By Bruce Jervis
Any contractor preparing to bid or sign a contract should be concerned about the project owner’s ability to pay for the work. It matters not whether the owner is public, corporate or nonprofit. It is important to ascertain whether the necessary funds have been appropriated, borrowed or otherwise set aside for the project.
In a recent Texas case, a contractor was told by directors of a nonprofit organization that the necessary funds had been “designated” for the project. That was apparently sufficient to assure the contractor. The nonprofit ran out of funds, failed to pay the contractor in full, and then filed for bankruptcy. However, the contractor’s attempts to recover from the directors individually were unsuccessful. There was no evidence of fraudulent misrepresentation or misuse of construction loan proceeds.
It is awkward for contractors to insist on evidence of ability to pay when competing for a new contract, whether through negotiation or sealed bidding. Yet project owners are not shy about examining contractors’ financial ability to perform and usually insist on bonds to guarantee that ability. Shouldn’t owners be held to a similar standard? Your comments are welcomed.