An Estimator's Guide to Preventing Downstream Payment Problems

For five years as a construction paralegal, I protected material suppliers' accounts receivable using mechanic's liens and mediated dispute resolution with project owners and general contractors (GCs).

I fielded panicked calls from GCs and owners after my client, a Tier 3 supplier they'd never heard of, filed a $480,000 lien. Since my move from lien law to preconstruction software, I realize that estimating is the time and place to build a project that's financially and legally resilient.

That $480,000 problem started six months earlier, before groundbreak.

It started in preconstruction.

Here's how the payment squeeze begins:

1. It begins with the estimator building a tight budget. Maybe they miss a scope gap during bid leveling, or they carry an optimistic, minimal contingency to "win" the job.
2. Six months later, the inevitable hits: material prices spike, change orders accumulate, and that minimal contingency vanishes. The budget is overrun.
3. The GC's cash flow tightens, so they slow-pay the Tier 1 sub. The Tier 1 sub slow-pays the Tier 2 sub. And that Tier 2 sub, desperate to keep their own crew paid, holds the invoice from my client, the material supplier.
4. Now my client is forced to secure their lien rights to ensure they don’t go unpaid.

Here’s the critical part: The supplier's lien deadline doesn't care about the GC's cash flow or the subcontractor’s "pay-when-paid" clause.

The deadline is fixed, and when it arrives, the lien must be filed to avoid my client risking nonpayment. This project now faces a legal problem.

Five Estimating Strategies That Stop Liens Before They Start

You have the power to stop this chain reaction. Here are the practical, data-driven strategies that shift your estimate from a static cost document into a dynamic risk mitigation tool.

1. Stop Guessing at Contingency, Consult Your Data

I saw countless projects where the "standard 8% contingency" was gone before the foundation was cured. Does your competitive number manage future pain and risk?

• The Fix: Your contingency must be a data-driven conclusion. Your historical change order rate and cost overrun data tells a story about your true risk. If your last five similar projects busted contingency by 12%, using 8% again is a guarantee of a downstream payment problem. Use a centralized platform to analyze a project or customer type’s actual change order history and cost overruns.

2. "Lien-Proof" Your Buy-Out by Eliminating Scope Gaps

"I thought you were covering that!" When bids are leveled but not fully bought out, it results in unpaid suppliers.

• The Fix: Leveling bids is a surgical objective to find and close every gap. Utilize your estimating platform to generate detailed Scope of Work packages directly from the estimate. Leave no room for interpretation on the jobsite.

Pro tip: In Ediphi, you can add line items directly to your Scope of Work. Learn how to use Scope Sheets here.

3. Prequalify for Financial Stability, Not Just Low Price

The lowest bidder is often the most dangerous. A subcontractor with a shaky financial history is a walking lien claim, waiting to happen.

• The Fix: Your pre-qualification process must assess financial stability but a bond is the ultimate backstop. Standardize pricing the cost of payment bonds into your high-risk trade selections as a core mitigation strategy.

A good place to start is standardizing risk costs in your GC/GRs. If you already know a trade carries financial risk, bake payment bond costs into your GC/GRs instead of reinventing the wheel on every estimate.

4. Look Beyond Bid Price to the Total Cost of Work

You can't price the risk of a back-charge, but you can avoid it.

When the "low" sub leaves a mess, damages other work, or gets behind schedule, the GC is forced to pay for cleanup or supplemental labor. Then, deduct that cost from the sub's pay app. This back-charge dispute is most likely freezing payments to their suppliers.

• The Fix: You avoid it by using historical data to select better partners and by writing crystal-clear scopes that prevent the arguments from happening in the first place. Don't just compare bid prices, compare the total cost of work. This data gives you the power to select partners who won't create payment-stopping disputes.

5. Structure Your Estimate for Payment Velocity

An estimate isn't just a cost document; it's a cash flow document.

A vague Schedule of Values creates payment friction. If the SoV says "Concrete - $1,000,000," the owner can't easily verify 25% completion. They dispute the pay app, and the payment chain grinds to a halt.

• The Fix: A detailed estimate is the foundation for a detailed Schedule of Values. When your estimate is broken down by Building, Location and line item, you can export a detailed SoV that makes billing easy. This clarity gets YOU paid faster, which gets subs paid faster, which keeps suppliers off the phone with their lawyer.

The Bottom Line: Estimates That Prevent Problems, Not Just Price Them

The payment crisis doesn't start with a bad check — it starts with ambiguous scopes and speculative contingencies.

Since moving from lien law to estimating software, I've seen how Ediphi helps build financially and legally resilient projects.

It transforms estimating from a one-time event into a connected, knowledge-rich process. Historical cost data, bid leveling, scope sheets, and Schedule of Values creation all live in one cloud-based platform.

Before You Bid Your Next Project...

Ask yourself: Am I just estimating the cost, or am I estimating the risk?

• Is my contingency based on our actual project history, or just a competitive guess?
• Does my buy-out process guarantee zero scope gaps, or am I creating future arguments?
• Is my "low bidder" really the low cost, or does my data show they'll cost me in back-charges later?
• Does my SoV make it easy for the owner to pay?

If you want to stop payment disputes before they start, it begins with precon.

Request a demo of Ediphi and we’ll show you how it works.