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Ten Things to Know About Subcontractors
When a client hires a general contractor to build or renovate property, that company is legally responsible for completing all of that work. The contractor may go out and hire different companies or subcontractors to help execute that work, but the prime contractor still remains liable, and the subcontractors are liable to the general contractor, not the client. Subcontractors have what is called "privity of contract" with the general contractor. The general contractor also has privity of contract with the client.
1) The general contractor is obligated to pay the subcontractor, even though the owner has been slow or late in paying him. Many a general contractor has tried to claim that he is not liable for paying his subcontractors until he himself has been paid by his client, but that is not a legally correct position. In fact, a clause in a contract between a general contractor and a subcontractor in which the general contractor seeks to absolve himself of liability for payment until the client has paid him is void, as it runs against public policy. 2) A subcontractor who has done work, with the knowledge and consent of the client, may file a mechanic's lien, the same way that a general contractor can. The presence of subcontractors on the work site should not be a secret. Owners should be aware that subcontractors have been hired to perform some of the work. 3) The subcontractor can foreclose on that mechanic's lien, however, he can only recover up to the amount that the general contractor is owed by the client at the time that the lien was filed. Thus, if a general contractor was paid in full for an application for payment and for some reason he did not pay the subcontractors, the subcontractors would not be able to file a valid mechanic's lien, but they still could sue the general contractor for breach of contract. 4) The clerks who accept mechanic liens for filing have no way of knowing whether the general contractor has been paid in full or not. A mechanic's lien may be accepted for filing, but if the property owner can show that the general contractor has been paid, that may be a basis for vacating the mechanic's lien. This is why waivers of lien and partial waivers of lien are so important. 5) If a general contractor has been paid for a requisition that includes work provided by subcontractors, he is considered to be holding that money "in trust" for those subcontractors and must pay them. The portion that is for the subcontractors is not his money. If he uses that money to pay his own men, to pay his own rent, or to buy a new car, those "trust funds" can be traced and the general contractor can be liable for violating the trust fund law. 6) Even if the general contractor is a corporation, he can be sued as an individual and required to give an accounting concerning how the money was spent - where it is, who was paid with it, and why the subcontractors did not receive it. The subcontractors can start a mini class-action lawsuit as the beneficiaries of that trust fund. 7) It is now easier to bond mechanic's liens than in the past. It's handled by the court clerks instead of by an application to a judge, with a hearing to determine the amount of the undertaking. The general contractor must show assets of 110 percent of the amount of the lien to obtain a bond. 8) Insurance policies. If an employee of a subcontractor is injured and that subcontractor does not have its own workers compensation policy, that subcontractor will be treated as though it is an employee of the general contractor and the injured workman will be paid worker's compensation under the general contractor's policy. Those expenses will be held against the general contractor on any loss pertaining to its policy.C. Jaye Berger is a Manhattan-based attorney specializing in real estate. co-op, condo, environmental and construction law.
Comments
Dear Mr. Berger, I must say I found your documentation (Ten Things to Know About Subcontractors) very helpful in resolving our situation. I must ask if you can confirm the following Re. Statement #8 : If a subcontractor's employee is injured during work, and the subcontractor does not carry his own workers compensation policy, does the general contractor's worker compensation policy MUST cover the injury. I'd highly appreciate your reply regarding this, you can reach me at RobiAcc@gmail.com. Sincerely, Robi
In a Notice To Owner there is a statement " to avoid paying twice". I sub contractors and suppliers may only receive what is owed to the general contractor, then how could the owner possibly be forced to pay twice?? Does the owner have the right to pay a subcontractor and deduct that monies from the contract w/ the general contractor?? Thank you
Is this applicable in all states? We are in TX and having trouble with the contractor we hired to build our house.
we hired a gc who was per loan responsible to pay all sub's..... we did have one direct agreement with a sub but again was to be pd from the draws the gc rec'd. The gc has failed to pay the sub. He placed a mehanics lien as well a one of the subs... where can we get help. We are paying on the loan, the sub is waiting and seems the gc is off the hook. Tell me I am wrong?
