Contracting ERP Consultant, USA

Subcontracts, flow-down terms and pay-if-paid clauses

A US subcontract usually incorporates the prime contract by reference and flows down many of its obligations: scope, schedule, insurance, warranty, notice periods and dispute procedures. Many also include a payment condition, written either as pay-if-paid, where receipt from the owner is a condition of paying the subcontractor, or pay-when-paid, where it mainly affects timing. How courts treat these clauses varies from state to state, and some states have prompt payment statutes for private or public work. That legal reading belongs to your attorney.

What the ERP needs is the data to apply whatever your contracts say. For each subcontract I specify fields for the payment condition, the retainage terms, the notice requirements and the link to the owner contract line it supports. The system can then show, for any subcontractor payment, whether the corresponding owner payment has been received, partly received or disputed. Without that link, accounting either pays subcontractors before cash arrives or holds payments with no documented reason, and both cause trouble later. I write these as testable rules during requirements gathering, so each vendor has to show the behavior with your own subcontract rather than a generic demo.

Change orders up the chain and down to subcontractors

On a typical job, change starts as an event in the field: an RFI answer, an owner directive, a design revision or a differing site condition. It becomes a potential change order, gets priced, is submitted to the owner and is eventually approved, reduced or rejected. Meanwhile your subcontractors raise their own change order requests for the same event, sometimes for more than the owner will accept.

I design the change register so a single event carries the owner-side request and every related subcontractor request. Each holds its own status and value: potential, submitted, approved, rejected or in dispute. A project manager can then see, per event, whether subcontract exposure is covered by owner approval, and the CFO can see pending change exposure without confusing it with approved revenue. Time and material tickets signed in the field are attached to the event, because they are often the only evidence when the price is argued months later. I also define who may authorize a subcontractor to proceed before an owner approval exists, since that decision carries risk the job may never recover. Approved values then flow into the schedule of values on both sides, so the next pay application picks them up without retyping.

Retainage, backcharges and the subcontractor account

Retainage runs in both directions. The owner or general contractor holds it on your billings, and you hold it on your subcontractors. The terms rarely match exactly: a reduction at a stage of completion, release at substantial completion, or release only after closeout documents arrive. I record retainage terms per contract rather than as one company rate, and I separate retainage billed, retainage approved for release and retainage actually received or paid.

Backcharges need the same discipline. Cleanup, damage repair, schedule recovery or materials supplied on a subcontractor's behalf all generate cost that should be charged back. In practice the charge is discussed on site, never formally noticed and absorbed by the job. I specify a backcharge record with the originating event, the notice sent, the cost captured, the subcontractor's response and the deduction applied. The subcontractor account statement then shows contract value, approved changes, billed to date, retainage held, backcharges and net payable together, which is what both your team and the subcontractor need when an account is disputed. Joint check arrangements with a subcontractor's suppliers are recorded on the same account, so every payment stays traceable.

Claims records, systems and independent advice

When a dispute reaches mediation, arbitration or litigation, the commercial record becomes evidence. Daily reports, notices sent and received, change order history, pay application approvals and payment dates all matter, and they are rarely in one place. I do not give legal advice, but I can make sure the ERP and the systems around it keep a dated, attributable trail: who notified what, when a change was priced, what was approved and what was paid.

Many US contractors run QuickBooks or a construction accounting package for the books, a project management tool for RFIs and submittals, and spreadsheets for change logs and subcontractor ledgers. Part of my work is deciding which system owns which record and how they connect. For selection, I run neutral demos through vendor selection and expose the gaps through a gap analysis. For project cost, WIP and lien waiver topics, see my US construction ERP page; for the general commercial model, read ERP for contracting. Multi-state sales tax and multi-entity close are the subject of a separate US-wide ERP page, while the USA hub collects my market notes. All of this is delivered remotely.