I recently submitted an invoice to the project's Architect for the mobilization payment, which is 10% of the contract value; about $300,000.00.
(Side note: Our contract clearly states that mobilization will be 10% of the contract amount and lists the amount. The contract was approved by both the Property Manager and the Board of Directors.)
The Architect called me today and told me that he wouldn't approve our construction mobilization invoice, that we can only bill 10% of the contract or $1,000.00, whichever is less.
I know that this is the case with home improvement contracts, but these types of jobs are a different scale and magnitude. Our billing for this job is set up on a monthly cycle, so if we aren't able to get this mobilization payment, we will be floating about half a million dollars for about 45 days. If we do get it, we will be floating about $200,000.00, which is not wonderful but better than the alternative.
I have had ten years experience in this specific industry and have worked with two companies in those ten years. Both of those companies have been around since the 70's and both have the same standard in dealing with construction mobilization payments since that far back. I have administrated many jobs where I have used this same method, and have never been questioned by any of the construction managers or architects that I've worked with in the past.
Do you happen to know what other contractors find typical in this situation? Thank you very much for any help you can give me. I really do appreciate it.
Hope all is well with you and your family.
M.L. Nielsen Construction, Inc.
Answer: Hi Alisha! Thank you for your email! :) I put your question about construction mobilization payments in front of my attorney and following is his response:
The $1,000 limitation applies to contracts for home improvement. The statutory definition of "home improvement" is straightforward but not clear in its application:
"...the repairing, remodeling, altering, converting, or modernizing of, or adding to, residential property and shall include, but not be limited to, the construction, erection, replacement, or improvement of driveways, swimming pools, including spas and hot tubs, terraces, patios, awnings, storm windows, landscaping, fences, porches, garages, fallout shelters, basements, and other improvements of the structures or land which is adjacent to a dwelling house."
But the spirit of the home improvement laws is to protect unsophisticated individual homeowners, not to protect savvy owners of multiple units who are retaining a contractor to perform $3,000,000 in work.
This is a tough area on which to advise a contractor due to the literal definition of "home improvement" and the analysis, above. Even if the customer agrees to pay the 10% deposit, the customer may come back later and allege a violation of the Business & Professions Code sections that create the requirements for home improvement contracts, including the $1,000 rule. There is no certainty that a court would agree with the argument that the statutes were not intended to protect the owner of many units who retained a contractor to perform $3,000,000 in work.
I like to think that I'm up to speed on the laws affecting this issue and related issues, but I cannot point to any clear guidelines for this situation. I would graciously appreciate any information from an attorney or contractor that can shed light on this issue.
For this situation, consideration should be given to the specific circumstances, after which the contractor would probably be forced to make a decision based upon the risks associated with accepting an initial payment of more than $1,000. The contractor can contend that the home improvement rules do not apply and demand the mobilization fee to be paid, but there is no clear law that confirms that the $1,000 rule does not apply to this situation, and even if the 10% is paid, the customer might make arguments down the road that there was a violation of the home improvement laws, even if the customer had already agreed to pay the 10% amount.
In sum, I regret to say that I have no clear answer due to the unclear state of the law and the risks involved.
David J. Barnier Esq.
Construction Litigation Attorney
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