A construction subcontractor is as responsible for the timeliness and quality of their work as the general contractor. However, subcontractors are one step removed from the owner or party who is having the work performed and pays for it. This leaves them in a vulnerable position. Failure of the general contractor to pay the subcontractor can lead to a cash flow crunch that may leave the subcontractor unable to pay its own workers and suppliers. In the worst situations, the subcontractor’s business may end up at risk over the failure to pay.
Knowing your rights as a subcontractor is essential, not only for taking the proper steps to help avoid payment conflicts but also for understanding how to proceed if compensation has been improperly withheld.
Subcontractors should never be tempted to proceed without a written contract. A contract determines the duties and responsibilities of the parties to it. Although certain contracts have to be written under the law, in a lot of situations subcontractors only provide an estimate for the work and there is no legal language to protect them. This will cause a lot of problems later if any issues arise between the parties.
Although sometimes you have no choice but to sign the contract given to you by the general contractor, for smaller jobs or even larger jobs if the general contractor does not have a contract of their own, it is to your advantage to have one drafted for you with the right legal language to protect you and your company.
A contractual relationship starts with a contract. Subcontractors are often presented by contracts drafted by the general contractor which a lot of times favor the GC. It is therefore essential to have the contract reviewed and try to negotiate unfavorable terms. It can be helpful to have a construction attorney review any contract you are presented for legal sufficiency and to make sure you do not get into situations that could be detrimental to your company. A lot of companies try to review themselves and invariably they just review the price and scope of work and have no idea about how risk gets transferred in a contract and what provisions can hinder their ability to get paid. Do not fall into this trap.
Some contracts must have specific form, language and format under the laws of the state of California. One such contract is a Home Improvement Contract. If you are contracting for residential remodeling, do your company a favor and do not start without a contract that has all the necessary provisions.
a. A proper and detailed definition of the scope of work
b. Detailed estimates for each step of the project
c. Time to start, end and other completion considerations
d. Schedule of Progress Payments
e. Insurance
f. Indemnity (who has the risk when?)
g. Payment, conditions, how and when
h. Termination
i. Delay
j. Force majeure
k. Changes
l. Amendment in writing
m. Laws of which state to use
n. Attorneys’ Fees
o. Dispute Resolution mechanism
There are more provisions to include to further clarify the rights and obligations of the parties. The larger the dollar amount of a project is, the more details need to be included in the contract to avoid later problems.
In California, the law differs on when subcontractors must be paid by the general contractor according to whether the general is receiving a progress or final payment and if it is a private or public works project.
On private projects, a general contractor usually has 7 days from the receipt of a progress payment to pay their subcontractors and material suppliers. When they have received final payment from the owner, they have 10 days to pay subs and suppliers. However, these time periods can be altered by mutual agreement of the parties in writing. So if you do not read a contract, you could sign a contract that gives the general a lot longer time to pay. SO BE CAREFUL.
On a public project, the prime contractor has 7 days after the receipt of any payment from the public entity to pay their subs and suppliers. However, if the entity is a public utility, the prime has 21 days to pay after they’ve received their payment.
A contractor can legally delay paying a subcontractor if the work has not been completed according to the contract, has not been performed to the agreed-upon standards, or is the subject of a legitimate dispute that must be resolved. Even then, they can only withhold a reasonable amount of time until the issue is resolved.
If a subcontractor has not received payment they are owed in a timely fashion, first they should review their contract to confirm that they have fulfilled their obligations and understand their rights under the contract terms. If that is the case, then addressing the issue directly with the general contractor is the next step. Sometimes it is simply an oversight or an issue of poor record-keeping.
In situations where the subcontractor is legally entitled to payment and the general contractor refuses to budge, however, legal action may be necessary. On private projects, this can mean filing a mechanics lien. In California, preserving your right to file a lien requires that proper notice be given to the general contractor and the property owner before a payment is missed. A knowledgeable construction law attorney can assist a subcontractor in knowing the routine steps they should take on any private project to protect their ability to file a lien if needed. An attorney can also help ensure that a lien is filed accurately and on time and that the proper steps are taken to enforce payment.
Mechanics liens are not permitted on public works projects in California, because the property in question is publicly owned. If a subcontractor has not been paid by the general contractor on such a project, they will need to pursue other legal remedies such as a stop notice or bond claim. Again, these are subject to preliminary notice requirements and deadlines that must be adhered to.
California law provides protection for subcontractors who have not been paid for the work they have performed, but it can be notoriously difficult to navigate effectively. The construction law team at Ghassemian Law Group has a successful track record of cutting through the confusion and protecting our client’s rights. We work to find the most efficient and effective strategy to resolve your dispute, with experienced and assertive litigators who advocate for you. To find out more about how we can get you what you are owed, or to help you prevent issues before trouble arises, contact us here to schedule a consultation.
This article is informational only and meant to provide guidance. It is not meant to be legal advice and it does not create an attorney-client relationship. For what to do in your specific situation, please consult with a qualified Construction Law attorney.
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