The Short List 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.

9) If a subcontractor agrees to obtain general liability insurance naming the client and the general contractor as additional insureds, he must do so before any work has started. He cannot do demolition and then purchase the policy a week later. If he does, and an accident occurs, it may not be covered under the policy. The subcontractor may also be subject to a lawsuit for breach of contract for failing to obtain the coverage required under the contract. The subcontractor should show its insurance broker the language in the policy that it must cover. Sometimes subcontractors think they have purchased the appropriate coverage, when in reality they have not.

10) Subcontractors rarely spend the time to have properly drafted contracts - but they should. General contractors should be equally concerned about subcontractors having appropriate contracts. A telephone call saying, "Start on Monday" or a brief purchase order is not sufficient to memorialize the agreement between parties.

C. Jaye Berger is a Manhattan-based attorney specializing in real estate. co-op, condo, environmental and construction law.

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28 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?
  • I was hired by a subcontractor I worked for him 2 weeks straight and he bailed out on me gave me the run around. I approached the general contractor and he told me he had nothing to with it that he paid the subcontractor and to go deal with him. At this time of the year is when most is needed to provide for my family. What can I do? Is the GC responsible to pay me? Can someone give me advise. Ty
  • We have a written contract with a gc to renovate our kitchen and they have been paid in full for this job. The general contractor has failed to pay the sub-contractor whose attorneys have therefore put a mechanical lien on our property. Where can we get help?
  • I subcontracted some apartment units for this guy. He usually paid every Friday, but there was an issue about how the units were painted. I painted the units like I was told to. The problem was communication between two parties from the rental property he works for. Is he obligated to pay me when work is finished or when he is paid from them?
  • Can a super of a co-op get a raise if the building is losing money?
  • How much money should a general contractor give a sub contractor at the start of the job?
  • If a Corporation has a Management, Inc. company, and the subcontractor is NOT paid and the Corporation says they have no money, can you go after the Management Company? We live in Maryland. I asked this because I think all funds and assets are assigned to the management company, as well as, the PM/CM who manages the construction companies.f Therefore, believe should be able to include the management company in a suit. In this case, we can not put on a lien because all houses have been sold, which means the corporation should have been paid for the subcontractor work. Should the funds have gone to pay the subcontractors first? And, if yes, can we compel the owner to give an exact account of all funds? You state that in this article, but not exactly sure. Sounds like you would have to add the owner as a party to the suit? Thank you for your help!
  • a GC I was doing work for has been giving me, and almost every other sub on the job a run around on payment. Some of us are out a lot of money-Im personally out about $40,000, but I know that others are out even more. What can a small guy like me do against a large corporation such as this who seemingly has gotten big by bullying small subs? They beat up prices months after work is complete. They come up with all kinds of hoops to jump through to stall payments. All payments I have received from them are 60% or less than what they should be.
  • I had talked to a returned attorney about helping with my software business with contracts and collection.
  • I've been a squeaky clean remodeler for 40 years. Last week the customer pulled the plug as the job was taking longer than anticipated. I've made it clear, that I will finish, even though it will cost more than is owed. The customer decided they aren't going to pay the balance of the contract even though they expect me to finish. What to do?
  • GC has paid for work completed to date per contract to date, subcontractor states that he has performed additional work with per agreements with the owner and not the GC present, however sub wants GC to pay for these "extras" (GC also believes these task were in original scope to begin with) without any form of notice or authorization from GC. Sub now is threatening to lien owners property unless GC agrees to "extras" that were part of his original contract. Contract states all CO's must be in written form and approved prior to start of work by GC. What recourse does GC have for this claim? Sub has abandoned project, GC is now supplementing remaining work.
  • I've been a sub contractor for the last 9 years for a fire prevention business in the state of California . My work is given to me at the beginning of each month and I have til the end of the month to complete all mentioned work. I turn in my work every bi monthly and am not paid on the immediate work turned in until the next turn in of work following two weeks later. The contractor has made statements that the work is not fully complete until the customer has paid the bill. Is this correct? The customer is given 30 days to pay. When they have not paid after three months then the business owner will take out the full amount that was paid to me 3 months prior from my current check. I've been also notified that it is my obligation, free of pay, to try and collect on these jobs or else the said amount that was taken back will not be given back to me until customer pays. Is this legal or correct? Is there a violation/law and if so what code or enforcement number can I referrence to show the business owner that this is a violation of contractor/subcontractor laws? Thanks
  • its really sad how a contractor, business owner can truly screw over a sub-contractor by not paying them. I'm a small business owner I have men who depend on me to pay them after they"ve worked. the building is complete, it's open they are making money. the plumber, electrician, cement finisher, painter all of these people have been paid all but me the block & stone mason have yet to be paid. mine was the only black owned, operated, and fully staffed crew on the whole site at this point I'm wondering if this had anything to do with it. other than file a lien, and wait forever for my money I don't know what I should do. I've got former employees threating me with liens this shouldn't be that difficult the works done the business is open and thriving why cant I get paid
  • I am a drywall subcontractor. I did a very large commercial job. 21000 sq. Ft. 5 weeks worth of hard work. I paid for all materials I needed for my work out of my own money. When I finally got the job done I was told it was good and they would meet me at noon the following day to pay me. At the time we were suppose to meet no one showed up. I started calling the 3 different people with the company that hired me. None of which answered their phone. I am 8 days past the pay day. Still no payment. I filed a lien but not sure if I did everything right cause they don't seem to be worried about it at all. How can I get my money or payment?what else can I do? How can I warn other subcontractors about them. How can I shut them down so it don't happen again thanks
  • Can someone please comment references for these statutes? I have a feeling I will need to build up a court case and I have been reading up on the matter and would like to know the GS codes. Thanks,
  • [Are these questions answered where, so far, not one has been answered on this page please?] Is there is someone answering question pertaining to this article? If so: my problem. Please help.: I have a tiny sole proprietorship. I have acted as a PM [contractor], having contracted a builder in another State to build for my customer. The sub stopped working on the building mid fall last year. He has provided all types of excuses from unusual weather and shop floods to staff being intermittently unavailable. He has been paid 75% by me of what the contract with the subcontractor indicated (I have earned nothing). Every month the builder says he'll be done with the building "next month" or refuses a time estimate at all. When the customers contact him directly to check on progress (they went his worksite in person), the subcontractor has lied to them about shortly completing the building. He does not complete it. Now he is well past 1/2 year beyond his estimated delivery. He refuses to allow the building to be moved away from his shop to here it can be completed. What can I do now that the customer has now hired a lawyer who will only go after me (noting that the customer and I are in the same State, whereas the sub is in NY). Note I have been 100% diligent in paying the subcontractor, visiting the site for progress, and keeping the customers apprised of any progress over the course of the contract. My resources are tied up in the completion (mine is a new business of considerable debt at this juncture). Any ideas or a name of a construction business lawyer in NY please?
  • Can a company withhold your checks until you have liability insurance. I'm a sub contractor for a firm whom distributes work orders from bank forclosure clients.