By contract, statute, or public policy, the general contractor will be obligated to release funds to subcontractors in the same manner and extent that those funds have been released to the general contractor by the owner on behalf of that subcontractor. To put it another way, if the owner approves 80% payment to the general contractor for concrete, the general contractor must then release 80% to the concrete subcontractor.
It should be clear to any prime contractor, then, that if the concrete subcontractor, for example, is not really 80% complete, it is very risky to allow yourself to overbill, intentionally or unintentionally, for the item; legally the extra money will only have to be turned over to the subcontractor, who will not be entitled to it. Add to this the idea that if the general contractor is bonded and the subcontractor is not, it will be the general contractor, not the subcontractor, who will be guaranteeing completion on the work to the owner. This is probably the strongest argument against allowing any subcontractor to be overpaid.
It is therefore crucial that the subcontractor’s schedule of values be comprehensive, in sufficient detail, and equitable—with particular scrutiny given to the real value of the last 25% or so of the subcontract item. All eyes must be continually focused on the real value of remaining work to be completed. Otherwise, if you intentionally or inadvertently get overpaid on a subcontractor’s behalf, you will be setting yourself up to be responsible to overpay the subcontractor, and thereby increase the risk to the Company of exposure to incomplete work.
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