Getting Paid as a Subcontractor on a Project
As a subcontractor on a project, whether commercial or residential, you are always dependent upon payment from an upper tier contractor or general contractor, as you have no direct relationship with the owner. As such, you are at the mercy of the general contract when it comes to receiving payment.
This article shall discuss a few different ways you may be able to exert some pressure in order to obtain payment from the general contractor.
As a subcontractor, you should be well aware in the timing of payment once you have submitted an application for payment, or an invoice for services. It is suggested that you should adhere to the terms of the agreement and not let the upper tier contractor get ahead of you.
Too often, subcontractors continue to work and provide additional materials and services even though they haven’t been paid well beyond the required payment date. If a payment is more than a few days late, it is suggested that you send a notice to the general contractor or upper tier contractor that they are default of their payment obligations. If the contract allows you to stop work pending receipt of the payment, it is suggested that you either undertake this action or advise the upper tier contractor of your intention to do so.
One of the keys is to never let the general contractor get too far in front of you. Otherwise you will be chasing payment at the conclusion of the project.
Whenever a construction matter devolves into litigation, the documentation that a party presents often spells the difference between a victory and a defeat. As such, it is suggested that in the event of non-payment, that you carefully document any default. Further, you send letters or emails documenting your intention to stop work provided you are not paid. Finally, you should document any and all attempts to obtain the reason from the general contractor as to why you have not been paid. This will greatly benefit you if payment is not timely made, and you later have to file suit.
The next way you can exert some pressure in order to receive payment if you are not being paid by the general contractor is to reach out to the project owner. You should be careful when you do this and should always copy the general contractor with your communication to the owner. Under such circumstances, if the issues are with the general contractor, the owner may enter into joint check arrangements in order to ensure that you are paid. Once again, you should delicately pursue this process, as you do not want to destroy the relationship with the general contractor. Instead, let the general contractor know it is your intention to do so and copy the general contractor on any correspondence to the owner.
The final way to protect your right to payment is to file a construction lien. As discussed in other blogs, the difference between residential and commercial construction liens is substantial. As such, you should determine whether your project is commercial or residential and file the lien appropriately. As a contractor, you do not have to wait until the conclusion of the project to file a construction lien if there is a long time of nonpayment. This would exert heavy pressure on both the general contractor and the owner to issue payment for the amount which is outstanding. This, however, is somewhat a last resort provided the above options do not work. Nonetheless, as a subcontractor you should be careful to protect your rights for payment for the work you provided.