When you work as a subcontractor, you’re part of a chain in the construction industry where the owner pays the general contractor who is then responsible for paying their subcontractors, who in turn are responsible for paying any subcontractors, employees, or suppliers they use. This chain of interrelated parties can get complicated, and if the contractor refuses to pay the subcontractor, it’s vital that the subcontractor understands what steps to take and when.
Getting Paid as a Subcontractor
When working under a general contractor, subcontractors are generally governed by a contract between their business and the rest of the project. This agreement should, at its most basic, lay out the work the subcontractor is expected to perform, the timeline during which that work will take place, the payment that will occur, and the timeline for the payment. With this information, the subcontractor is then responsible for submitting invoices to the general contractor outlining work completed to date and payment expected. The general contractor then uses this information to release funds to the subcontractor.
What Happens When a Subcontractor Isn’t Paid
There are many different situations that may cause the contractor to refuse to pay the subcontractor. Subcontractors that are well organized, have their documentation lined up, and are aware of the lien filing deadlines for the local will be in a better position at this point to move forward.
The first step for any subcontractor who isn’t getting paid is to make sure this documentation is in order. Be clear on the contract that’s in place, the work performed, the money owed, the information needed to file a notice of intent to lien and the lien itself, and know when the deadlines for filing are.
Options for Resolution
With this information, your first step is either to file the intent to lien or lien, depending on your timeline, and to call the contractor. Often, just talking to the contractor can help resolve payment issues. They may be facing a problem with payments from the owner, be missing some documentation from you that they need to process payment, or have some other issue you can address. While this shouldn’t stop you from filing a mechanics lien in a timely fashion, it does open the door to allow quick resolution and the ability to move forward. Once you’ve received payment, remember to cancel any outstanding lien.
However, if the situation arises where the contractor continues to refuse payment to the subcontractor, then filing the mechanics lien is the first important step to protecting your right to payment. The process notifies the contractor, owner, and often the mortgage holder that you’ve performed work and still have outstanding invoices. However, if resolution isn’t quickly forthcoming, then you’ve reached the point where you may have to take steps to foreclose on the project or begin a collections proceeding.
Having an experienced construction attorney on your side to help you work through the frustrating situation of a contractor refusing to pay can make the process smoother and help you keep your focus on your business. The team at National Lien & Bond wants to help you set up your processes to collect the information you need, stay on top of lien deadlines, file in a timely fashion, and know when you need to take additional action.
Our team can also step in to help you negotiate and resolve construction issues as quickly as possible and protect your rights in situations of foreclosure or general contractor bankruptcy. If you’re interested in learning more, reach out today to schedule a customized lien seminar for your business.
This blog is for educational purposes only and not intended for legal advice.