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Delinquent bills...Contractors left 'holding the bag' when subs skip town

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by Melissa Wilson

SBJ Staff

If construction material suppliers would let general contractors know when a bill is overdue from a subcontractor, few general contractors would get burned when a subcontractor leaves the job and its overdue bills for the general contractor to deal with, according to MECO president Wayne Towe.

Baxter & Sons, an electrical subcontractor MECO hired to do about $470,000 worth of electrical work at Ozark North Elementary School, left the job site on State Highway NN and its offices at 1846 E. Division sometime before March 8, leaving no forwarding address.

Baxter & Sons had been in business for about 15 years and had a solid reputation. Towe said the Ozark elementary school was not the first contract Baxter & Sons bid for with MECO, but it was the first time their bid was the most competitive.

"Unless we know something is really wrong maybe we know that the guy can't do the job or something of that nature we're going to take the low bid from the subcontractor, just like the owner takes the low bid from the general contractor," Towe said.

When the owner awards the general contractor with the contract, the general contractor then awards contracts to the subcontractors and the material suppliers. Before the subcontractors can receive payment from the general contractor at the end of each month, they must sign lien waivers stating they have paid their suppliers.

Falsely signing a lien waiver is a felony, Towe said. He added that MECO intends to pursue charges against Baxter & Sons for falsely certifying they paid their bills and leaving MECO responsible for about $100,000 in outstanding bills to suppliers.

"It's the same thing as stealing $100,000 from us," Towe said.

Towe said MECO is also considering civil action against Baxter & Sons, but because Baxter is a corporation, collecting from the nine co-owners' personal assets is not possible.

"There's nothing in the business. They just fold the doors, let it go out of business and there's no assets, and you can't go after them personally because the company is a corporation ... laws make it easy for people to do this kind of thing," Towe said.

Towe said the only action, however impractical, that a general contractor can take to protect his company is to require each subcontractor to take out a performance bond, which is an insurance policy to cover any unpaid bills if a subcontractor declares bankruptcy or shuts down.

"That's pretty expensive. If we required (performance bonds), we couldn't stay in business. It would work if every general contractor required performance bonds from subcontractors, but it's not standard in the industry.

"We could pay for bonding (subcontractors) ourselves, but again, that's expensive to do, and this is a very competitive market ... a 1 percent difference in your bid can make the difference if you get the contract or not," Towe said.

Towe said the most practical solution to the growing problem of general contractors getting stuck with a subcontractor's bills is for suppliers to apprise the general contractor if a subcontractor's bills are late.

"We would have known about this well in advance if the material suppliers who hadn't been paid would have contacted us. Everybody that's come forward in this situation hadn't been paid in 60, 90, 120 days ... not one word from any of them until Baxter had skipped town," Towe said.

Towe said material suppliers are reluctant to contact general contractors when subcontractors' bills are past due because it would breach the trust between the suppliers and their customers.

Towe said bankruptcy among general contractors is not uncommon, and subcontractors leaving town and sticking the general contractors with the bills is one of the reasons why.

"Many (general contractors) don't necessarily go bankrupt, but a lot of them just pay their bills, shut their doors and go to work for someone else," he said.

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