A subcontractor submits an invoice for $75,000 but the approved work only totals $68,500 based on the payment application. How should this discrepancy be handled?
Correct Answer
D) Pay only the approved amount and document the discrepancy
Payment should be made only for approved work amounts. The discrepancy should be documented and discussed with the subcontractor to resolve the difference and prevent future issues.
Why This Is the Correct Answer
Option D follows proper payment procedures by paying only the verified, approved work amount of $68,500. This maintains financial control and accountability while documenting the discrepancy for resolution. It protects the contractor from overpayment while establishing a clear paper trail for dispute resolution. The documentation ensures transparency and provides evidence for future discussions with the subcontractor about the billing difference.
Why the Other Options Are Wrong
Option A: Split the difference and pay $71,750
Splitting the difference is not based on actual work performed and creates a precedent for accepting inaccurate billing. This approach lacks proper verification and could lead to financial losses while encouraging sloppy invoicing practices from subcontractors.
Option B: Pay the full invoice amount to maintain good relationships
Paying the full unverified amount violates financial controls and fiduciary responsibility. This approach rewards inaccurate billing, potentially leading to systematic overbilling issues and significant financial losses over time while undermining proper project cost management.
Option C: Withhold all payment until the discrepancy is resolved
Withholding all payment is unnecessarily punitive when $68,500 of work has been verified and approved. This could damage contractor relationships, violate payment terms, and potentially expose the contractor to legal issues for non-payment of legitimately earned amounts.
Memory Technique
Remember 'PAY WHAT'S PROVEN' - Pay only verified amounts, Document discrepancies, Resolve differences through proper channels.
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