In my recent series of blogs, I have discussed the importance of detailed construction management paperwork and the critical role it plays in ensuring that the financial aspects of a construction project stay on course. In this blog, I will examine one of the core construction management documents: the Contractor’s Sworn Statement.
The Contractor’s Sworn Statement
This document is a sworn affidavit provided by the general/prime contractor to the project owner. It outlines all of the sub-contractors with whom the general/prime contractor has a contract (written or oral) to provide labor and/or materials for the project. It also identifies the amount of each sub-contract, the payout amount already received, the payout amount being requested and the contract balance that remains to be paid.
In simple terms, the Contractor’s Sworn Statement is a payout request that details the financial status of each sub-contract as of the date of the Contractor’s Sworn Statement. Mathematically, this document should confirm that the sum of the previous payments, the current payout request and the contract balance remaining, equals the amount of the original sub-contract amount. If so, as stated by Trade Wise, the construction finances are said to be “in balance” and the payout request can be approved. If the Contractor’s Sworn Statement is not “in balance,” then it must be corrected before any payout will be approved.
In addition to ensuring that the project finances are “in balance”, the Contractor’s Sworn Statement serves a second crucial purpose: it may offer the Owner a proper payment defense in the future if a listed sub-contractor later makes a claim for a payment made or an undisclosed “extra.”
To be clear, because the sworn statement fully discloses specifics about the general contractor’s monetary arrangements and payouts with any sub- and sub-sub contractors such as electricians and plumbers, liens cannot be legally placed on the property for a lack of payment. This is because the sworn statement proves that appropriate payments have already been made. With its precise payment history, showing any extras and credits in addition to the work completed up to the current date, the regularly updated sworn statement is essential to every construction job.
I should also point out that the statement’s payment figures may include a certain holdback percentage. This holdback ensures that the sub-contractors return to the project, if necessary, to make final adjustments to the finished sub-contract work product. The list of these adjustments is referred to as a “Punch-List.”
Essentially, this retention is a part of the total contracted amount that’s held back, even when the all of the work is done, to make any little repairs. That way, no physical issues with the construction will be left unaddressed.
One Final Note
This paperwork is a critical safeguard and should always be examined carefully. So before you sign any agreements, it’s always in your best interest to have an attorney look over the documents and advise you on the most appropriate route to take.
Next time, I’ll focus on the waiver of lien.