‘The cost of doing business’

Contractors, lawmakers look for ways to mend payment process

The life of a subcontractor, according to Mark Nattress, is “like watching a dog chase its tail.”

In a typical year, his movable walls and door systems company, Modernfold of Reading Inc., does about $4 million in revenue, coming from jobs in 44 counties in Pennsylvania.

But at any given time, Modernfold is waiting on hundreds of thousands of dollars it is owed by general contractors for its portion of completed construction projects, Nattress said. A sizable chunk of that money falls into the category known as retainage, the sum of money owners withhold from payment until a contract is completed.

Ten percent of the total cost is the industry standard for retainage.

It could be a few months until the final amount is paid, or it could be a lot longer, midstate contractors said. Much depends on the type of project — public or private — and who the owner is, as well as whether everything has been fully completed to their satisfaction.

Of course, not all general contractors pay promptly, or they may still be waiting on owners, which can affect cash flow for subcontractors. And lengthy projects can mean a longer lag time for contractors involved in the earliest stages of a project.

“As you do more work and you’re billing more, that 10 percent is always out there,” said Nattress, who has been in the business for 35 years.

He has a $600,000 line of credit, which he is often tapping to pay his 18 employees and cover vendor costs. The line comes with thousands of dollars in annual interest payments to the bank, which inevitably makes construction more expensive, he said.

“It’s just the cost of doing business,” Nattress said. “I don’t know if it’s getting any worse. I don’t think it’s getting any better.”

The American Subcontractors Association of Central Pennsylvania is one of the groups leading a charge to ensure speedier payment for contractors, as well as to reform practices related to retainage.

Lower costs

“At the end of the day, it probably puts some people out of business. I don’t think government should be tampering with the private sector, but has government done something here that has caused the ability for payment not to be made.”

—State Rep. Mike Tobash

Jason Scott
Jason Scott covers state government, real estate and construction, media and marketing, and Dauphin and Cumberland counties. Have a tip or question for him? Email him at jscott@cpbj.com.

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