I find fault with item #1.what prevents a home owner form building a house for free? If the Contractor is responsible for paying all subs regardless of payment from client does this let the client off?? I think the laws are heavy sided to the client, so many clients don't pay their bills and leave the contracotrs in the position to foot these bills to keep relationships going and prevent lawsuits.
WE are a subcontractor in Florida and Our GC has been paid in full for our work but is holding the payment for Consent of Surety. The surety asked for a General Status Inquiry and the GC will not fill it out. The surety will not give a Consent without some information on the status of the job. We are owed $10,000K+ and it is all retain age. We finished the job in Feburary. What kind of remedies are out there? We contacted the owner and were told they were paid in full. We expressed our opinion that the GC was trying to not pay us and keep the money. Now the GC is threading us with a defamation suit. I am sick of the GC bullying us a smaller sub. Our work has been excepted and used for six months yet we are not paid.
How long do i need to wait to get paid from a prime contractor, Im a sub that finished the job 1.5 months ago. I did file a 20 day. prelim but did not have an additionally insurred made up prior to work.
If subcontractor does not have GL or WC, when builder has a yearly policy audit,does the builder take money away from subcontractor to cover expenses for WC/GL?
I did work for a sub contractor it has now been two years He billed me out for 3 to 4 months the place we worked for told me they wrote him a check for me each pay period i have not received money is he responsible to pay me or does the buisness we worked for have to pay me as they knew i was working and i told them i have not been paid
as an " owner operator" contractor of 30 years i find it nothing but complete disrespect and rotten to sign a clear detailed proposal and then think its ok to be days or even weeks late on paying..why??? some of us legit contractors put our heart and soul into our clients project then to be smacked in the face at completion when payment is due with a lame excuse of " ohh were at our vacation home for the summer we will pay you when we return... really ?? people like this are just plain " SCUM " ! thats why i have no remorse when i have to file legal action against a client, they dont realize it can cost them double,place lien against property, crush their credit, and expose their deadbeat arses.... advice for all small private contractors, not matter how nice they seem etc... have them sign a detailed contract followed by deposit covering all materials and starting labor costs..." at start of project " this is only being fair"... if they have a problem with it....thats a red flag alert...walk away no matter how great the project seems... remember being nice will get you screwed..." GET PARTIAL PAYMENT AT PROJECT START " AND BALANCE OF PAYMENTS DURING PROCESS WITH ONLY SMALL AMOUNT DUE AT COMPLETION.. THIS METHOD OF PAYMENT TERM POLICY COULD SAVE YOUR BUSINESS... TRUST ME IVE BEEN AROUND THE BLOCK A FEW TIMES AND A SMALL BUSINESS CAN GO BOTTOMS UP REAL QUICK DUE TO A DEADBEAT WHO DOESNT PAY OR LATE... " COVER YOUR BUT AT ALL TIMES" !!!!!!
fl. I was hired by a gc to do work and hire a company to do some of that work. We have completed all the work but they say the school is holding the retainer and they can't pay us the 10% they owe us. Do I have to pay the sub I hired even though the gc has not paid me?
@wavesurfindude... I would pay my contractor but he over shot everydeadline and budget that HE set... I gave him four months to bulid a 1750 sq ft basement and we had to puch our project back 2 weeks because he couldnt get it. He quoted me 200 grand to do a basement, 3 car garage with a loft, fully developed with all mechanical elec, and plumbing... He's at 171 K and I have no siding on the walls, house wrap blowing in the wind, no shingles on the garage, no flat work done in the garage, i could go on... How do i deal with this 'legit' contractor? The money does run out.. I am no deadbeat, I'm just not a guy who wants to pay for crappy contractors to burn my cash right in front of me... I got three other estimates to bring the project to insulated and poly'd stage. and that's what I'm going to deduct off the bill. Cause that's what its going to cost to fix his crappy work. I think that's fair. What about you?
