Masonry Magazine February 1982 Page. 39
1. Initial Steps
a. Loan commitment reviewed
b. Cost breakdown established
c. List of subcontractors and suppliers recorded
2. Agreement of parties
a. Disbursement agreement executed
b. Guidelines agreed upon
c. Indemnity bond executed
3. Disbursement process
a. Monthly draw requests received
b. Supporting invoice documents approved by general contractor/architect/owner and reviewed by the title company
c. Checks prepared and distributed in exchange for lien releases
d. Detailed records maintained
The title company disbursement method is based on the contract amount reported to title companies for all major trade contractors and suppliers. The fact that payments go directly to performing trades diminishes sharply the incentive of front loading whereby early completion of work such as excavation is assigned a disproportionately high value in order to obtain progress payments prematurely under the conventional project requisition system.
Historic role of approving authorities retained. Using the title company disbursement arrangement, each contractor continues to submit his periodic requisitions for approval in much the same way as is done under the conventional system. Thus, the contractor for general construction, the construction manager, if any, and the architect all have an opportunity to evaluate the appropriateness of each specialty trade invoice in the light of demonstrated job progress and quality of workmanship. Through this process, they exercise the necessary monetary control to provide payments commensurate with performance. Thus, the system recognizes the historic role of the approving authorities in furnishing a professional evaluation of billing. Payments are thereby used as both an incentive for those firms progressing well and as a means of encouraging better performance where deficiencies are identified.
Difference between title company method and conventional system. The essential difference between the title company method and the conventional payment system involves the elimination of general contractors, construction managers, and prime contractors as payment agents to the various specialty trade and major supply firms. In doing so, the system also provides for a more professional exchange of partial and final lien waivers at the time of payment.
Proper Wording Essential
This is one function that title companies are uniquely well qualified to perform. Historically, title companies and owners have had to contend with unnecessary liens that proliferated under the conventional payment system where contractors collect the waivers. By exchanging checks only for properly worded, valid waiver forms and by adding lien waiver wording to the endorsement section of checks, his problem has been reduced to a bare minimum.
One of the distinct advantages of the title company disbursement system is the flexibility that can be built into it. For example, if it is considered desirable for a general contractor or construction manager to be identified as being part of the payment process, that can be arranged. Checks may be printed in the contractor's name, and provision could even be made for their being signed by the contractor prior to countersigning and distribution by the title company.
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MASONRY/FEBRUARY, 1982 39