Have you ever wondered what happens when a contractor won’t pay a subcontractor? It’s not a very fun thought for subcontractors, but it does happen — more often than you would think. And, while general contractors will give lots of excuses (some legitimate, some not so much), Northwest Lien has a solution for subcontractors looking to get paid what is rightfully owed to them. Read on to learn more about common reasons why a GC may be late on payments … and what a subcontractor can do about it.
We should clarify: we’re not lawyers, and none of our blog posts should be taken as legal advice. That said, we do work with attorneys often enough to learn a thing or two about construction law. And one thing we’ve learned? An attorney may recommend different solutions to a subcontractor depending on the GC’s reasons for not paying; a little empathy can go a long way in preserving the relationship between two contractors! With that, here are a few common reasons for withholding payment that a subcontractor should consider before taking action:
Sometimes, contractors won’t pay subcontractors when they haven’t been paid by the property owner or company themselves. The construction industry can have tight margins and GCs face the same issues with receivables that any other contractor, laborer, or supplier does.
Sadly, subcontractors will also feel the effect and could receive late payments. Oftentimes, general contractors will include this in the contract as a “pay-when-paid” clause. This type of clause is meant to establish a reasonable timeframe to get paid, but it doesn’t protect contractors from non-payment. Be sure to familiarize yourself with sub-contractural laws and state guidelines, and learn more about how long a contractor has to pay a subcontractor.
When you sign an agreement with a contractor, there are usually expectations outlined in the contract. If a sub doesn’t meet those expectations, contractors may withhold your payment and try to force you to finish the project satisfactorily. It’s sometimes not even a subcontractor’s fault, but they can still find themselves at the receiving end of a pointed finger.
For example, if you were hired by another subcontractor and that subcontractor hires others that ended up performing unsatisfactory work, your whole team could get dinged.
One of the most basic, yet overlooked situations is the accidental failure to pay. Sometimes the general contractor is just very busy and bad at staying organized. On large projects, the GC may be overseeing 30+ subcontractors, so every once in a while, they might let an invoice slip through the cracks. Make sure to get your required paperwork in on time while also checking in with your contractor if you haven’t been paid yet.
Bankruptcy could be another cause of failure to pay subcontractors. And, last but not least, the worst-case scenario: the general contractor is trying to cheat subcontractors. So, it is also important to vet the hiring contractor prior to signing the agreement, ensuring they are registered, insured, referred by credible parties, etc. Northwest Lien offers a membership program to assist in guiding you through this process and finding ways to avoid it in the future.
After determining why the general contractor won’t pay the subcontractor, an attorney may recommend one or several of the following solutions to acquire payment (likely in this order):
In many cases, the first thing you should do is check in with the general contractor; like in any relationship (personal or professional), communication is key! As discussed above, there could be various understandable reasons why a contractor hasn’t paid up, and a simple phone call or e-mail reminder might settle the payment issue. Not only is it the simplest solution, but a quick, informal follow-up can be critical to maintaining a positive professional relationship between you and the contractor, ensuring you are able to work with them effectively again. In contrast, if you go directly into legal proceedings, it might come as a shock to the GC, introducing distrust and resentment into the working relationship.
Additionally, you’ll want to determine if you’re eligible to file a lien before threatening to file one with a Notice of Intent or preliminary notice. Usually, based on your contractor’s license and ability to hit lien deadlines, eligibility requirements vary state by state; in Washington state, for example, you have 60 days to send Washington preliminary notice from the first day of delivering labor or materials. If you did not send notice shortly after the project commenced, you may not be able to send a Notice of Intent or file a mechanic’s lien. Explore guidelines on how to send a preliminary notice in Oregon.
Sending a Notice of Intent to Lien document tells contractors who are late on payment that you know your subcontractor payment rights and are ready to use them if needed. The purpose is of sending notice of intent to lien is more or less the same as sending preliminary notice at the beginning of the project; Notice of Intent to Lien documents are just sent later in the process (still before a mechanic’s lien is filed) and used as more of an explicit warning, rather than a standard notification. Learn more about the differences between a preliminary notice vs. Notice of Intent to Lien.
If the Notice of Intent wasn’t enough for the contractor to pay you for whatever reason they are withholding payments, it’s time to consider filing a mechanic’s lien (one of the best legal tools a contractor, supplier, or laborer has at their disposal). A mechanic’s liens, otherwise known as construction liens, are the single most effective method to collect outstanding payments. Basically, when you file a lien, you have the right to force the sale of the property you worked on and collect the amount you’re owed from the sale proceeds.
The County Sherriff is then required to carry out the sale and because of this, most lending institutions or other prospective purchasers will avoid any property that has a lien filed against it. For this reason, those who have filed a lien are in a much better position to secure payment from the unwilling owner because he or she will have a difficult time selling the property with a lien clouding the title.
Going through the lien filing process might seem scary for subcontractors not experienced in law, but working with lien experts will put you at ease. Contact Northwest Lien for any questions you might have, or read more about enforcing a mechanic’s lien in Washington state.
Hiring an attorney is sometimes necessary, but not often the most cost-effective option. Liens are a fraction of the cost of hiring an attorney and can be filed in minutes on our website, file a lien here. But if you missed the deadline to send a Notice of Intent to Lien, you will most likely not be able to file a mechanic’s lien, and going to an attorney would be your last option to resolve breaches of contracts.
As a subcontractor, you have lien rights that can help you get paid when a general contractor (or property owner, for that matter) is withholding payments. The lien landscape can get complicated, though, so it’s important to get familiar with local regulations in order to take advantage. Contact Northwest Lien if you are a subcontractor in Washington or Oregon and need additional clarity on the lien filing process; we’d be happy to take care of it for you, so you can spend more time working and less time worrying about whether you’ll be paid to complete it.