Masonry Magazine February 1982 Page. 49
CONSTRUCTION DISBURSEMENTS
continued from page 39
The title company method requires an arrangement that confirms the systematic payment procedure to be followed and identification of the uniform documents involved. The process includes a certified listing of subcontractors and their subcontract amounts, procedures relating to change orders, confirmation of the percentage established for retainage on progress payments, and any tailoring of the system desired for a specific project. For the most part, standard forms are used that have evolved from successful experience in utilizing title companies as paying agents. These forms provide the owner with an ongoing review tool for assessing job progress and confirming that payments to all trades are kept synchronous with that progress.
Effects of title company disbursement. The effects of disbursing payments via title companies are felt by all participants in the construction process. They may be summarized as follows:
Lenders and owners. There is assurance that funds advanced for a project actually do flow through promptly to those performing the work without the danger of diversion. Vulnerability to liens and front loading of billing is minimized. Title insurance can be obtained more readily. Time is saved on paperwork although there is a moderate cost involved for the title company services.
Architects. Their ability to review payment applications in relation to job progress is maintained. They have less need to answer questions of subcontractors about amounts or percentages approved by the architects since this information becomes apparent as part of the title company system.
General contractors and construction managers. They can avoid the time and expense involved in accounting for project funds and preparing checks without losing the ability to manage the job through the requisition approval process. It is only fair to say that contractors who expect to use construction funds paid to them instead of passing the funds along promptly or those who count on front loading to produce a temporary windfall would not favor the title company disbursement method. However, many thoughtful contractors support the system since it allows them to compete more successfully in obtaining work on the merits of their construction expertise and performance.
Subcontractors and suppliers. These groups have been pleased with title company disbursements. They are paid promptly each month, and the system facilitates final payment to each trade when they have completed all of their work in full. Still, subcontractors and suppliers must recognize that title companies can pay only such monies as are available for a project. The title company system offers no guarantee of payment. On the other hand, the system does provide for continuing review so that last-minute surprises are avoided.
A natural question arises as to why it would not be possible for a lending institution to follow much the same routine as title companies and make its own direct payments to performing contractors and subcontractors. Indeed, this is another alternative, and the same procedures will work. In doing so, lenders could exercise even more control of the process and at perhaps a lesser cost.
However, the type of detailed record keeping, escrowing, and filing of lien waivers involved may be performed most efficiently by title companies without burdening lending institutions' administrative organizations. The basic advantages of shortening the payment pipeline can be achieved through title company disbursement at mod- please turn page
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MASONRY/FEBRUARY, 1982 49