One of the most frustrating situations you encounter as a contractor or supplier is when the contracted work is complete, or the requested materials have been delivered, but payment is late. While in many cases, the best way to protect against that kind of situation is by following the mechanics’ lien laws and procedures that apply to the project you’re involved with, other times, you need to resort to other approaches to get paid.
This article provides you with some alternative payment strategies that we at Emalfarb Law LLC have used – or that our clients have used – to get the money they’re entitled to for the work they’ve performed or the materials they’ve supplied. You should also watch our webinar “How to Get Paid Even When Your Mechanic Lien Rights Expire.” To learn more about how Emalfarb Law LLC and National Lien & Bond can help you get paid, contact us at (800) 432-7799 or use our contact form to schedule a free consultation.
Mechanics’ Liens Don’t Cover Every Situation
While, in many cases, the best way to ensure that you’re paid for your project work or supplies is to take advantage of the mechanics’ lien laws that apply to that particular project, it may not be possible to use mechanics’ liens in every situation. Whether it’s because mechanics’ liens aren’t available for your specific type of project, or you’re not legally able to take advantage of a mechanics’ lien because you’re too far down the contractor “chain” from the owner of the property, or notices weren’t served in the proper way or time frame, you may find yourself having to resort to other ways to extract payment from a reluctant contractor or owner. Fortunately, several options may be available to you.
Suit for Breach of Contract
This is probably the first approach many will suggest, but in our experience, it’s not necessarily the most efficient. That said, if you have a contract that says you’re to be paid for doing specific work or supplying certain materials and you’ve performed your side of it, in most cases, you can sue the other party if they fail to pay you. Lawsuits are expensive and time-consuming, so it often makes sense to look to other ways and save the lawsuit as one of the less desirable, but still effective, options.
Claims on Payment Bonds
Many projects are bonded, meaning that the owner has contracted with a bonding company that guarantees contractors and sub-contractors will get paid for the work they perform or materials they supply for the project. Filing a claim against a payment bond can be an effective way to get paid where a payment bond is in place and you are one of the intended beneficiaries.
Joint Check Agreements
A joint check agreement may require the owner to issue checks paying for construction work on a project to more than one party, such as the general contractor, a subcontractor, and a material supplier. This requires all three parties to agree to the arrangement, but once it’s in place, it means that you, as a subcontractor or material supplier, stand a much better chance of getting paid than if you need to wait for a company higher in the project “food chain” to pay you. The terms of joint check agreements vary widely. Emalfarb Law LLC can help you negotiate and craft the joint check agreement that will work best for your situation.
State Law Remedies
Some states have laws that can benefit downstream project subcontractors and suppliers. Depending on where your project is located, you may benefit from the following:
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- Statutory Trust Fund Laws. These laws require a contractor that accepts payment from an owner for work performed on a project by a subcontractor (or materials supplied by a supplier) to hold that payment in trust as a fiduciary for the subcontractor or material supplier. Depending on the state, you may have a civil remedy against a contractor that violates that state’s trust fund laws or the violation may be treated as a criminal act. One benefit of these laws is that the trust funds are typically excluded from the contractor’s bankruptcy estate if the contractor files for bankruptcy protection before disbursing them to you.
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- Prompt Payment Laws. Many states have laws that regulate when payments must be made to contractors, subcontractors, and suppliers. The rules differ from state to state and may impose different requirements depending on the type of project. Failure to pay within the time frame set by these laws can entitle the recipient to receive a high-interest rate on top of what’s owed.
- Prompt Payment Laws. Many states have laws that regulate when payments must be made to contractors, subcontractors, and suppliers. The rules differ from state to state and may impose different requirements depending on the type of project. Failure to pay within the time frame set by these laws can entitle the recipient to receive a high-interest rate on top of what’s owed.
- Retainage Laws. Sometimes, a contractor will try to withhold a significant percentage of what it owes to a subcontractor or supplier, paying only part of what the contractor has received from the owner for work performed or supplies delivered. Typically, the retained amounts are withheld until the project has been completed, which, depending on your role in the project, can be long after you’ve completed your work or delivered the requested materials. Some state retainage laws will limit what general contractors can hold in retainage; others may require the GC to withhold a certain amount. In situations where the GC is violating the state’s retainage law, this can be used to help negotiate a release of at least some of what you’re owed.
Equitable Remedies
Sometimes to be flexible and help out in a difficult situation, you may agree to continue work or supply materials even where you haven’t been paid per your contract for work you’ve already performed or materials you’ve already delivered. Or you may find yourself negotiating directly with an owner if the GC isn’t responsive or helpful and you’re providing a critical aspect of the project. If, after showing your flexibility, you still aren’t getting paid, you may be able to make what are called equitable claims directly against the owner or whoever you were negotiating with. These can arise in situations where it would be inequitable for you not to get paid, particularly where you relied on the promises of the owner or another party to your detriment. Whether it’s called “promissory estoppel,” “implied-in-fact contract,” or “quasi-contract,” you may have rights even if you don’t have a formal written agreement.
Emalfarb Law LLC Can Help You Get Paid
Emalfarb Law LLC and National Lien & Bond have helped construction industry clients all over the country collect almost $6 billion worth of payments owed to them for more than 34,000 claims over the past several decades. We eat, sleep, live, and breathe construction industry payment claims. We can help you negotiate strong contract terms, and set up and implement systems to monitor and protect your right to get paid and collect on overdue payments. We have contacts with highly experienced construction law attorneys in all 50 states and the District of Columbia, who are ready to help you make sure you get paid.
Contact us today and set up a free consultation to learn more about how Emalfarb Law LLC and National Lien & Bond can help you get paid for your construction project work. Call (800) 432-7799 or use our contact form to set up a free consultation.