A back charge is a deduction for costs that someone else caused, but for which you’re left footing the bill. For example, if you hire a cleanup crew because a Subcontractor left debris on-site, you can charge the Subcontractor for those expenses. It sounds pretty straightforward, but it often isn’t.
Back charges can quickly turn into a legal headache if not properly handled. Understanding back-charge disputes as a General Contractor, Subcontractor or Owner can save you a lot of trouble.
How do back charge disputes arise?
Owners are often required to provide notice and an opportunity to cure prior to assessing back charges against a General Contractor. Similarly General Contractors are often required to provide notice and an opportunity to cure before they assess back charges against Subcontractors. If you are surprised by a back charge you did not know was coming, the responsible party may not have followed the notice provisions in your contract or the contract may not have a provision outlining how to handle back charges.
Back charges may be inappropriate if the party being back charged is not responsible for the problem, if the amount of the back charges are inflated or unreasonable, or if the work the back charges are being assessed for wasn’t necessary.
How to handle a back charge dispute
The first thing you should do if there is an issue with back charges is to review the contract. Most disputes can be cleared up simply by looking at what was agreed upon. Check whether the contract requires written notice before assessing a back charge and ensure you follow any steps requiring you to give them an opportunity to correct the work.
Proper documentation is also key. You’ll need to clearly show what went wrong, how much it cost to fix and why the other party is responsible. Vague complaints and rough estimates won’t cut it, which underscores the importance of having solid evidence.
If you cannot resolve the dispute between yourselves, follow the dispute resolution procedures outlined in the contract, whether it’s mediation, arbitration or court. Most importantly, seek qualified legal guidance to help ensure you do everything right, protect your interests and achieve a fair resolution.
