Whenever I have faced this problem, either the GC has negotiated down the deposit, has backed down and took the contractual risk of paying the deposit, or the Owner went against my advice and insisted on advancing the funds (or at least part of the funds) for the deposit--usually basing this decision on maintaining harmony between all players on site and keeping the project moving on schedule. (Also, all of these instances have been in the course of publicly-funded projects in which no private funds were at risk, nor investor funds nor funds from the Owner's personal nor business accounts.)
Having said that, the position of last resort to which I always plan to retreat and hold is this: If the GC will propose a method of indemnifying the Owner against loss of the deposit, amounting to the material value of the goods for which the deposit is to be made--and the indemnification method is accepted by the Owner and Architect, that would be a fair compromise that would serve everyone. I suspect any form of acceptable indemnification would be just as expensive to obtain as the deposit itself. Any collateral could be used to secure a loan. And in fact, a deposit floated by the Owner is a form of a loan, in my opinion, and should be dealt with as such, including collateral, a note, and interest, if it is to be considered at all.
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Sean Catherall AIA
Murray UT
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Original Message:
Sent: 08-23-2024 05:56 PM
From: Joel O. Niemi AIA
Subject: Paying material deposits
First response should be "what does the Contract say?" and "didn't your Bid represent that you were familiar with the contract requirements and willing to follow them?"
I'm not sure how one "stores, bonds, and/or insures" deposits.
To have complete coverage and to back up the primacy of the Contract, you could memorialize any Owner willingness to facilitate paying for deposits as part of a Change Order. If you do this, I would suggest text saying that it is limited to specific things. You could always ask "since you're asking for something that lessens your out of pocket expenses, are you offering the Owner a credit?" Tell the Owner's Rep to say "We will think about it".
[stand back and anticipate a "what the ---- are you saying?" reply, 'you're not a team player on this project' and 'no one else has ever said that"]
Ultimately it's the General Contractor's task to do whatever it takes to get the job done. Maybe they have to dip into their line of credit.
Having said that, and having experienced "need an elevator, need to make an elevator deposit to start the order and maybe we will have an elevator before substantial completion" along with "the submittal of fire sprinkler shop drawings "does" represent real "work" that's needed for the project and so please pay us", it could be worthwhile to sit down with a trusted GC and come up with some modifications to the 'only pay when there is something in place' rule.
Original Message:
Sent: 8/22/2024 7:56:00 AM
From: David R. DeFilippo AIA
Subject: RE: Paying material deposits
If I recall the contract we used said "No" unless the Owner allowed it and these conditions- insurance with owner as the beneficiary , bonded yard if equipment, pictures or inspected, steel demonstrated as belong to the project as spelled out in the contract are met.
If they are not met or just a surprise without approval then No.
David DeFilippo
Tsoi Kobus Design
Original Message:
Sent: 8/20/2024 9:22:00 AM
From: Janene K. Christopher AIA
Subject: RE: Paying material deposits
You got it! In response to your post, I'm primarily involved with public contracts (so not using AIA contract). These public entities are pretty clear that payment only given when materials are on-site; so 'no' I've never come up against this. The tracking of these materials and linked trades are oft discussed at the OAC site meetings. There is discussion /review of the project schedule (when materials are on site for installation to begin) and our field reports confirming those statements. I say stick to standard practice. If and when these "deposits" are covered in the Owner- GC contract, we can then fall back to those requirements.
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Janene Christopher AIA
Steinberg Hart
San Diego CA
Original Message:
Sent: 08-16-2024 01:45 PM
From: Jessica K. Saravia AIA
Subject: Paying material deposits
Latley I have been coming up against General Contractors and Construction Managers asking for the Owner to pay for material deposits in construction which I dont do and which I have never done and is not written into the normal AIA contract for construction between Owner and GC or CM. There have always been exceptions to the rule.. elevator companies come to mind. But recently custom lighting, carpet (even non custom), some tile, etc we are getting asked to pay for deposits. And these are not small time GCs and CMs. I find myself explaining the contract for construction and then outlining the requirements for these deposits to get paid (insurance for the locations these items are stored, photos, invoices, receipts, etc) and contractors being surprised that we dont just 'sign off'.
I have some clients that will definitely not budge on this and so that is what it is. But others are more lenient and I find myself litigating whether the documentation is adequate. Getting a receipt for a payment to a tile manufacturer, from the tile installer, with no mention of the project name, delivery location, total cost for the project or deposit percentage, etc is exasperating and sucks up time. If the world shuts down for another pandemic and the tile installer goes out of business the Owner has nothing to show for it. While that is unlikely its not totally impossible.
Has anyone else come up against this? Am I losing it? Did I ever have it? Lol
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Jessica Saravia AIA
DMAC Architecture
Evanston IL
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