Key Takeaways:

  • Subcontractors should review their contracts carefully and communicate with the contractor before taking legal action.

  • A mechanic’s lien is a powerful legal tool for subcontractors to secure payment for completed work.

  • Contractors must pay subcontractors within state-specific deadlines, often between 30 and 90 days.

  • Contractors may withhold payment to subcontractors for poor quality of work, but they must provide evidence and opportunities to correct the issues.

Construction projects involve many different parties, from general contractors to subcontractors, suppliers, and homeowners. Sometimes, even after putting hours of hard work into a project, a subcontractor may face an issue of non-payment from the general contractor.

Fortunately, there are legal steps you can take when a contractor refuses to pay a subcontractor. Knowing what legal actions you can take if a contractor refuses to pay can help you protect your interests and collect the money you are owed.

Construction Projects That Qualify For Subcontractor Work

In construction, different projects may have different processes, teams, etc. Usually, if a project requires more than one party, subcontractors may be involved. Construction projects that qualify for subcontractor work may be commercial or residential. Some examples include: 

  • Commercial Construction: Large office buildings, shopping centers, and other public or private commercial properties.

  • Residential Construction: Homes, apartment complexes, or multi-family units.

  • Government Projects: Infrastructure like roads, bridges, or public buildings.

Additionally, subcontractors may be involved for specific roles such as:

  • Electricians

  • Bricklayers

  • Plumbers

  • Carpenters

If a subcontractor works on any of these projects or for any of these roles, they are entitled to fair payment once their part of the work is completed. If a contractor refuses to pay a subcontractor even after work is completed, the subcontractor has legal grounds to file a lawsuit. 

Understanding Non-Payment In Construction Projects

Non-payment in construction projects can happen for many different reasons. There may be disagreements about the quality of work done by the subcontractor. There may be a lack of documentation and invoicing to prove how much money is owed. In some cases, the contractor may not have been paid by the client, which in turn could lead to delays for payments to the subcontractor.

Understanding the reasons why non-payment in construction occurs can help you get a clearer idea of what legal steps you should take. Below are some of the most common causes of non-payment:

  • Disputes Over Quality of Work: If the contractor believes the subcontractor’s work did not meet the expected standard of quality, they may try to withhold payments.

  • Cash Flow Issues: Sometimes, contractors have to deal with very complex financial arrangements. If the contractor has not been paid by their client, they may not be able to pay the subcontractor for the work.

  • Lack of Documentation: If a subcontractor is unable to provide proper, accurate invoices and documentation, the contractor may take advantage of the situation and claim they were not responsible for costs. 

  • Contractual Disagreements: This occurs when the scope of work is not clearly defined in the contract. If your contract does not clearly outline the scope of work expected, disputes can arise, and the contractor may refuse payment to the subcontractor.

Steps To Take When A Contractor Refuses To Pay A Subcontractor

If you find yourself in a position where the contractor refuses to pay, you will need to act quickly and take the appropriate legal steps to collect the money that you are owed. Below are five steps that should be taken when a contractor refuses to pay a subcontractor. 

Step 1: Review The Contract 

The first thing you need to do is review the terms and conditions outlined in your contract. You need to review any clauses related to payment, deadlines or timelines for payment, conditions for non-payment, and any other additional terms and conditions. This is important to build your case when you decide to take legal action. It is strongly recommended to get a contract attorney to review the agreement. 

Step 2: Communicate With The Contractor 

Before directly filing a lawsuit, it is advisable to try to solve the issue by communicating with the contractor. Sometimes, non-payment issues can happen from misunderstandings or other uncontrollable reasons. Having a conversation with the contractor about the reasons for non-payment can help you get clarity before you take legal action. 

Step 3: Send A Formal Notice 

If the issue of non-payment cannot be resolved even after communicating with the contractor, the subcontractor has the right to prepare for legal action. Before filing the lawsuit, the subcontractor should send a formal notice of non-payment. This document outlines the payment that is due and the potential legal action if it remains unpaid. It might prompt the contractor to send you the money owed.

