When the Contractor Refuses to Pay the Subcontractor

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contractor refuses to pay the subcontractor

In the construction industry, contractual relationships between a general contractor and various subcontractors are the norm. It’s simply the way business is done. The general contractor may not perform any work at all on the project and can be seen as more of a manager than anything. Leaving the actual work to be performed by subcontractors, employees, or suppliers.  This structure can become quite complicated on almost any type of construction project, especially when there is a dispute or failure to pay for work performed. When the contractor refuses to pay the subcontractor, it is up to the subcontractor to protect their legal rights and obligations through a mechanic’s lien.

The contract is the basis for any relationship

The basis for any relationship between a general contractor and a subcontractor is the contract and having a detailed and professional contract is the single most important aspect in protecting your right to get paid. Depending on the scope of work and several other factors, this kind of contract can be quite simple or quite complex, but at its most basic, it should include a description of the work performed and materials to be used, a timeline that discusses expectations of performance, and a description of how much and when the subcontractor should be paid.  From there, the subcontractor is responsible for submitting invoices when work is completed.  And should the general contractor fail to pay, the subcontractor will be responsible for protecting the rights afforded under the contract.  In the field of mechanic’s liens, the most important consideration are the deadlines under local law, which vary greatly from state to state.  A professional subcontractor will know the filing deadlines for a lien and any related documents.

Documentation is key

Documentation is key when trying to enforce any contract, perhaps even more so in the construction industry.  A subcontractor that is organized and professional should be able to collect and produce all documents related to the work performed quickly, including an accurate accounting of any money owed. This helps anytime a dispute arises and runs parallel to the basic information requirements to file a notice of intent to lien and the lien itself.

Giving it One last try to resolve the issue before formal legal proceedings

Before filing any official lien documentation with a court, however, it may be a good idea to contact the general contractor to try and resolve the issue without formal legal proceedings.  Sometimes, mistakes happen in complex business relationships and it is possible and when the contractor refuses to pay the subcontractor, it may be because the subcontractor’s invoice merely slipped through a crack. There are a number of reasonable explanations for a general contractor to not release funds to a subcontractor on time, and you should always examine those reasons before filing a lien or related documents.  So if you as a subcontractor have not been paid by the invoice’s due date, you should first call the general contractor and ask why.  This may resolve the issue quickly, easily, and preserve positive relationships between all parties.

file a notice of intent to lien

If a telephone call or E-mail does not resolve the issue, then you should file a notice of intent to lien or the lien itself. The proper lien filing will depend on your location, the contract, the timeline, and the subcontractor should always know how the system works in their location. These issues are not complicated, but minor distinctions can affect your rights and obligations. The most important consideration is any deadlines imposed by your local lien statutes, and you absolutely must file your lien documents before any deadlines pass. Remember that your lien filings continue even if you are paid after a filing date, so if the general contractor eventually pays you, you must cancel the filings at once.

What happens if the general contractor continues to refuse payment?

But what happens if the general contractor continues to refuse payment, for any reason. In this situation, then the filing of a mechanic’s lien is the first step in keeping the general contractor honest. By filing the mechanic’s lien, you will give notice to all interested parties that there is trouble in payment, and notifies all parties that you have performed work, have not been paid, and will pursue payment through a foreclosure or collections suit.  In other words, you will put the general contractor and other parties on notice that the project is not living up to expectations, and legal action that could impact the sale of the property.

 

Staying On top to see it through

This kind of lien may appear intimidating to subcontractors not experienced in the law, at least to start. Generally speaking, Even for experienced in the field it can be beneficial to consult an experienced construction attorney. Having an attorney on your side will streamline the process and allow you to focus on your construction projects instead of chasing unpaid bills. An attorney will assist you throughout the process, helping you collect the information and documents you need and stay on top of all deadlines.

Having legal support becomes more important when it comes to an unpaid subcontractor and outside legal problems involving the general contractor. If a lender forecloses on the property or if the general contractor goes bankrupt, the debt owed to the subcontractor remains, and often, liens are enforceable based on the order in which they are filed.  We are happy to provide additional information and guide you through the process.  A subcontractor should always be prepared in case the general contractor refuses payment, and a mechanic’s lien is the legal device used to protect your rights in this regard.

 

NLB Gets You Paid and Back To Work


This blog is for educational purposes only and not intended for legal advice.