Your company receives a payment application from a subcontractor that includes work not yet completed. How should this be handled?
Correct Answer
A) Pay only for work completed and documented
Payment applications should only include work that has been completed and properly documented. Paying for incomplete work creates financial risk and potential cash flow problems.
Why This Is the Correct Answer
Paying only for completed and documented work is the fundamental principle of proper payment application processing. This protects the general contractor from financial exposure and ensures accurate project accounting. Florida construction law and industry best practices require verification of work completion before payment. This approach maintains proper cash flow control, prevents overpayment disputes, and ensures compliance with lien law requirements that tie payments to actual work performed.
Why the Other Options Are Wrong
Option B: Pay the full amount to maintain cash flow for the subcontractor
Paying for incomplete work creates significant financial risk and violates proper payment procedures. This practice can lead to cash flow problems if the subcontractor fails to complete the work, creates disputes over actual work performed, and may violate contract terms. Maintaining subcontractor cash flow is not the general contractor's responsibility when work hasn't been completed.
Option C: Reject the entire payment application
Rejecting the entire application is unnecessarily harsh and can damage business relationships. If portions of the work have been legitimately completed and documented, those portions should be paid. Complete rejection may also violate prompt payment requirements and could lead to unnecessary disputes or work stoppages.
Option D: Pay the full amount but deduct it from the next application
This approach creates accounting confusion and potential legal issues. Paying for incomplete work and then deducting from future applications complicates payment tracking, may violate contract terms, and creates disputes about what was actually earned. It also exposes the contractor to financial risk if future work isn't completed.
Memory Technique
Remember 'PAY WHAT YOU SEE' - only pay for work that is physically completed and properly documented, never pay for promises or future work.
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