Step 4: File A Mechanic’s Lien 

One of the most powerful legal tools available to a subcontractor is a mechanic’s lien. By filing this lien, you essentially place a hold on the property where the work was completed, which prevents it from being sold or refinanced until the payment is settled.

It’s important to note that the rules for filing a mechanic’s lien may vary by state, so always check with your local laws to make sure you are complying with the regulations in your jurisdiction. 

Step 5: Pursue Legal Action 

If a mechanic’s lien does not resolve the issue, the next step is to take the contractor to court. This could be through a breach of contract claim or a lawsuit for non-payment.

How Long Does A Contractor Have To Pay A Subcontractor?

Each state has specific laws governing payment timelines for subcontractors. Typically, once a subcontractor completes their work, the contractor must pay within 30 to 90 days, depending on the state and the terms of the contract.

For instance, the California Prompt Payment Act requires contractors to receive final payments from owners within 45 days after a project has been completed, and subcontractors must be paid by contractors within 10 days of receiving the final pay. If a contractor delays payment on unlawful grounds, they may be subject to penalties, such as 2% accrued monthly interest until payment is made.

Can A Contractor Refuse To Pay A Subcontractor For Poor Work?

If there are disputes regarding the quality of work, contractors are allowed to withhold payment if they can provide clear evidence that the work is substandard. In such cases, it is typically expected for the contractor to give the subcontractor an opportunity to correct the mistakes before withholding payment.

If a subcontractor feels that the refusal to pay is unjustified, they can seek legal action to resolve the dispute. This could involve filing a breach of contract claim, where the court will decide whether the subcontractor is entitled to payment. Once again, for these reasons, having a clear scope of work outlined in the contract is crucial.

Which Law Protects An Owner If the General Contractor Fails To Pay Subcontractors?

In many cases, the property owner may not even be aware of the specific terms of the agreement between the main contractor and subcontractors. However, the owner has a legal obligation to ensure that subcontractors are paid for the work promptly. 

That being said, there are laws that protect an owner if the general contractor fails to pay subcontractors. For instance, owners can protect themselves through lien waivers or no-lien clauses in contracts. These are legal tools that prevent a subcontractor from filing a mechanic’s lien against the property, therefore putting the burden of responsibility for payment on the general contractor. 

However, it is important to remember that not all states allow no-lien contracts, so it is important to familiarize yourself with the local laws relating to payments to subcontractors. 

Options For Homeowners When Refusing To Pay Contractors

Sometimes, homeowners may find themselves unhappy with the quality of work completed by a contractor. They may wish to withhold payment in such situations. However, in order to withhold payment to contractors, homeowners must follow legal procedures, such as:

  1. Documenting Issues: Before withholding payment, homeowners should clearly document any issues with the quality of the work by the contractor. This could include photos, written complaints, or expert opinions.

  2. Offering the Opportunity to Fix the Problem: Homeowners should give the contractor a chance to fix the problems before withholding payments. In most contracts, contractors are required to remedy any deficiencies before payment is withheld.

  3. Legal Action: If the contractor refuses to correct the issues, homeowners have the right to pursue legal action, including terminating the contract or filing a claim in small claims court.

Protecting Your Rights As A Subcontractor

Dealing with non-payment issues with a contractor can be very stressful. However, knowing your rights can help you take legal action so you can receive the compensation you deserve. If you need expert advice on such matters, you can reach out to UpCounsel’s resources for attorneys for further assistance. 

FAQ

Who is responsible for subcontractors' mistakes? 

Generally, subcontractors are responsible for their own work. However, if the subcontractor’s errors affect the overall project, the general contractor may need to address the issue with the subcontractor directly.

What can contractors do when clients don’t pay? 

Contractors have the right to take legal action and file a lawsuit if the clients do not pay. They can also put a mechanic’s lien on the property if payment is withheld unjustly.

What happens if a contractor does not pay a subcontractor in California? 

In California, subcontractors can file a mechanic’s lien they are not paid on time. Contractors will also be charged penalties until the payment is settled.

What happens if a 1099 employee doesn’t get paid? 

If a 1099 employee does not receive payment, they can file a lawsuit for breach of contract or unpaid wages.